How does the shutdown look from those in the venture space who are funding startsups and running them? A venture partner in the heart of London's tech hub gives his assessment.

The immediate impact of COVID-19 is on revenues. Depending on the markets they occupy, many tech startups have found themselves losing out on deals that were previously seen as in the bag, and seeing existing customers turning elsewhere.This is not unique to retail, hospitality or travel. Daniel Pitchford, venture partner at the London-based accelerator Superseed, looks at what startups are up against, how investors are pacing deals during the lockdown, and how some businesses are adapting head-on to the pandemic and remote working. Just as countries are being judged on their response, companies are too. Pitchford, however, notes that the historic support package rolled out by the government is not helping the UK's youngest enterprises. The editors are pleased to share these views and invite feedback. Email tom.burroughes@wealthbriefing.com or jackie.bennion@clearviewpublishing.com

How startups are fairing and where the opportunities lie
Depending on how quickly revenues decline, and the capital startups have preserved from previous funding rounds, will determine the challenges ahead, including drastic cost-cutting and winding down growth projections and putting a freeze on recruitment. For startups with a cash runway of less than 12 months, there is a high risk of insolvency unless the business is one of the outliers in the now super-hot subsectors of remote working or collaboration tools.

Delivering an effective rescue plan is critical, and if one hasn’t been put in place, founders need to act right away, even if they are not yet seeing the first wave of impact felt by other companies to date – contingency is key to sustainability in very uncertain times.

Tech as a whole will be one of the more resilient sectors through the crisis; however, within subsets there are clear winners and losers predicted. Data from Dealroom has forecast  telehealth, gaming, collaboration software, ecommerce, and streaming services as all weathering the storm and in some cases seeing an uptick in revenues due to COVID-19 and social distancing. Among those more likely to be negatively impacted are startups in RetailTech, Restaurant/HospitalityTech, and many in the gig economy, which has grown significantly over the past five years.

New business models and product innovation
There is a growing number of startups which are tackling COVID-19 head-on, pivoting or evolving existing services and tech capabilities to meet the new and immediate needs. Wordnerds, which has historically been focused on "social listening" for brands to pick out their customers’ true voice, is now providing the service specific to COVID-19 mentions and its potential impact for each account holder. ThingTrax, an industrial IoT [Internet of Things] company, which traditionally focused on monitoring production and manufacturing using AI, has launched a bolt-on feature to an existing tool that detects health and safety incidents and now enables its customers to automatically check employees temperatures when they sign in and raise an alert.

Taking the temperature of institutional investors
Chausson Finance has been releasing weekly reports during the crisis to gauage general sentiment in the investment industry, with 146 VCs now adding their views on how the industry gets back on track. Three weeks in there are some interesting statistics to pull out. Some 60 per cent of VCs say they are confident that their limited partners are committed to the same investment plan and deal volume prior to the crisis; and 75 per cent of funds said they expect to make at least one investment over the next six months. But 88 per cent of those funds believe there will be a big reduction in valuations, and getting deals done ‘virtually’ is still seen as a challenge.

In terms of chasing new opportunities, the UK and Germany lead the way, with 93 per cent of VCs being open to new deal flow, and France lagging with 81 per cent. Overall 81 per cent of funds are working through deal flow, even if the pace is delayed. This is a positive change from two weeks ago when 50 per cent of funds indicated that they were moving ahead with existing deals compared with 66 per cent this week.

However, a slowdown by a third of the market presents opportunity for the investors who haven’t lost their resolve and remain committed to backing strong startups. Seed funding is predicted to drop by 20 per cent in Q1 2020, with official figures yet to be released. Beauhurst, a tracker of startup activity, has reported early figures showing only 344 equity rounds, which is the lowest figure since Q3 2014 and a stark 32 per cent drop from Q4 last year.

How the UK is supporting SMEs and startups versus other countries
The UK government's steps to support small businesses have been well received, but so far this hasn’t filtered through to loss-making startups given that one of the support criteria is profit, which in young tech firms isn’t so commonplace. There have been calls from the startup and investment community to change this, citing France as an example, which has issued a €4 billion fund to support cash-strapped startups. The British Business Bank has called for a runway fund to support the same. There is a similar situation in the US, where Congress has authorised billions of dollars in loan guarantees and grants for small businesses – but hasn't yet specified how venture-backed, loss-making startups can qualify or indeed what other options are open to them.

Outside of this, the government has recently launched a number of grants aimed at startups to fund developing and launching tools to support businesses in key sectors. The business-led "innovation in response to global disruption" competition will award between £25,000 to £50,000 to successful businesses able to start a project in June and complete in under six months. Whilst this is a great initiative and can certainly help some businesses – it doesn’t serve the immediate need of adding cash to balance sheets as funding is ring-fenced to the specific project.