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How startups in the United States die due to coronavirus



Dozens of startups fire thousands of employees, cut costs and even completely change business models, trying to survive in the world of coronavirus. Silicon Valley goes through very serious metamorphoses.

In San Francisco, this is especially noticeable. Demand for services from Wonderschool, a startup that helps find kindergartens and preschools, has been cut in half. The company had to cut 50% of its staff, 30 people, in order to try to live in the absence of new investments.

ClassPass, a service offering fitness subscriptions, has the same problem. For 10 days from the beginning of quarantine, profit decreased by 95%. Studios and gyms around the world are closed when they open - it is not yet clear. Finding ways to survive for such a service in such conditions is a non-trivial task. Now ClassPass is hastily reforming into a completely different project - offering online streaming of classes so that people can train at home.


ClassPass Classes Now Go Online Only

Silicon Valley investors, the blood and oxygen, have evaporated somewhere. The shares of SoftBank, one of the main “money bags”, have fallen by almost 2 times since the end of February, to $ 70 billion. Many others are doing no better. Those IT companies that were only at the initial stage and who previously had to rely on injections to continue working, fall faster than during the dot-com bubble.

Sherwood Partners, a Silicon Valley company restructuring, managing and selling “good” from fallen startups, says they haven’t heard so many calls. The number of calls is 3-4 times higher than previous peaks - for example, which were in 2008.

WanderJaunt, which offers short-term rental homes in the western United States, raised $ 15 million in September alone. Now it is firing a third of its employees and halting all expansion plans. Same story with Lyric. The startup, founded in 2014, rents apartments and entire floors, updates them and turns them into cool hotels for business travelers. Last year, he received a $ 160 million investment from Airbnb, RXR Realty and Tishman Speyer. Now - rent still needs to be paid, but there are no customers at all. The company leaves 10 cities and dismisses most of its employees. From the prospect of a new “unicorn” - to a potential bankrupt in just a couple of weeks.


WanderJaunt founder Michael Chen

Startups have always been a risky business. Or quickly grow and become famous, or sink into oblivion. But the coronavirus pandemic accelerated this natural selection. According to the New York Times, in the past 2 weeks, more than 50 startups in the Valley have reduced 6,000 employees. A few dozen more - just closed. There are no investments and is not yet expected. Plans for an IPO are also almost all stopped: there are few who want to enter the market with such a conjuncture.

The blow is not only taken by small firms. The largest startups in absolute terms have lost the most. Airbnb, the famous site for finding short-term rental housing, cost $ 31 billion back in 2017. Now she had to stop hiring employees and close marketing efforts at $ 800 million. And the price of the company (she estimates herself because she did not go public) fell by 16% to $ 26 billion - just when she thought about filing an IPO this year.

Real estate startups Convene and Knotel cut half their employees. ZipRecruiter recruiting staff fired 40%. OneWeb, which was planning to build a fast satellite Internet and raised $ 3 billion of capital for this, filed for bankruptcy on March 28. At the same time, on March 21, he successfully launched 34 new satellites from Baikonur into orbit.

But the worst thing now is travel companies. Among the victims here are Inspirato, Sonder, TripActions, Zeus Living, Vasaca and dozens of others. According to Glassdoor's job site, the situation at Valley startups is now worse than in 2008 and in the early 2000s. The fact is that many were completely unprepared for such a turn of events.

CB Insights, which tracks start-ups in the US, says that by mid-March it was already the second sharpest quarterly decline in 10 years. But in general, this fiscal quarter, apparently, will be the worst in history. Here's how they describe the situation:

An outbreak of coronavirus from an economic point of view is like a severe hurricane that has been happening in every state and every country for several weeks.

Of course, companies in some industries — delivery, online training, video calls, teleworking, games, telemedicine — were almost unaffected. Some, like Zoom, have even expanded their user base several times (although for the time being they are mostly free). But one such company has dozens of victims. Not for nothing that on March 5, the Sequoia Capital venture fund, one of the most efficient investors in Silicon Valley, warned startups that COVID-19 would be the “black swan of this decade.”

This is the end, goodbye!


Startup leaders will probably survive their fate. At a minimum, some kind of financial pillow should be preserved. Yes, and the remaining resources can be sold. But ordinary employees are in a slightly different situation. Especially when they are dismissed by thousands, so that they can’t find work quickly. And well, at least they would fire normally ...

As you probably heard, Bird recently “let go” of several hundred employees through Zoom. Without top management, just a female voiceover on a background of slides. People learned about the call an hour before the conference, and after 2 minutes the video learned that they were all fired. Earlier, a scooter rental startup was estimated at $ 2.8 billion, now it has already reduced 40% of employees since the beginning of the epidemic, and this is not the end. At least employees received a month of severance pay and three months of health insurance to try to find an alternative.


Bird founder Travis Vander Zanden

Just as quickly, everything happened for employees of Panoramic, a marketing platform from New York. At the end of March, they just managed to set everything up to work comfortably from home. And here comes the e-mail that we should soon wait for a call from HR. Farewell messages began to appear in Slack right there. And after half an hour, most of the team left the project.

Ouroboros became isolated, and it came to the point that for new dismissed employees ... startups are being created! The Upstream app came out earlier than intended so that they could create their own professional communities. The Silver Lining site helps them find companies that are still recruiting. Layoffs brings together recently dismissed employees with people who might be interested in their skills. Many “suddenly unemployed” people also add their names to large Google spreadsheets so that HRs can find them there.

There have been a lot of similar sites and tables in recent days, partly because many quit quarantined IT workers have nothing to do.

Those who benefit most from the situation. giants. They were almost the only ones who were still recruiting for the team. Amazon, Microsoft, Netflix, Apple and Google, which have a large financial cushion, can now collect the most cream, taking full advantage of the chance.

The strongest survives


To stay afloat, startups in the US are now following one strategy. Reduce all costs that are possible. Reduce the cost of your products. Try to negotiate a reduction in rental costs and other things. And also demand from the state to allocate assistance to the most suffering businesses - fitness studios, restaurants, rental housing services and other services on which they rely.

The governments of different countries help their small businesses in different ways, and Americans like to criticize their own, because often only banks and large monopolies get help. Germany has already allocated over € 1.137 trillion to support its economy. US plans at least $ 2.2 trillion. This is much more than in the crisis of 2008-2009. The largest economic assistance plan in history. But giant corporations (mainly air transportation) will receive the lion's share ($ 500 billion), and small businesses will get only $ 367 billion. Startups in the IT field are nothing at all.

The founders of Rubrain.com are now in the USA, and every day we communicate with entrepreneurs selling our outsourcing / outstaff. Like, take it from Russia, it will be cheaper and better, just the time. Many are doing just that now - trying to save money. In private conversations, some leaders say that the current situation may be “blessing in disguise” for them. There is no good without a silver lining. If their company rebuilds and survives, it will become stronger, and its market share will almost automatically be larger. The concept of “military CEO” is popular in circles. Like, it's time to take risks, make even more unexpected decisions, adapt on the go, break the market for yourself. It's time to be Bill Gates, now I need Steve Jobs.

For example, Sonder, a San Francisco hotel reservation startup, sent 135 employees on unpaid leave last week and laid off another 282, more than a third. Francis Davidson, director of the company, said that now his decision-making time has been reduced from a few days to a minute.

Francis Davidson (left) with his partner Lucas Pellan

Sonder “raised” $ 345 million at a valuation of $ 1.1 billion. His experienced investors told Francis that if the dismissal was coming, it would be better to do it abruptly and quickly, and “it’s better to overdo it than underdo it” . Then, at least, his employees will enter the market, which may still need them. Those who are fired later will find it even harder to find work. And those firms that will be laid off in several stages will also not be in the best situation.

Francis says:
It's too late to complain now. If you wanted a quiet life without stress and stress, it was not worth starting ventures. Here you should have very thick skin, resistance to any sudden troubles. This is a good test of your company and your manager. How can you survive this period?

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