Just a month ago, much of the startup world was still fixated on unicorns: fast-growing companies that were shaking up established industries, worth $1 billion or more according to their investors, and on a trajectory to become the next Uber or Facebook.
Most were losing money, but no one cared.
Now, of course, the world has changed. The animal to emulate today may be the Galápagos tortoise — thick-shelled, long-lived, and able to survive for six months without venture capital — err, water.
“I’ve been around for other contractions and expansions in markets,” says Peter George, CEO of Evolv Technology, a Waltham startup that sells walk-through security systems to stadiums, airports, and schools. “This is a contraction time. Our job is to navigate through that. So we’re working as an executive team to hunker down and control expenses — to be really cash-efficient.”
George says he’s thanking his lucky stars that Evolv, whose investors include Bill Gates and former Florida governor Jeb Bush, raised $33 million at the end of 2019. Now, the company is hustling to figure out what, if any, credits or incentives might be available as part of the $2 trillion stimulus package that was signed into law. “I’m assuming within days we’ll be able to determine if we qualify or not,” he says. “If we qualify, we’ll try to respond quickly and get to the front of the line — because there’s going to be a long line.”
Evolv’s security systems have traditionally focused on identifying weapons or the faces of individuals on a watch list. But suddenly there’s a new threat: people with a fever. “We’re right now investigating the capability,” George says, adding that Evolv has an advanced technology team working on that, led by founder Mike Ellenbogen.
Others in the tech community have been more directly affected. Cambridge venture capitalist David Frankel, of the firm Founder Collective, contracted COVID-19, along with several other family members, after attending a birthday party in Connecticut.
While some startups have begun to lay off staff, Frankel believes that more cuts will come in April. “My deep sense is that nobody is doing it overnight,” he says. “I think there will be a combination of furloughs, layoffs, and I think you’ll see a lot of executives reducing their salaries.” One furlough possibility, he mentions, is companies asking employees to work three or four days per week, at a reduced salary.
“Everyone is trying to figure out what the new normal is, and get some visibility on what the stimulus might mean for them,” says Stuart Blitz, a Somerville entrepreneur working on a fledgling telemedicine startup with five other people, split between Massachusetts, New York, and Maryland. “Everyone is assessing, understanding and adjusting — not taking action on layoffs at all.”
“It's the last thing everybody wants to do,” says George at Evolv. “But it's under consideration; everybody knows [the market] will be contracted in some way.”
Startups are definitely looking for costs to cut. For many, it’s money they spend on outside consultants, marketing, software, and — obviously — business travel.
Susan Hunt Stevens, the chief executive of WeSpire, a Boston company that sells software that tracks employee engagement programs on topics like wellness and sustainability, says she has trimmed the company’s office rent by more than half.
“We are in a co-working space, and figured we wouldn’t be allowed to be there for several months anyway so gave up most of our space,” she says. “Even once it’s back open, the commuting risk may remain elevated, and we can work from home pretty seamlessly.”
Kristen Anderson is CEO of Catch, a Boston startup that helps self-employed people manage things like retirement planning, taxes, and health insurance. She says she has been getting an earful of advice from her company’s investors, including to cut headcount dramatically, “so that you don’t have a slow leak of firings over the next 12 months” and can “become profitable.”
In recent days, entrepreneurs, investors, and their attorneys have been trying to decipher what aspects of the federal stimulus package will apply to them.
“Two trillion looks great on the front page of a newspaper,” says Frankel, the venture capitalist, “but how you access that for a small business is quite challenging. I have companies that have their general counsel and chief financial officers working with lawyers to figure this out.”
One of those companies, SeatGeek, is a Manhattan startup that sells tickets to live events and concerts. “They are incredibly hard-hit,” Frankel says.
On Sunday, several trade associations, including TechNet and the National Venture Capital Association, wrote to Treasury Secretary Steve Mnuchin urging him to clarify whether companies with equity investors — that is, most startups — will be eligible for Small Business Administration loans.
Paul English, a cofounder of the travel sites Kayak and Lola, says he’s worried about the government creating a “slush fund that will most likely become political.” Lola, which focuses on streamlining business travel, laid off 34 of its 116 employees earlier this month.
“The idea that funds used for payroll could be completely forgiven has us paying attention,” says Grant Deken of Unstack, a Boston digital marketing startup. “Payroll is a top, if not the top, operating cost for most businesses. That said, needing to personally guarantee any debt — forgivable or not — may deter us and [other] startup CEOs from going through the process.”
Meanwhile, some entrepreneurs are concerned about the stimulus, and shoring up the economy, but also worried about the need for “stricter measures to mitigate the spread of the coronavirus,” in the words of Chris Savage, CEO of Wistia, a digital video startup in Cambridge. “We may buoy the economy but not flatten the curve enough.” Frankel, for one, worries about a second wave of coronavirus in September.
The question on everyone’s mind is when, if ever, things might return to normal.
Consider Vesper MEMS, a Boston startup that makes microphones for smartphones and other consumer electronics products. It started to prepare for the coronavirus in late January, says CEO Matthew Crowley. Why? The company has sales offices and manufacturing partners all over Asia.
“By Valentine’s Day, I was alarmed enough to have our managers put together a quarantine preparedness and contagion control plan, based on best practices that we had learned from partners in Singapore and Taiwan,” Crowley writes via e-mail.
Now, the company is seeing its customers and suppliers in Asia return to work; Vesper’s sales activity in that region is “back to normal levels,” Crowley explains. That’s encouraging for other parts of the world, he says, “because it shows a potential path back to business normalcy.”