A worldwide pandemic. Spiralling economies. Mass lay-offs. Changes in consumer behaviour. Yet, how did 2021 see the largest surge in the launch of startups ever recorded? Let’s find out.
How did the pandemic affect the startups?
The WHO declared Covid-19 to be a Public Health Emergency of International Concern in January 2020. As uncertainty swept across industries and nations, trends started taking the path downhill. When this uncertainty impacted numerous companies, we observed mass lay-offs. And when the same uncertainty took over consumers, a heavy decline in demand was noticed. It wouldn’t be wrong to imply that the lay-offs and fall in demands went together. The period between March and May of 2020 was one filled with chaos. While many major corporations slumped in the last quarter of 2019 and the first quarter of 2020, it was expected that recent startups would not be able to survive. A report by Global Startup Ecosystem stated that Covid-19 could prove to be to startups, what the asteroid was to the dinosaurs (as was mentioned in various reports in the first half of 2020).
But with the news of a vaccine roll-out, investors gained better confidence. And so did the consumers. With many factors playing their respective parts, one of them being an increase in expendable income, consumer demands for newer products took a U-turn in the third quarter of 2020.
A large burst of startups was the highlight for the global economy amidst the pandemic. Many such small-scale ventures were a result of their owners previously having been laid off. According to a study by the Financial Times, USA alone registered nearly half a million filings for new business setups till September 2020. This number was 95% higher than the same period in its previous year. Furthermore, a 52 % rise in businesses with planned salary workers showed better promise of an economic recovery than most had hoped.
With many other countries recording similar surges in new business registrations, the expected impact of crisis was lessened far more than given credit for. In India, the city of Bengaluru (formerly known as Bangalore) jumped 4 ranks in the list of the best startup ecosystems, with a noticeable increase in Fintech and SaaS startups. This jump brought the city into the top 10 of the list. During the same period, France recorded 84,000 new businesses, 20% higher than the same period in 2019. UK, despite the looming scare of Brexit, boasted of a 30% surge in startup ventures. On the other side of the globe, Japan marked a 14% growth with 10,000 new businesses daring to open their doors, beating the odds of the pandemic.
Many industries which had not yet transformed their old ways, now were faced with two threats. The first was a question of how they would do business during such times, while the second was a competition from emerging digital products.
An example of the real estate market would be ideal to look at here. Activities such as viewings, were forced to adapt to the situation and switch to online, live-viewings. This not only paved way for various app creators to attract business, but also encouraged newer ones to find ways to support this shift in dynamics.
Another example is of the insurance sector. Small-scale insurance companies sprung up with pandemic-related care packages and quicker processing times. The larger, dominant ones also found this to their benefit because while the world was enjoying the perks of working from home, it meant fewer claims were raised with the insurance companies.
Many other sectors saw startup growth – online conferencing, fitness apps being among them.
Gaining confidence of the Investors
New businesses offered a freshness in products, with better price offers. A steady rise in consumer demand meant that the variety in products was appreciated. This attracted the interest of investors too. The promise of returns from the novel products, seemed to grab their attention. Combining this with the cost-cutting from replacement of older offline techniques with the online techniques measured just right in terms of growth and profitability.
Furthermore, with the formal money depreciating, startup shares seemed to be an appealing investment benefit around this time.
But why was the pandemic and its economic crisis compared with the financial crisis of 2007-08?
Though some reports justified this comparison, most denied the relevance. The two situations were different and so were their recovery periods.
On one hand global funding slumped during the 2nd Quarter of 2008 (before Lehman filed for bankruptcy in the 4th Quarter of 2008), it continued to remain so till nearly the 2nd quarter of 2009.
On the other hand, following the announcement of a pandemic by the WHO in January 2020, the 1st Quarter of 2020 noted a spike in global VC funding.
From a startup’s point of view, the recovery period began right in the idle of the pandemic, which was far from the case with that of the financial crisis. Businesses, founders, and investors had all learnt from the past, one can presume. The investors and new business owners now have a foresight of the longer game, keeping in mind the general outlook of the consumers. Yet again, this emphasises the lucrativeness of startup shares in the recovery of global economy.
What does 2022 look like for startups?
While the gridlock situation of the supply chain impacting the global economy briefly, 2021 has smoothened the transition into the next year for many economies. Having faced many speedbumps throughout the year, startups have now found ways to overcome the acceleration-and-brake scenario of the recovery period.
Many economies have benefitted from the rise in number of startups launched during this period. As we enter the last quarter of 2021, the numbers continue to grow, as per reports. Predictions state that this phenomenon shall continue into 2022, with many countries making the process of registration easier and quicker. Though startups face the challenges of a competitive market, the advancements on a small scale may help their countries combat the revival in post-Covid-19-recovery period.
This rise in the number of startups further opens doors for services catering to the various requirements of a startup.
As far as we can see into 2022, startups promise not only a freshness in products and services, but also in decreasing the unemployment rates and restoring balance to the new normalcy.
What do you think 2022 holds for startups? Will numbers continue to rise? Will the freshness of products and ideas change the way major industries have functioned so far? Let us know in your comments.