Start-ups braced for the worst, which never came

Getaround, a car sharing start-up, started the year by laying off 150 employees and scaling back some operations after it spent too much on a rapid expansion. Two months later, with the spread of the coronavirus, business got even worse. The company laid off another 100 employees, asked those who remained to volunteer for pay cuts, obtained a government loan of $5 million to $10 million and battled bankruptcy rumours.

But in May, something unexpected happened: Business bounced back when people began using the start-up’s cars to get on the road again. Getaround’s revenue in the United States for the year is now 40 percent above where it was a year ago. Last month, it brought back all of its furloughed employees and started hiring again.

“We have seen a very, very fast recovery,” said Sam Zaid, Getaround’s chief executive, adding that he was now raising more cash. “It’s been a bit of a wild ride.”

When the coronavirus pandemic first hit in March, many technology start-ups braced themselves for The End, as business dried up, venture capitalists warned of dark times ahead and restructuring experts predicted the beginning of a “great unwinding” after a decade-long boom.

Five months later, those doomsday warnings have not translated into the drastic shakeout that many had expected.

Funding for young companies has stayed robust, particularly for the larger start-ups. Some of them, like the stock trading app Robinhood and Discord, the social media site, have pulled in hundreds of millions of dollars in new capital in recent months, boosting their valuations. And initial public offerings of tech companies have come roaring back, alongside a surging stock market.

“Things generally are substantially better than our worst fears 90 days ago,” said Rich Wong, an investor at Accel, a Silicon Valley venture capital firm. The stabilisation has created a surreal disconnect between tech start-ups and the broader economy. While retailers, restaurant chains and many other companies are filing for bankruptcy and are dealing with one of the worst downturns on record, the tech industry has largely sidestepped the worst of the destruction.

Demand has surged for start-ups that offer virtual learning, telehealth, e-commerce, video games and streaming, and software for remote workers. Start-ups in areas like fitness or children’s activities also quickly adapted their offerings to go virtual.

That doesn’t mean tech start-ups have escaped unscathed. Some — like those providing travel services, restaurant software or tickets to events — watched revenue disappear. Stay Alfred, a luxury hospitality start-up in Washington, recently began winding down its operations, blaming the virus. ScaleFactor, an accounting start-up in Texas, and Stockwell, an office vending machine start-up that was previously known as Bodega, did the same.

But over all, the money has continued flowing. Start-ups in the United States raised $34.3 billion in the second quarter, down slightly from $36 billion a year earlier, according to PitchBook and the National Venture Capital Association. Much of the financing went to the largest companies, with the number of “mega-rounds” (deals larger than $100 million) on a pace to top last year’s total.

“People are trying to focus on who they believe the winners are, on companies that have pivoted successfully to meet the new norm,” said Heather Gates, a managing director at Deloitte who advises start-ups.

Across Silicon Valley, the start-up panic began dissipating around May. That was when layoffs slowed to a trickle, according to Layoffs.fyi, a site that tracks start-up layoffs. Just 5 percent of the hundreds of companies that did layoffs went out of business, according to the site.

Erin Griffith reports on technology start-ups and venture capital for NYT©2020

The New York Times