In the past decade we have experienced the rise of startups, a new type of company with businesses supported by technology, characterized by their flexibility. Their main objective is growth and, normally, they seek capital among relatives and those called business angels or investors, like accelerators, which stimulate their development.
Cabify, Glovo and Ontruck, the Uber of freight transport, are three examples of startups Spanish companies that have achieved success in other parts of the world, but there is an ecosystem of small companies in full development.
During the coronavirus health crisis (covid-19), many have continued their activity, although not without difficulties. Some, on the other hand, have grown. “With the current crisis, the expected evolution in the Internet world in two years has occurred in two weeks,” says Jorge González, country manager of the startup Prestashop, which offers solutions for ecommerces and whose turnover has grown by 30% to service new online stores that are created by confinement.
The general public has put aside reluctance about the Internet and new technologies and has launched to use them in the face of the needs created by the quarantine.
The ‘startups’ that have found their opportunity
The startups Linked to the health, food, digital entertainment and some e-commerce platforms are some of those that have seen their turnover increase. “The population, being confined, has changed its consumption habits and this has happened almost overnight. We will see how the demand evolves and how it changes with the progressive lack of confidence in the population, ”they explain from the Spanish Startup Association.
Luis Díaz del Dedo, founder of the startup Product Hackers, a company that helps digital businesses grow, believes that leisure on-line is very strong. Also the fintech, companies that apply new technologies to financial activities.
His company is made up of 16 workers. In the midst of the health crisis, the workforce has increased in two other people due to the increase in demand. “After covid-19, we are not going to live a different world, but it is true that the speed of certain changes is increasing.”
But these examples cannot be extrapolated to the set of startups. In its own nature it carries the weakness of being a company with a short life and without a data path to back it up. Thus, from the association they explain that “their way of financing is different. It is based on rounds of financing. Their financial and business ratios are also different, and this means that general aid programs based on government guarantee lines are not useful for startups ”.
“Although they are used to uncertainty and risk, many startups they are having a hard time. It is recommended to adjust the fixed costs as much as possible, try to bear the first onslaught and reformulate, if you can, your business model to adapt to these strange circumstances, “recommends the association.
What the ‘startups’ need to overcome the crisis
In the Spanish Startup Association they advocate that the Government approve a specific plan to guarantee the continuity of the innovative sector. In France, Germany and the United Kingdom, the Public Administrations have contributed 4,000, 2,200 and 1,200 million euros, respectively. “The key is for liquidity to flow through all public initiatives (subsidies, loans and aid), for there to be joint investment by the State to guarantee the pending rounds and, in general, to help with tax refunds or delays of lone self-employed quotas ”, they indicate.
The association of the sector considers that this bet makes a lot of sense since the postcovid-19 economic future will largely depend on the innovative sector. “Entrepreneurship will be one of the agents that must lead, along with others, tasks of value creation and employment, digital, economic and process transformation. We are going to need entrepreneurs more than ever ”, they conclude.
Aid for ‘startups’ and the requirements to apply for them
Although there is no plan focused on startups, exists a line of endorsements of the State of the Ministry of Economic Affairs and Digital Transformation managed by ICO to mitigate the economic effects of the covid-19 for companies and the self-employed.
The manager of the financial institution will request a series of documentation such as the annual accounts, the corporate tax for the year 2018, the VAT summary and the detail of the bank debt, among others; as well as two plans that every company should carry out conscientiously at the moment whether they are going to request aid or not: the contingency plan against the current situation of health crisis and financial planning.
Yolanda Pérez Sáez, director of BStartup, Banco Sabadell’s initiative to support young innovative and technological companies, recommends that the contingency plan include, on the one hand, how the health crisis is affecting the company and, on the other, what measures are being taken to minimize its negative impact: detail of all the actions that are allowing to reduce expenses, if, for example, a new line of business can be started to generate new income, whether to receive support from investors or other types of financing.
As for financial planning, the ideal is to do it at six and 18 months ahead, to see how long cash flow is available and what financing is needed and for what.
Financing is key both for countries and for businesses and citizens. The discussions in Brussels, the purchases of the European Central Bank (ECB) or aid to employees and the self-employed go in that direction so that money flows and the economy does not collapse.
Yolanda Pérez Sáez, director of BStartup at Banco Sabadell, an entity that already in 2013 bet on the startups When creating this division, he has a positive point of view on this type of companies: “The sector has become very strong in recent years: the size of the investment rounds, the presence of large investment funds venture foreigners, success stories, size and its socioeconomic significance, etc ”.
The current situation, marked by the pandemic, represents a new business challenge that, obviously, will also influence the startups.
Yolanda Pérez takes the daily pulse of financing startups: “At BStartup we process hundreds of financing operations right now. In principle, this type of companies, if they were in a position to access bank financing before the health crisis, they are also now with the added support of the ICO Guarantee line and other regional lines.
However, these lines do not replace the role of private investment, and the natural way of financing a startup in initial stages it is the equity [acciones]”, Explain. Of course, the biggest problems to finance at a difficult time like the current one are detected in the startups they were not billing yet.
The seed capital investment area (the one contributed to the beginning of the company’s life) BStartup10 has continued to approve operations these weeks and Banco Sabadell has just opened the third call for BStartup Health, a program dedicated to health projects in very early stages related to health.
It will remain open until May 20 and, in it, three initiatives will be selected that will receive an investment of 100,000 euros in addition to mentoring by experts.