Startup layoffs in the United States and Canada are increasing as economic pressures from Covid-19 continue to mount.
“. . .more than 3,800 people spanning more than 40 [startups] operating in sectors including hospitality, transportation, meal delivery and artificial intelligence [were laid off in March]. [These startups] are headquartered across the country, in California, Austin, Boston and Portland, Ore., among others. The companies have collectively raised nearly $15 billion, according to Crunchbase data.”
Moreover,
“. . .Sequoia Capital warned its portfolio companies earlier this month to get ready for major changes and limited runway. Some start-ups turned to layoffs or total shut-downs after funding fell through.”
Although Canadian startups have managed to avoid significant layoffs thus far, time is running out. A lack of support from the federal government will likely force their hand in the coming weeks.
Canadian Startup Layoffs Could Spike in 2020
At the end of March, Prime Minister Trudeau provided further details around the Government of Canada’s 75% wage subsidy, announcing that businesses will need to demonstrate a 30% drop in revenue year-over-year to qualify.
Unfortunately, there’s one glaring problem with this program: it precludes pre-revenue startups… the lifeblood of any economy.
Wage support for mining explorers? Zilch. What about for tech startups in the midst of commercialization? Nada.
We’re not just talking about a handful of companies here — while these are purely speculative numbers, it’s safe to say that at least 30 – 50% of all TSX Venture listed companies are pre-revenue. Combine this with the number of private pre-revenue companies in Canada, and you’re looking at thousands of businesses across the nation left without government assistance.
Let’s not forget that some of these pre-revenue companies have been working towards commercialization for months, if not years. Now, the seed capital they’ve been relying on to get to market is drying up.
“Private market funding [for startups] in Q1’20 is on pace to reach $77B, down more than 16% compared to Q4’19 and down nearly 12% versus Q1’19.”
The article goes on to state,
“The projected decline in Q1’20 will be the second steepest quarterly decline in the past ten years, second only to a 36% decline in Q3’12.”
The saving grace for Canada’s startup ecosystem could be a new investment program from BDC Capital.
“BDC Capital is launching a program that will see it match investments by Canadian venture capital firms, The Logic has learned.
Two sources with direct knowledge of the program, which could be announced as early as Thursday, said it will provide startups with one-to-one matching funds, as the Crown corporation tries to keep capital flowing to growing companies to help them weather the COVID-19 pandemic. The sources said the matching program would apply to companies that can raise capital from a qualified venture capital fund, and that deals would be available to companies outside BDC’s existing portfolios.”
But while Canada continues to weigh its options, countries like Germany have already taken action. Last week, Germany announced a €2 billion support package for German startups.
“Classic credit instruments are often a poor fit for young, innovative companies,” said Germany Minister of Economic Affairs and Energy Peter Altmaier on Wednesday, April 1. “For this reason we are offering a tailor-made support package.”
“With this two-billion-euro aid package, we are ensuring that this innovative growth sector with its many thousands of jobs gets through the crisis in good shape,” said Finance Minister Olaf Scholz. “This aid will allow financing rounds to continue. . .”
Canadian Startups Need Federal Support to Avoid Layoffs
Without support from Canada’s federal government, Canadian startup innovation could stagnate in 2020, which may lead to growth challenges for years to come. While there are rumours that support for pre-revenue Canadian companies is on the way, the government will need to take decisive action — and soon — if it intends to keep Canada’s innovation economy alive.
