After raising a decade-high $2.2 billion in venture capital funding in 2019, Chicago startups could never have predicted how the coronavirus would bring some businesses to a screeching halt and freeze revenue growth seemingly overnight.
Chicago tech companies large and small have begun laying off and furloughing staff as they aim to cut expenses and extend runway in order to survive the economic downturn. Chicago-based SpotHero, a company that connects drivers with off-street parking, laid off employees as the parking industry saw volume plummet 90 percent. Groupon, which offers deals and discounts to local merchants, will terminate or furlough almost 3,000 workers due to impacts from coronavirus-related shut downs.
Chicago startups looking for venture funding to stay afloat will find VCs who over the last two months have largely pumped the breaks, doing fewer deals and becoming more selective of the startups they back. Local investors expect both deal volume and the amount of money invested to decrease in the near term, and startup valuations are already on the decline.
“There’s a whole bunch of business models that just don’t work right now,” said Jonathan Ellis, founder and managing director of Chicago VC firm Sandalphon Capital. “There’s some startups where revenue has gone to zero.”
Ellis said startups in Sandalphon’s portfolio run the gamut in terms of how COVID-19 has impacted their business. Startups around food delivery and telemedicine are thriving, while others are going through difficult decisions around cost-cutting and layoffs. One company had to pause operations all together and furlough almost everyone on staff.
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