By Tom Still
MADISON, Wis. – As the COVID-19 calendar turns to the graduation month of May, many people will think of the high school and college classes of 2020 – young people whose lives were abruptly altered in ways that seemed unthinkable less than a semester ago.
There is another “class” already feeling the effects of the coronavirus on the economy. They are entrepreneurs whose young companies, ready to blossom before the COVID spring, could wither in the months ahead.
That’s not a universal fate, of course, as many of those startups and emerging companies will survive and even prosper depending on the nature of their products or services. In fact, many entrepreneurial companies were born at the height of the 2008-2009 recession, including now-familiar names such as Airbnb, Square, Stripe, Pinterest, Uber, Dropbox, Slack and WhatsApp.
Experts are predicting rough waters for many young companies, however, including those that may be scouting the horizon for venture capital. Among those challenged will be many Wisconsin companies, although there are reasons to hope otherwise.
The National Venture Capital Association recently reported that its analysts expected investment to “drop significantly” around the country in coming quarters. The NVCA report came with projections that recent layoffs by startups will accelerate as those companies find capital harder to come by.
While it’s true many of today’s strong companies were products of past downtowns, NVCA authors Maryam Haque and Justin Field noted the “sheer force and speed of the COVID-19 crisis and its uncertain impact and duration is not comparable to past downturns.”
Many if not most venture capitalists will turn first to keeping their existing portfolio companies afloat, versus making new investments. Some of those same venture firms will find it difficult to raise new funds from their own institutional investors because those institutions may already have exceeded internal guidelines for the percentage of alternative investments.
That “new normal” will benefit a young growth firm whose founders already have a relationship with angel or venture capitalists. That’s a lot better than trying to forge one during a period when travel and face-to-face meetings are sharply curtailed.
For some young companies, it may be a case of being in the right sector at a critical time. The market may recognize that some of the lessons of the coronavirus pandemic will lead to permanent changes in how people live, work and recreate. Mobile and voice technologies, telehealth, video streaming, online education and “on-shoring” the production of vital products such as personal protection equipment are examples.
Some larger deals reported nationally and internationally in recent weeks have included “smart containers” for pharmaceuticals, document management, human resources, food delivery, 3D printing, machine learning, identity validation and gaming.
Young Wisconsin companies may have other advantages others do not. It will not be lost on investors that company valuations in the Midwest were generally less frothy than valuations elsewhere before the pandemic hit. Many such investors had begun to explore Wisconsin and invest in the state’s young companies in recent years, according to data collected by the Wisconsin Technology Council and other sources. If existing relationships count, that’s a plus.
While Wisconsin ranks 20th among the 50 states in population, it was 10th nationally in receiving U.S. Small Business Administration loans through the first round of COVID-19 relief. That indicates a strong support infrastructure is in place, including many banks.
Also, most emerging companies in Wisconsin are not at a stage at which they’re looking for larger investment rounds that can only be undertaken by a few investors.
Whether the investment climate improve next quarter or next year, young companies should make their presence known — especially at a time when meet-ups and networking sessions are not live.
Finalists in the 2020 Wisconsin Governor’s Business Plan Contest, for example, have entered a phase of the competition in which their plans are being judged by seasoned business leaders, investors, mentors and others who can make connections for them.
The top 12 in that contest will present during the annual Wisconsin Entrepreneurs’ Conference, which will be held June 4 on a virtual platform. Those finalists and many other young companies will be able to take part in the event, improving their chances for exposure.
Wisconsin was an attractive place to start a business before the coronavirus epidemic and stands to be again when it’s over. Crossing that chasm in one piece should be the goal for many small companies.
Still is president of the Wisconsin Technology Council. He can be reached at tstill@wisconsintechnologycouncil.com
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