Startups need to manage cash and have “a bit of luck” to survive Covid-19

It’s a grim situation for startups in Southeast Asia: Some companies are in danger of running out of cash as Covid-19 sours investor appetite and slows fundraising activities, founders and key executives tell Tech in Asia.

“Even in a worst-case scenario, Crayon Data will last through 2020,” says Suresh Shankar, CEO of Singapore-based data analytics and AI startup Crayon Data. “Since we aim to balance our books by then, we should be OK. But it’s not just us – the entire ecosystem needs a bit of luck, if we are to go further.”

A survey conducted by SEA Founders, a nonprofit organization representing over 100 startup founders, shows that a majority of startups in the region are finding it difficult to reduce burn rate as their revenue has been hit by the pandemic. About 80% of startups around the region have been negatively affected by the outbreak, according to a recent Tech in Asia survey. 

“Due to Covid-19 affecting the investment landscape, we need to lean towards a more conservative plan through which all of our business divisions will be self-sustained within the next six months,” says Shieny Aprilia, chief marketing officer of Indonesia-based Agate. The video game developer has also taken a hit in revenue – an outcome made worse by delayed payments from its clients, who operate in negatively affected sectors, she says.

But the situation will only get worse before it gets better, with fundraising across Asia Pacific dropping 26% in February, following a 52% slump in January, according to data compiled by Tech in Asia. 

Indeed, Silicon Valley venture capital firm Sequoia Capital urged its portfolio companies earlier this month to brace for the negative business impact of Covid-19, which it dubs “the black swan of 2020.” It will take several quarters before the pandemic is contained, and it will take even longer for the global economy to recover, Sequoia said.

Startup leaders at a SEA Founders meeting / Photo credit: SEA Founders

To make matters worse, the pandemic has also put a damper on all facets of fundraising – not only have ongoing funding rounds been delayed, some founders say they can’t even get the ball rolling. 

“Crayon Data will still grow through 2020, since we already have contracted coverage for about two-thirds of our revenue targets,” according to Shankar.

As the company has received fundraising interest from investors, the CEO remains optimistic, but he is cautious as to when these will translate into an actual deal, and on what terms.

In the meantime, Crayon Data is implementing cost-cutting measures to extend its runway. “Our intent is to protect all jobs,” Shankar says. “To make that possible, new hiring and investments are frozen. And we are implementing a principle of everyone collectively sharing in the burden, with senior management taking more of the pain of pay cuts.” 

Closing deals becomes considerably more difficult.

Glass half full