April 6, 2020

What COVID-19 Means For StartUp Investors

In this time of social isolation many of us are picking up new hobbies, whether that’s worrying about the state of the economy, reading, starting a new workout regimen, or, you guessed it, researching startup companies for investment.

In fact, what do Allbirds, Popsocket, and Oculus VR have in common? All three raised some of their early dollars via crowdfunding campaigns. 

What about Microsoft, IBM, and Trader Joe’s? All were founded during economic downturns or recessions, in 1975, 1911, and 1958, respectively. 

Slack, Airbnb, Venmo, and Uber were all created in and around the 2008 recession. The article goes on to explain, “American workers took a hard hit after the 2008 recession, but a wave of new startups emerged from the financial downturn.”

So if you want to put money into the next Allbirds or Trader Joe’s, you can, all from your couch. In fact, now it is easier than ever to invest money in the startups you love. Not to mention, these investments are much less volatile than stocks, which means less worrying that you may wake up and see zeros across your investment accounts.

Regardless, COVID-19 is undoubtedly scary for a number of reasons. But thanks to the JOBS Act of 2012, startups and small businesses have a little less to worry about. And you, as an early-stage investor, can worry less about your money.

If you’re at all familiar with venture capital or private equity, you’ve probably heard the name Kevin O’Leary, star of ABC’s critically acclaimed “Shark Tank.” In a recent interview, O’Leary explained, “Equity crowdfunding…has stood up during difficult times.” And O’Leary isn’t just vocally championing equity crowdfunding from afar in this time of crisis, he himself wants in. “On March 31, the Shark announced he’s joining the Los Angeles-based equity crowdfunding platform StartEngine, as a strategic partner.”

HISTORICAL PERSPECTIVES

Believe it or not, for O’Leary, and for you at home, the timing couldn’t be better. Historically speaking, the last big economic downturn began in December of 2007, ending in June 2009 with a global GDP decline of 5.1 percent. At this point, equity crowdfunding was not an option for the non-accredited investor. In its first big hurdle, equity crowdfunding has a chance to prove itself as the public markets crash. And equity crowdfunding seems thus far to be withstanding hits from COVID-19 that the public markets can’t shake.

Speaking of the 2008 crisis, some of its hardest-hit victims were small businesses. Many closed and many weren’t started at all. Investopedia reports, “The number of businesses created annually in the decade before the financial crisis averaged 670, 000 a year, reaching a high of more than 715,000 in 2006. The startup numbers fell dramatically during the crisis, reaching a low in 2010 of 560,000.”

In fact, the JOBS Act can in some ways be viewed as a response to the 2008 crisis. “In the decade that followed the financial crisis, the way business was done changed, with technology gaining prominence. Small businesses became attuned to online financing options, with 21% seeking online lenders in 2016 and 24% in 2017,” says Investopedia.

EFFECTS OF COVID-19 ON ECONOMIC OUTLOOK

There are many overlapping factors that will determine the severity of the economic damage, particularly how quickly we are able to deal with the spread of the virus paired with what measures public policy takes to stabilize the economy. Even the most optimistic of models project a significant downturn before the recovery of both the public health and the market are seen. While it is already undoubtedly necessary for the US government to lend what aid it can to companies, it is also true that for many businesses that have always operated on close margins (such as restaurants and bars) this help could come far too late to make a difference. 

Unlike the reality of 2008, however, today’s businesses have new options that may help them weather this bearish storm, allowing them to stay afloat even as demand plummets due to social distancing. Crowdfunding offers the chance for customers to continue supporting the businesses they know and love without buying any goods or leaving their homes. Even the CDC has launched a crowdfunding campaign to supplement its government funding as it responds to the pandemic, showing that not just businesses can benefit from the accessibility and flexibility of crowdfunding. 

THE CROWDFUNDING COMMUNITY’S RESPONSE

Wefunder is one platform that has actively acknowledged concerns with raising equity crowdfunding during the COVID epidemic. Specifically, the platform has designed a revenue share agreement that rewards investors. In fact, Wefunder’s Jonny Price guest-wrote an article for KingsCrowd earlier this week outlining his thoughts on crowdfunding during the COVID crisis.

If anything, take away from this article that whether you are an investor or a founder of a small business or startup, the equity crowdfunding community is here to help. There are a number of resources available to aid in funding over these next few months that incentivize investors while pushing money into new companies.

Check out Forbes’ Small Business Relief Tracker, Wefunder’s Revenue Share Agreement, or new companies like 20/20 GeneSystems (creating diagnostic testing for COVID), now raising on StartEngine. 

In sum, an investment in a startup at a time like this could not only offer impressive returns but could be considered philanthropic, helping to keep local businesses and startups afloat. And, as always, KingsCrowd is here to help you navigate the crowdfunding space, today and every day.

Stay Safe and Healthy!

-The KingsCrowd Team


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About: Olivia strobl

Olivia comes to KingsCrowd with a background in venture capital and technology. She spent time at Glasswing Ventures, an AI-focused venture fund in Boston, before joining the KingsCrowd team. There she helped develop machine learning algorithms for the opportunity qualification of preseed and seed-stage startup companies. Prior to her time at Glasswing, Olivia worked in a lab studying the neural correlates of attention. She holds a degree in Neuroscience from Wellesley College.

View Olivia strobl's articles

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