The COVID-19 situation is changing rapidly causing us to face a new reality. As the economy goes into lockdown to prevent the spread of the virus, startups are being forced to revaluate their business models.
What can we expect?
Changes to business models: Startups are known for their ability to be flexible and pivot when faced with challenges. COVID-19 is no different. We can expect to see new strategies to minimise costs and increased innovation as companies explore new market opportunities
Stricter funding criteria: Economic uncertainty caused by the virus means startups will need to meet even stricter requirements as LPs look to protect their capital
Reduced valuations: Market downturns not only impact potential revenue generation, but also potential exit strategies; both of which are considered when valuing a company
Smaller funding rounds: As companies are required to satisfy stricter funding criteria, we can expect to see investors reduce the amount of funds committed to a start-up
Alternative investment structures: VCs and investors will seek to minimise risk and offer protection to their investors when making investments. We could expect to see a shift away from straight equity to alternative structures including preferred stock, convertible notes and revenue-based investing
What are we expecting in Artesian’s Australian portfolio?
Artesian recently undertook a survey of all our portfolio companies to understand how Covid-19 is expected to impact their businesses. The results of the expected impact to our Australian portfolio is shown below.
[Note: Portfolio companies included in this analysis are those that are categorised as Seed (annual revenues are between $500k and $1M) and Later Stage (annual revenues are between $1M and $5M)]
Figure 1: What Sectors are the Portfolio Startups Operating In?
On average, the portfolio companies surveyed are expecting a decrease in revenue due to Covid-19 over the next 12 months of 34%
The majority of companies are reducing costs over the next 12 months to mitigate the expected decrease in revenue
Whilst implementing strategies to mitigate the impact, the majority of the portfolio companies who participated in the survey noted that Covid-19 has caused a reduction in their projected runway
Whilst Covid-19 will impact all aspects, the majority of portfolio companies surveyed noted that their biggest concern is their ability to raise capital and a decrease in revenue in this environment. This concern was the same across both seed stage companies and later stage companies.
Figure 3: How do you expect COVID-19 to Impact Your Business
Figure 4: What support do startups need during this time?
Funding through private markets was the largest area of support desired by the portfolio companies (see Figure 4)
This support was considered to be more important by late stage companies, whereas introduction to corporates was considered a more important support mechanism for seed stage companies (see Figure 5)
Figure 5: Support Needs by Stage of Startup
Figure 6: Portfolio Companies Participating in the Survey
•The portfolio companies participating in the survey were split fairly evenly between seed stage companies and late stage companies
The majority of companies participating sourced less than 50% of their revenue from outside of Australia
The majority of companies are operating in the Software / Digital sector
Resources & Support
In response to COVID-19, the South Australian Government has announced a $1 billion stimulus package. This package will help to minimise the impact of the virus on workers, businesses and the South Australian economy.
. Further information on resources and support provided by the state government can be found here:
and here:
For a longer list of resources to support startups during this time, please the Artesian page "COVID-19 Resources for Startups, VCs and LPs" here:
We are here to help:
The South Australian Venture Capital Fund is still looking to make investments in South Australian startups. If you are currently fundraising, please email us at SAVCF@artesianinvest.com
We’re also here to provide support and mentorship through this challenging time. We are currently holding virtual office hours for startups and founders. If you would like to book in a time, please click here:
