Patrick Hankinson

Patrick Hankinson

A new survey of Atlantic Canadian startups shows that CEOs remain optimistic about their prospects for 2020, but also reveals that most have less than nine months of runway.

Halifax-based venture capital firm Concrete Ventures conducted the survey between April 20 and 27. Like other surveys, including one by Entrevestor, it found that the COVID-19 crisis is having a negative effect on some startups while others are thriving in the current climate.

For example, nearly 16 percent of the 103 respondents reported laying off staff since the beginning of the pandemic, and roughly half said COVID-19 had a negative effect on their businesses. Overall, the survey reveals considerable optimism with almost two-thirds of early-stage startups (those with $1 to $500,000 of annual revenue) expecting to add staff this year.

The survey also highlights a subject gaining more attention in startup circles these days – runway. This refers to how much time a company has until it runs out of cash, assuming it maintains its current spending and revenue levels. Unless a company is cash-flow positive, it can only extend its runway by cutting costs, increasing sales or raising more capital.

The Concrete survey found that 74 percent of pre-revenue startups had less than nine months of runway as of late April. Some 53 percent of early-stage startups and half of established startups (those with more than $500,000 of annual sales) also indicated they were on track to run out of money by January.

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“When you analyze the quantitative side of the survey, it seems like the data paints an optimistic and bullish future, but we all know that forward-looking statements shouldn’t be read as guarantees of future performance,” said Concrete Partner Patrick Hankinson in an email.

“When you start analyzing the qualitative part of the survey, you start to see some fear setting in. Respondents are pulling back their marketing/sales spend and struggling to generate top of the funnel leads, which will most likely translate into lower sales. Additionally, respondents are taking on more debt and with potentially lower sales, it will be harder to service that debt.”

The survey segmented the respondents into three categories: pre-revenue, early stage and established startups. COVID-19 is creating opportunities, with 46 percent of early-stage and 33 percent of established startups finding a business upside in the current situation.

The Concrete report said many respondents are trying to raise equity investment or take on debt. Even 37 percent of the pre-revenue companies are borrowing money to finance their operations in the current situation.

“Startups who take on new debt will soon have the pressure of servicing that debt . . . increasing the importance of increasing revenue substantially,” said the report.

Startups at every stage reported concerns about the impacts COVID-19 has had on sales and lead generation. In fact, 73 percent of early-stage and 93 percent of established companies have cut sales and marketing expenses. This is expected to impact growth over time, said Concrete.

Despite the host of federal government programs aimed at businesses to help them through this crisis, nearly 17 percent of startups indicated their business is not eligible for any programs and many pre-revenue companies feel left behind.

“COVID-19 is an unprecedented crisis for startups in Atlantic Canada, as it is for many startups around the world,” said Hankinson. “For some, this has created new opportunities but others are facing difficult challenges. Yet the East Coast startup community remains resilient. I am confident that we will get through this crisis.”