Over the past several months, the local startup community has faced unprecedented hardships amid the coronavirus pandemic. The U.S. economy has taken a devastating blow as stores are forced to halt operations in order to slow the spread of the virus and states are issuing stay-at-home orders. Among the most affected are small businesses that lack the funding and resources to draw on during these difficult times. See Kevin Robinson-Avila’s April 26 article, “Startups struggle to survive amid virus”, reprinted below from the Albuquerque Journal.
Startups struggle to survive amid virus
By Kevin Robinson-Avila / Journal Staff Writer
Monday, April 6th, 2020 at 12:02am
ALBUQUERQUE, N.M. — Michaela Brown’s Blush & Whimsy online lipstick and jewelry business is facing tough times in the coronavirus outbreak.
The Rio Rancho startup, which launched in 2016, earned national and even global prestige after Brown’s products were included in Oscar and Grammy celebrity gift bags, paving the way for Blush & Whimsy to be featured on the QVC shopping channel last year.
But when the coronavirus hit, the company’s supply chain collapsed, crippling operations since Brown’s jewelry and lipstick-packaging products come from China and South Korea via U.S. distributors.
One jewelry shipment is now stuck in Cincinnati, delayed by the coronavirus, and no more lipstick packaging is expected from Asia for another five to nine months.
“It all fell apart in January,” Brown told the Journal. “I’ve got just $7,000 worth of inventory left, with 100 lipstick units and a handful of jewelry. … I’ll keep going however I can, but it could be six months or more before I come out of this.”
Businesses across the board are facing major hardships from supply chain disruptions, travel restrictions and stay-at-home orders in many states. The pandemic has particularly impacted retail, restaurants and entertainment venues as their operations either completely ground to a halt or were severely curtailed.
Startups, however, face special challenges, since many are pre-revenue enterprises that are still building their businesses with limited finances. Some may have initial revenue flow, but most are still far from sustainable income or profitability, and the majority are now burning through their available cash as the world around shuts down, said John Mierzwa, CEO of Ingenuity Software, an Albuquerque startup that builds websites and other online capabilities for companies.
“All startups are now generally digging into their rainy day funds and bank accounts,” Mierzwa said. “Those funds could be depleted fairly quickly depending on how long the crisis lasts.”
Like many local startups, Ingenuity Software is facing difficulties as clients pull back on spending during the crisis.
“Work has slowed down,” Mierzwa said. “We had one client in Northern California that we were scheduled to re-do the software for on 36 training stations. We were ready to start, but now they have zero revenue coming in, so everything is on hold and the contract is frozen.”
Most startups are too early-stage to access traditional lines of credit, encouraging many to seek funding from private sources, including individual “angel” investors and venture funds.
But a lot of previously available angel and venture funding will become harder to obtain, since investors will likely be more cautious about backing new companies during the economic crisis generated by the coronavirus, said New Mexico Angels President John Chavez. Many will prefer to reserve their capital to help startups they already invested in to weather the downturn.
“We haven’t seen any local startups go under yet, but I wouldn’t be surprised if over the next two to four months we see companies that just can’t make it,” Chavez said.
Startups that already received early-stage funding from investors will likely fare better than those that haven’t, said Lisa Kuuttila, University of New Mexico chief economic development officer and president and CEO of the Science and Technology Corp., UNM’s tech transfer office.
“Companies that have already gotten funding now have committed investors backing them who will likely have more money available to help them through the crisis,” Kuuttila said. “But companies that haven’t raised money yet will struggle. One company we work with had promising prospects for funding, but with the coronavirus, nobody is talking with them now.”
Hard to connect
Stay-at-home restrictions have forced most startups to work remotely. Technology-based companies are generally already set up for that, but being cut off from community support bases and co-working sites can be challenging.
Both the Lobo Rainforest building at the Innovate ABQ research and development site Downtown and the FatPipe ABQ co-working space across the street are shut down.
“It’s a real adjustment for small businesses trying to get off the ground,” Kuuttila said. “They have no office to go to now.”
FatPipe Chief Operating Officer Lisa Adkins fears the current crisis could cause lasting damage to New Mexico’s budding startup community and ecosystem. Numerous business accelerators, co-working spaces and support programs have formed in recent years to encourage aspiring entrepreneurs to launch businesses, leading to hundreds of new local startups.
“The support network we’ve built as a community has made becoming an entrepreneur appealing to many more people,” Adkins said. “But many have risked everything and are now losing, or stand to lose, everything. I worry about the impact on the startup ecosystem, whether many people will be too scared to come back out and take risks again.”
Fighting to survive
Still, the community is finding ways to remain supportive to help startups through the crisis, with most local programs moving online. The weekly 1 Million Cups meet up, for example, usually held at FatPipe, is now operating through a live-streamed format, Adkins said.
CNM Ingenuity, which manages all commercial endeavors for Central New Mexico Community College, has moved its programs online, including two new cohorts scheduled to start this month for Deep Dive Coding and the ActivateNM startup accelerator. ActivateNM, run by CNM Ingenuity’s ABQid business accelerator, also launched a free weekly online webinar series to help startups during the crisis, said ABQid Executive Director T.J. Cook.
The Creative Startups business accelerator moved its entire curriculum to an online format. And UNM’s Innovation Academy launched a free crash course online for existing businesses and aspiring entrepreneurs to learn how to set up a virtual storefront and manage activities through the Internet.
Many entrepreneurs, meanwhile, say they’re determined to pull through.
Nicole Taylor, owner and CEO of pet care service House Nanny LLC, had to lay off 20 contract employees who walk, feed and care for customers’ dogs. Travel and stay-at-home restrictions mean fewer customers need dog-care services, and in any case, the governor has forced all “nonessential” businesses to shut down.
“We got hit pretty hard,” Taylor said. “We’re basically closed down with no cash flow.”
But Taylor is buckling down to await better times.
“We have a well-established client base, so when things start up again, we won’t be starting from scratch,” she said. “We will get through this thing.”