When the business world went virtual, Houston Exponential jumped into action to create a central calendar of remote events to ensure the Houston tech ecosystem wouldn’t miss a beat. The whole community came together and started creating great content and assistance programs for early-stage companies. As the initial shock and immediate responses calmed, HX realized that Houston needed a more targeted approach to recovery.
With Houston startups facing unprecedented challenges in the midst of a perfect storm (COVID-19 and rock-bottom oil prices), how do you even begin to address the needs of founders?
You Go Directly to the Source
Houston Exponential created a 30 question survey to dig into the challenges and needs of Houston startups based on company size, industry, and how much they had raised. The survey took place from April 23 – May 7, 2020 with all of the respondents being founders at companies of 30 or fewer employees, headquartered in the Greater Houston Area. You can download the complete report from the HX Reports Page.
Startups’ Financial Woes Go Beyond Just Loss of Revenue
As the enterprise companies in Houston tightened their budgets, 30% of startups in our B2B heavy ecosystem saw contracts fade and revenues shrink. Unfortunately, this was only the tip of the iceberg with regards to financial challenges. Many venture capital firms shifted focus toward their existing portfolio companies, and the ones that were still looking for new deals were hunting at a bargain. One in five companies that were raising before and during COVID saw their valuations decrease by 10-20%.
Financial obstacles also manifested in the form of hiring trouble. Founders are finding talented candidates in Houston, but are unable to meet their salary demands. It’s common for startups to compensate early employees through company equity in lieu of salary, but with such economic uncertainty, employees may prefer that guaranteed cash and liquidity.
The Digital Health Sector Dodges Two Bullets
One in three Houston startups with six or more employees were forced to conduct layoffs or furloughs; however, none of the respondents in the digital health industry had layoffs. It’s not that these companies were profiting from COVID related solutions, but rather that their revenues were tied to clients who are critical in a pandemic and have minimal correlation to oil prices. This isn’t to say that there were gains for all digital health companies, but when revenue streams are closer to projections, drastic budget cuts like layoffs aren’t necessary.
The Outlook for 2021 is Positive
Nobody knows when things will return to normal or what the new “normal” will look like, but Houston founders are optimistic about a 2021 rebound. More than half of startups that were negatively affected by COVID believe they will start to recover before the end of 2020. Additionally, despite the large cost cutting measures across the board, 80% of all companies plan to hire in the next 12 months.
Houston is a resilient city, and its agile founders are the most adept at making the best of any situation.