Positively disrupting: Start-ups vs. the pandemic

Covid-19 is having a huge impact on our ways of life. The changes which are being imposed on us, while disruptive, have also demonstrated that some of our societal habits were simply that – habits –  and that rapid change from the ‘way things have always been done’ is possible. How are these changes manifesting in the community of SMEs which are intent on disrupting the post-pandemic built environment and transport sectors?

We surveyed around 70 small companies across the built environment, infrastructure, mobility and wellbeing sectors to find out – and the picture that emerges is surprisingly positive.

What has the impact been on headcount and working environments?

While the crisis has undoubtedly had an immediate term negative impact, with 70% of firms seeing decreasing revenue (with half reporting a decrease of more than 25% and a few firms on the verge of collapse), nonetheless, in general, companies have proven resilient with 90% managing to maintain operations (so far) without redundancies and only 29% needing to furlough staff. Government support initiatives seem to be having their intended impact here, with over half the companies surveyed making use of them.

SMEs have managed to adjust rapidly to the new realities of remote working and ‘socially distanced’ service delivery. Of the 2/3 of companies who have seen a change to remote working patterns, the majority report that this hasn’t impacted them much and more report that the change has been positive than negative. Supply chains too have proven robust with only 2% citing any significant adjustment to their supply chain arrangements.

What has been the biggest challenge for SMEs?

The biggest challenge for start-ups right now is raising investment, with two thirds considering the situation worse and raising finance a struggle. We spoke to an angel investor who confirmed that in general in the community at the moment there is some hesitancy to commit funds. Particularly for early stage businesses, the uncertainty around the medium to long term impact of covid-19 has increased the risk and made it harder for an investor to help shape value propositions to spur growth. In addition, given the wider decline in stock markets, investors’ overall portfolios are under pressure meaning that the relatively higher risk of an early stage investment is seen as less attractive.

Despite this, there are many reasons to remain optimistic about the prospects of start-ups in the sector. While smaller businesses are often challenged by short term cash flow issues, they have the advantage of agility and companies in our survey demonstrated this abundantly. 68% are planning on adjusting their R&D as a result of covid-19 and for the majority this is an increase or change of focus rather than a reduction.

Survive or thrive?

Indeed, 72% of companies we surveyed see the current situation as an opportunity for their business. With society engaged in a huge experiment in new ways of doing things, businesses which showcase better ways of doing things stand to win. Sectors (for example real estate) which have been slow to adopt modern digital practices are being forced to do so rapidly and firms which provide the tools to do this are growing.

Of course, products and services that facilitate remote working are being rapidly adopted but the crisis has also demonstrated that the cult of efficiency can go too far and solutions that provide resilience and redundancy are also increasingly seen as investible propositions. Social distancing is likely to be with us in some form for a while now and as such the trend towards automation is likely to accelerate and businesses offering ways to automate previously manual services are seeing rapid adoption against a back drop of limited alternatives. Finally, as has been widely discussed, many cities are using the crisis as an opportunity to re-think how their transport systems work and sales of bikes have been rocketing. Companies in the active and electric micro-mobility arenas are therefore increasingly attractive.

Unlocking opportunities for growth

Some firms are capitalising on these opportunities, with bold ‘counter-cyclical’ investments. We spoke to Cam Ross of the Green Angel Syndicate who advised that having now transitioned to ‘virtual pitch’ events, his organisation have actually seen an increase in pledges towards companies they are raising funds for. In his view, his members are seeing the current crisis as a potential pivot-point opportunity to unlock growth for companies that have propositions which are well suited to both the emerging ‘new normal’ as well as contributing to a net-zero future. For example, one of the companies in their portfolio Swytch Bike which sells kits to transform ‘normal’ bikes to electric have seen a huge upswing in orders since March.

With the recently announced British Business Bank “Future Fund” loans now available to match-fund equity stakes taken by investors, it would seem that now really is a good time to invest in the right type of business.

SMEs pivot to support crisis response

In addition to moving quickly to capitalise on the opportunities which the crisis has uncovered, 61% of the SMEs we spoke to have also mobilised to support the UK’s response to the pandemic. Efforts range from providing asset-tracking technology for PPE (Personal Protective Equipment) and secure 4G/5G internet access for covid test-stations to rapidly deploying drone delivery services and offering online services to help reduce isolation and loneliness. The range of solutions these companies are providing is testament to their creativity and ability to react rapidly. Any investors reading this, take note!

Connected Places Catapult support

Here at Connected Places Catapult virtual towers, we continue to support UK businesses as we work remotely as a team. We developed and regularly update our COVID-19 SME Support Hub – a single point of access to latest funding news and calls to action coming from the government, local authorities and other partners curated for our SME community. We are also keen to facilitate networking between start-ups looking to jointly overcome similar challenges during the crisis. If you are an SME who would be interested in this, please do drop us a line. Indeed, if any investors or start-ups operating in these spaces have any comments on this article, we’d love to hear from you: SMEteam@cp.catapult.org.uk