The four kinds of startups most at risk during the COVID-19 outbreak

For some startups, COVID-19 has actually caused an uptick in business, from the humble VPN industry to much-needed telemedicine companies. But for many startups, the last two weeks have meant sales falling off a cliff and CEOs scrambling to reforecast their businesses. Already, it's led executives to lay off or furlough hundreds of startup employees. Founders like George Arison, the co-CEO of online car sales startup Shift, are sounding the alarm that CEOs need to be taking action now. "There are very few companies where they have a choice in not doing this. Very, very few," Arison told Protocol.

Here are the four areas where venture-backed startups are feeling the impact of the spread of coronavirus the hardest.

Mobility

Companies at risk: Lime, Bird, Getaround

Stay-at-home orders in many U.S. cities and nation-wide lockdowns around the world mean many of the new mobility companies have seen a dramatic slowdown. Already-troubled car rental startup Getaround reportedly laid off 100 employees last week, or around a quarter of its employees, as people cut back on travel. Scooter startup Lime has paused operations in 90% of its markets, and with revenue drastically slashed, it might also be in dire need of cash. On Wednesday, The Information reported that the company may see its valuation fall as much as 80% — down to $400 million — as it seeks emergency funding from investors. It's already had one round of layoffs this year, but employees are reportedly bracing for more.

Rival scooter startup Bird announced it was laying off 30% of its employees to make sure it had enough of a cash runway to make it to 2021. It's also banking on social distancing being a priority when people return to the streets, which it hopes means people will choose scooters over crowded public transit options: "History suggests that people will demand a large-scale mobility option that still allows for personal distancing. And Bird will be there, working hand in hand with cities to help communities heal, and help riders regain mobility, in the wake of the most serious global pandemic in recent memory," Bird CEO Travis VanderZanden wrote in his note to staff, obtained by TechCrunch.

Travel

Companies at risk: Airbnb, TripActions, Sonder

This is the most obviously at-risk sector, and one that's feeling the effects the hardest. The most visible is Airbnb, which has pledged to go public this year. In the midst of the crisis, it's seen its bookings crater across the globe. But unlike other startups, Airbnb has maintained a strong cash position with billions already in the bank, and has so far avoided layoffs. It has slashed marketing spend and halted hiring.

Smaller startups haven't been as lucky. The rise of companies that were building hotel-like empires by renting professionally maintained apartments on Airbnb are now faced with rent obligations and plummeting demand. Nearly all of the startups in this space have had to lay off or furlough staff. That includes Sonder (400 people, or 33%) and dozens from smaller startups like Wanderjaunt (15% to 20%), Lyric (20% with more cuts coming) and The Guild (20%).

Corporate travel is also grounded. Boston-based Lola laid off 34 of its employees in one of the earliest layoffs. TripActions laid off over a quarter of the company, nearly 300 employees, in a series of Zoom calls on Tuesday. TripActions CEO Ariel Cohen had previously told Protocol that his company, which makes money on company travel bookings, was forecasting a 50% decline in revenue three weeks ago. That grew to 70% decline by the next week. And now, no one is traveling. The real uncertainty is how long any of this will last, but it's not a time to be an optimist, Cohen warned. "The travel industry, it's not even a startup thing, every travel company is looking really hard at their cash position — how long can they last and what can they do," Cohen said.

Big-ticket buying: Cars and real estate

Companies at risk: Compass, OpenDoor, Shift

Startups selling big-ticket items are facing a pull back as the markets face turbulence and events like open houses are prohibited. Hard hit so far has been the real estate sector: New York-based real estate startup Compass laid off 375 employees, around 15% of its workforce, as it projected that revenue would be cut in half over the next six months. "Our own early data is already showing a more-than-60% decrease in showings, and with 'shelter in place' policies likely coming to the majority of markets, we should expect a much larger decrease," Compass CEO Robert Reffkin said in an email to employees, obtained by Protocol. Other startups like SoftBank-backed OpenDoor have also paused, alongside Zillow and Redfin, all real estate buying operations.

Online car sales startup Shift is also bracing for reduced revenues, but has so far been able to maintain some of its test-drives by switching to a contactless drop-off method. Still, no worker is unaffected at the startup, which has implemented a mix of furloughs, reduced hours and pay cuts. "What you're doing to people is really painful because you're hurting people who most need capital right now, right? And that just really, really sucks," said Arison, Shift's co-CEO. "I didn't sleep probably one solid night of sleep in the last 10 days until this weekend because it was so horrible to do."

Co-anything: Any startup that brings people together

Companies at risk: WeWork, Knotel, ClassPass

"It's just Armageddon," Swivel's Scott Harmon told Protocol's Lauren Hepler. "There's no two ways around it."

Coworking companies already operating on thin margins are being stuck with rent payments and flagging demand as tenants send workers home instead of signing new leases. The implosion of WeWork in the fall had already shaken the industry, but now coworking companies will have to prove that their businesses are recession-proof. It's going to be hard.

On Friday, WeWork rival Knotel announced it was laying off or furloughing half of its staff. (Editor's note: Protocol's San Francisco office is rented from Knotel.) Coworking space Alley has closed its doors and is instead focusing on building a virtual community online until it can reopen its offices. Meanwhile, WeWork told its employees to go home, but has kept some of its locations open to serve members that are "essential businesses" like health care companies. It's offered bonuses to employees willing to go work in the offices.

It's not just coworking feeling the brunt of the pain. When a startup's business model is bringing people together, it's in for a rough time given the current shutdown climate. Take fitness startup ClassPass. The company said its revenue is down 96% across the globe because it had to stop charging members for their memberships to fitness studio classes as people were asked to stay inside. Companies focused on events have laid off their staff, or shut down completely. SXSW, while not a venture-backed business, is one example of a company that's had to cut a third of its staff. O'Reilly Media, which hosted hugely popular tech conferences, also closed down its events arm.

Who else is at risk?

While businesses are feeling the effects across the board, here are a few other areas we're watching:

• B2B businesses: Already sales teams are worried about hitting Q1 numbers as companies put a freeze on signing new contracts. Companies that rely heavily on events or outside sales will have a harder time adapting, said Outreach CEO Manny Medina.
• Advertising startups — and the companies reliant on them: One area startups are preemptively cutting to conserve cash is their marketing budgets. With ad sales dropping, the ad tech startups are starting to worry about their deal pipelines. The other side? Ad-reliant businesses, like media companies, are also already facing cuts as advertisers block keywords like "coronavirus". Venture-backed BuzzFeed, for example, instituted pay cuts for its entire staff.
• Retail, particularly apparel: With a stay-at-home work culture, one venture capitalist warned that the direct-to-consumer clothing brands in their portfolio are having a harder time now that no one is buying clothes to go out of the house. Everlane already laid off and furloughed parts of its staff, and is reportedly shifting some of its in-store staff to learn how to handle customer support for online orders. Still, there's some bright spots in e-commerce, like puzzles.