Dr. Graham Hughes feels somewhat fortunate his Seattle-based digital heath startup closed on seven-figure funding two months ago instead of seeking it now.
The president and COO of Saykara, which makes a virtual assistant that reduces physician paperwork by listening to patient examinations and charting detailed notes from them, knows his 30-employee company has fared better than some tech startups during the coronavirus crisis. What his customers — including Providence, St. Joseph’s and Swedish hospitals — lost from canceled elective surgeries was offset by a “massive spike’’ in virtual doctor visits and primary care.
“That’s one of the benefits of being in the high-tech medical industry,’’ Hughes said. “With a crisis like this comes the opportunity to help.’’
Still, with uncertainty swirling around COVID-19, the illness caused by the novel coronavirus, all startups face increased pressure with not only generating revenue and paying bills, but attracting investor cash. Hughes said it’s unclear what impact COVID-19 will have on venture capital funding the next two or three months.
“We got a bit lucky,” he said. “As did others who closed funding rounds in early 2020.”
Venture firm Sequoia Capital this month issued a “black swan” memo to its entrepreneurs warning that “private financings could soften significantly’’ during the current crisis. Tech startups are particularly vulnerable to productivity lost to coronavirus workplace disruptions — given their constant need to upgrade digital offerings — and many will require cash to endure trying months ahead.
Kirby Winfield, founding general partner of Seattle-based venture capital firm Ascend, said near-term money might decline industrywide — particularly for early stage startups and those selling services to larger companies with big-ticket software products.
“If you’re selling to a Fortune 500 or even Fortune 1,000 company and it’s a higher-ticket purchase, that stuff may be sliding to 2021,” Winfield said, “So, if you’re a startup that just raised enough money to be around for 12 months, you’re in trouble.”
Virtual assistant startup Saykara, formed in 2016, secured $7.5 million in two initial funding rounds, then $2.5 million to $3 million by late January. But “with everyone so distracted and derailed by this [coronavirus]’’ COO Hughes said he’s uncertain what that process would entail today.
Hughes said potential investors remain “super excited” about his company’s voice assistant “Kara’’ that — through a smartphone-type application — listens in on 12,000 doctor-patient interactions monthly. Powered by artificial intelligence, it sorts out key parts of the conversation in real time and uses the information to fill out customized medical charts.
“I think the fundamentals, obviously, haven’t changed, but I think where people would start to look at us slightly differently is with the upside and the downside risk,’’ Hughes said. “With some parts of the business slowing down and others picking up, the question becomes, ‘How long might this go on for? Is this going to be a two-to-three-month thing or through the rest of the year?’ ’’
Though his employees are now working from home, Hughes said “on balance, we’re probably OK.” Late last week, the company announced it will let doctors treating COVID-19 patients use Kara for free and will seek sponsor support for the initiative.
But while Saykara appears well-positioned for the coronavirus epidemic, other startups in more vulnerable fields are hurting.
Late last week, Seattle co-working startup The Riveter, launched in 2017, used a Washington state policy to put 24 of its 71 employees on “standby” — allowing them to collect unemployment insurance in the hopes they could return to work in eight weeks. The company received $15 million in funding in December 2018 but recently reduced staffing and limited the use of shared office space by its members due to COVID-19 concerns.
“The safety and health of our employees and members has always been the top priority,” CEO Amy Nelson said. “We understand how extremely difficult this is for our employees and members on a personal level and we’re doing everything we can to support them.”
Three-year-old Seattle online clothing rental service Armoire closed its Kirkland retail location and reduced about a third of its staff through cuts, “standby” placement and shortened hours. Armoire members had put subscriptions on hold during the crisis while new rental customers slowed.
“There’s obviously two big concerns — managing cash and managing income,’’ said Rebecca Lovell, executive director of Create 33, an entrepreneur center helping about 250 Northwest tech startups. “And cash is top of mind right now. So many companies have a lease and other financial obligations that aren’t going to go away during this time.’’
A reminder of that came last week when the federal Families First Coronavirus Response Act was signed into law mandating startups and other small businesses provide up to two weeks of paid sick leave and 12 weeks of paid family and medical leave to employees diagnosed with COVID-19.
Lovell said some member startups in tourism or traditional brick-and-mortar sectors are getting hit hard by the pandemic. But others are faring better at providing technology for customer engagement, sales enablement, customer retention, analytics and operational efficiency.
Seattle-based Convoy, a trucking logistics startup founded by Amazon executives, is still gauging the pandemic’s effects. Of particular concern: whether stay-at-home orders like those issued recently in several states expand elsewhere. On Monday night, Washington state started a stay-at-home rule.
“Right now, the freight industry is seeing a surge in demand,’’ said Convoy chief economist Aaron Terrazas. “But it’s hard to see how this surge continues if these broadened closures extend beyond a handful of communities to where they become nationwide closures.’’
Demand for essential groceries has fueled surges in trucking delivery orders nationwide in an industry previously slowed by trade and tariff wars. Terrazas said Seattle, in particular, saw a huge spike the week ending March 1 as initial coronavirus cases surfaced here.
“This is a result of all of the shopping we’ve been seeing with Seattle-area consumers stockpiling household goods,’’ he said. “Obviously, stores have to restock their shelves, and shippers are responding to that.’’
But places such as Orlando, Florida, and Las Vegas saw downturns as Walt Disney World and casinos were closed. And despite a surge in food, beverage and grocery shipments accounting for 10% of trucking nationwide, that’s been offset by declining demand for automotive parts — about 9% of the market — after automakers halted production.
Convoy received $400 million in new funding in November and, for now, seems poised to ride out the pandemic. Terrazas hopes a decline in new COVID-19 cases in China leads to increased shipping from West Coast ports in California, Oregon and Tacoma in coming weeks and boosts the trucking business.
On a positive note, angel investor Winfield said there’s $110 billion in industrywide cash reserves held by venture capital firms that need to be put to work. One of his local startup investments, Vouched ID Verification, has seen its business surge due to the need to verify online purchases by an increasingly home-bound populace.
“For every door that closes, one opens,’’ Winfield said.
But he cautioned: “I do think the next month or two, you’ll see some hesitation by venture capitalists to engage in new deals if they really spend some time looking inward at their portfolio companies.’’
That’s why Hughes is glad Saykara recently secured interim money. He’d planned to seek bigger funding this summer and still hopes to “once things settle down.’’
“We’re definitely putting our toe in the water already,” he said. “We need to be taking our story out there. We may see things slow down a little bit, but we’re doing all of our contingency modeling around that anyway.”