As the world is reeling from the economic fallout of the coronavirus pandemic, many startups are taking a not-so-pleasant or even painful walk down memory lane to see what went wrong.
The bitter truth is that the unprecedented health crisis has shattered the dreams of countless founders into a thousand pieces, especially those who had pinned their hopes on investors or governments.
Amir Bozorgzadeh, the CEO and co-founder of Virtuleap, a health and education VR startup, believes that flawed business models are to blame for the mounting woes facing some small and medium enterprises.
In an interview with Via News, Amir said his company is well-equipped to ride out the trough of the current slowdown as they have been in “cockroach mode” for a long time due to the nature of their products and use case.
“We knew we had to be slow and steady, whereas a lot of startups go based on the Silicon Valley model where you have to raise a large amount of money and then burn it really fast to scale really fast.”
Flawed business models are to blame for the mounting woes facing some startups.Amir Bozorgzadeh, CEO and co-founder of Virtuleap
Investors Pulling Out
The Lisbon-based entrepreneur says the vulnerabilities of such a business model have been further exposed by the fact that a lot of investors are pulling out their investments, even the ones they had signed on.
“A lot of those companies are going to be in real trouble in the next few weeks. I think a large number of startups will die in the next month or two across all sorts of industries because many investors are in a state of uncertainty and that’s not gonna go away fast enough for them to get into action.”
Amir argues the problem with investors is that they never act as fast as startups require.
“A lot of investors lead startups on. They don’t realize how fragile founders and startups are. When an investor says something very positive in a meeting, they don’t realize that a startup founder will take them seriously. Some founders are unaware that the investor just says that all the time to all sorts of startups.”
He says such an approach leaves founders waiting endlessly to receive an email that the investor had promised to send.
“And when they finally get back to you, they want to do a process and hold meetings throughout three months, but maybe the startups don’t have three months’ worth of capital in their bank accounts.”
Reputation at Stake
According to Amir, the investor community might be in danger of becoming much more negatively seen from the startup community in the next few months.
“It’s not because there aren’t good VCs out there. There are lots of good VCs, but they’re just like normal people. There’s always a really good percentage, a percentage that is kind of okay, and there’s a percentage that is not good,” he added.
The CEO of Virtuleap predicts that only a small percentage of investors will behave with “dignity” in the aftermath of the current situation and tell startups with “total transparency” what to expect.
“Startups need to know what reality is, what the investor means, and what their real interest is.”
He says some investors always like to “keep the best of all worlds and options” but they should be brave enough to just say “No” fast and quick.
Rethinking Business Models
In Amir’s view, all this means that a lot of startups which depend on long runways and big capital are going to become less and less and eventually die out.
Those who survive would be less oriented to getting VC money and would rely more on angel investors and sales, which has always been “the right thing to do”, he commented.
He says those founders who try to imitate Silicon Valley-based startups are very likely to fail because their model is centered around the idea of “scaling as fast as possible with crazy amounts of capital rather than working on your customer and figuring out who they are and what they want.”
Amir maintains that small business owners should prioritize building “incremental value” and advises fellow entrepreneurs not to grow “too fast”.
“Work more like an SME. Don’t go for the unicorn status in two years. Try to just grow as a normal organic entity.”
A lot of startups that depend on long runways and big capital are going to become less and less and eventually die out.Amir Bozorgzadeh, CEO and co-founder of Virtuleap
To help startups weather the storm of the coronavirus outbreak, governments across the world have introduced various initiatives and emergency packages. However, Virtuleap’s co-founder says they can do little to shield small and medium enterprises.
“They’re going to fail to do so for a huge percentage of those companies and startups only for the fact that they are a government.”
Governments are huge organizations and huge organizations have hierarchies and bureaucracies and bureaucratic pegs and wheels and machinery that is just not designed to work fast enough to get that money and help to startups fast enough, he said.
“So they’re gonna fail, and about 20 percent of the startups that are the most fragile would just die out because help didn’t come fast enough,” he added.
A Sinking Ship
Amir likened the present scenario to Titanic crashing into the iceberg, after which rescue ships took hours and hours to arrive.
“Some people were rescued, sure. But how many people died? And did they die because of a lack of interest from those rescue ships? No. It was because those rescue ships had certain speeds.”
He says governments are like those rescue ships that have to go through due diligence processes and application forms and interviews before being able to get help to startups.
“Founders are saying, ‘Oh my God, I’m dying here. It’s cold in this water.’ And they’re saying, ‘We’re coming.’ But by the time they come, they’re dead. Governments won’t be able to solve a situation for startups right now because they’re elephants and elephants just can’t help cheetahs. It’s unfortunate.”
Virtuleap’s CEO added that it is time for startup founders to be honest with themselves and others about what is happening.
“If they’re in a problem in any way, they have to be transparent to their employees, their team, themselves, their investors, and their advisors. There’s no time and room for beating around the bush in situations like a crisis. You just have to be real.”
It is time for startup founders to be honest with themselves and others about what is happening.Amir Bozorgzadeh, CEO and co-founder of Virtuleap
Asked about the prospects for the emergence of a new wave of startups after the coronavirus pandemic is over, Amir said a lot of money is being injected into accelerators that support healthcare-related and coronavirus-related solutions.
“Those investors and those funds need to also broaden their scope to other startups that could support that kind of startups. So I think there will be a lot of targeted solutions for the crisis-oriented things, but it’s hard to say.”
He added that solutions related to entertainment and education in a digital, VR, or AR environment are also expected to boom in the coming months.
“We have to understand how long this period is gonna last. The problem is that startups don’t have the certainty right now to develop broader solutions. So there’s gonna be so much more specific and targeted solutions now in very specific and targeted industries.”
It is going to be a very “nich-ish” market, said the CEO of Virtuleap, which is working toward a two-fold vision where users can train their brains daily through VR games and senior citizens can enjoy a high quality of life for a prolonged period.