For years, experts have been warning that the increasing number of companies relying on debt to stay afloat poses a serious threat to the global economy.
Most economists agree that the proliferation of these "zombie" firms, which are basically on life support, makes it more difficult for profitable companies to grow as they drain capital and human resources, reduce productivity, distort competition, and hamper growth.
Rob Kramer, CEO and co-founder at eParkio, believes one good thing that could come out of the COVID-19 crisis is the death of an army of half-dead companies, which are unable to finance their debts with current earnings for an extended period.
"On a positive note, I think it's gonna weed out a lot of the zombie companies that are currently living off just the money that they had raised," Rob told Via News in an interview when asked about the impact of the coronavirus outbreak on the startup ecosystem in Europe.
His startup—which is Europe's 1st continent-wide parking marketplace connecting drivers with parking spaces in real-time—has not been left unscathed by movement restrictions aimed at stopping the spread of the deadly respiratory disease.
"Since we're in the mobility industry, our revenue is coming from people driving. So… it was clear to us that our revenue will decline once the lockdown comes into effect," Rob said, adding that their revenue has dropped by 80%.
According to him, they had to tighten their belts, reduce the size of their team, and postpone certain development plans for several months.
"It also affected our financing round. We were about to close our next round, but that was delayed since the VC is rebalancing their portfolio," added the co-founder of eParkio, which is on a mission to improve and simplify the experience of parking.
Despite the strain put on their startup, Rob says they have managed to keep things under control.
"Since we're a startup and work as a team, we were able to talk to each of the members and they all understood that there are certain things that need to be done for helping the startup survive. So sacrifices were made on all the fronts."
Future of European Startups
Elaborating further on prospects for European startups, Rob said the impact of the current health crisis will be less severe in Europe than in the United States or China because the startup ecosystem in Europe was not "overheating" and the funding rounds were not very large.
He maintains that investors in Europe are more "conservative" and "look at a startup 1,500 times before they invest".
"In other countries—let's say in the U.S.—deals are done way faster. You can have your financing round closed in one, two, or three months depending on your size and your network, whereas in Europe it can take sometimes even up to nine months. So the investors were more risk-averse… They were protecting themselves so they didn't invest in too risky startups."
The impact of the current health crisis is expected to be less severe in Europe than in the United States or China.
Rob Kramer, CEO and co-founder at eParkio
The CEO of eParkio says startups should actively find ways to survive because investments are expected to drop further.
"But there is a correction coming, and new startups and new VCs will come out of this. Looking back in history, there's always been two steps forward, one step back. Currently, we are in the 'one step back' phase. But we will make the two steps forward—maybe not this year but in 2021 because this year overall there will be a huge dip in investment and obviously in the size of the economies in Europe and globally."
Big Winners
Rob says e-commerce is one of the big winners of this crisis because everything is moving online and e-commerce sales are through the roof.
Delivery and online payment services are seeing a surge in demand, he added, noting that the pandemic will speed up the move to online services.
"It is a good thing in a way since we should have all been there by now. A lot of the European economies will now start catching up."
In Rob's view, the outbreak will lead European countries where cash is still widely used to make a faster transition to online payment because "cash is dirty as a lot of people touch it, while online the payment is a more hygienic and faster way of conducting business."
Asked how he would describe the world after the coronavirus, the co-founder of eParkio said he is an "optimist" and prefers to describe it in a positive light.
"Let's call it a beautiful new world," he noted, expressing hope that the current chapter in history will open up new horizons.