Is now a good time to start a business?

This post is part of a collaborative effort between Startup Portugal, The Next Big Idea, and Sapo24, meant to create relevant content to tackle the COVID-19 pandemic.
Content available in Portuguese.

With so much uncertainty in the air as a result of COVID-19, we need to ask ourselves whether now is a good time for future entrepreneurs to consider starting a business? We have heard of a few success stories out there that make starting a business in the midst of a recession or in our case, a global pandemic, seem almost possible. One story that stands out is that of the $500 million company NerdWallet. The company’s CEO, Tim Chen, started the business during the 2008-2009 financial crisis, and according to Chen, now is a “fantastic” time to start a company as, well,  no one else is thinking about it.

Yet, there is no real certainty that a business will or will not make it in the present economic climate. That is why it is important to look at the pros and cons of starting a business during COVID-19 before taking on a new business venture.

Therefore, we will look at the different factors involved in starting a business at such a time as this, specifically focusing on access to funding, availability of staff, the amount of competition, and whether or not the new idea should even worth pursuing.

1. Funding

Of course, this is a very sought after and competitive resource in today’s market. Lately, due to the pandemic, most venture capitalists are looking inward, focusing on domestic investments, as opposed to eyeing opportunities in other regions outside of their direct interest. European companies may struggle to raise funds from United States venture capitalists and investors, as a result of the coronavirus pandemic. Unfortunately, due to the nature of the global lockdown, businesses targeting the travel and tourism sector will find it almost impossible to get funding at this time. Investors and venture capitalists are focused on putting out fires in their present portfolios and are waiting to see what the markets will look like once the pandemic lifts.

As of last week, the Portuguese government put in place support measures for startups and small businesses, one of which was the launch of the Portugal Ventures Call for investments in startups. This call provides startups with tickets starting from 50K € available to businesses in all sectors and technologies.

2. Employment

COVID-19 is also impacting our local economy and is affecting people’s jobs. According to the April 2020: The Great Lockdown Report, the International Monetary Fund predicts a recession of 8.0% of the Portuguese economy this year, with the World Economic Outlook further projecting Portugal’s unemployment rate to double from 6.5% of 13.9 % in 2020. If they are right, this will mean that a great number of people will be in need of employment. Depending on the financial stability of the entrepreneur and their business venture, this could be a great opportunity to hire talented staff and reduce the unemployment rate. A local initiative to help promote jobs and remote work is a platform called Zero Gravity, aimed at international firms seeking technical expertise to tap Portugal’s tremendous network of talented tech professionals.

Skilled personnel who are unable to find new jobs during this season are also likely to consider working for themselves as an alternative source of income. This could be the perfect time to find the co-founder to complement your skillset and launch a new business with a well-balanced and experienced team.

3. Competition

This brings us to the competitive element of starting a new business today. In a cooler labor market where businesses are hiring less, much like today, data from the Kaufman Foundation illustrates that more entrepreneurs will start new businesses simply because they aren’t able to find other employment. When Chen launched NerdWallet at the beginning of 2009, he shared how virtually no one else was trying to start a personal finance company at the time. He argued that any existing competitors were too hang up on financial stresses and the distress of retrenching quality staff.

4. Ideas

As new problems arise, entrepreneurs will be looking to profit from solutions that meet the current and future problems, paving a way forward for new businesses and transitioning traditional markets into new and versatile enterprises. It’s important to think positively, and put forward the best scenario idea as early as possible. Nuno Gonçalves Pedro, a respected Entrepreneur and Investor, recently shared some great advice, he said to remember to be a realist, to be positive and not to be delusional when investing time and resources into a new idea.

In the end, we must do what we can to keep our ecosystem moving, so we can better ensure the stability and growth of our economic future.