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Tech start-ups paint contrasting picture of COVID-19 impact

Read time 5min 20sec

As the coronavirus (COVID-19) pandemic presents an unprecedented calamity for businesses across the globe, SA’s extended lockdown has provided some local start-ups with growth opportunities, while others bear the brunt of a difficult economic environment.

Shock caused by the COVID-19 pandemic has rippled through all sectors of SA’s economy, with industry insiders forecasting that in a worst case scenario, the ICT sector may never fully return to pre-pandemic levels.

With the ramifications on SA’s digital economy expected to linger for longer than expected, some start-ups have taken the biggest blow.

Idan Jaan, founder ofalternative online lender for SMEs Fundrr, says the fallout of the current crisis has forced the company to take drastic measures as its bottom line takes a knock.

“The lockdown has been a setback. We have had to cut salaries and operational expenditure to ensure we can provide the relative payment holidays for our clients.

“Over 90% of our clients are on payment holidays, which has taken a massive toll on our revenue. We are getting a lot of requests for funding and have accepted applications for businesses that can continue to operate during lockdown levels five and four.”

A surveyconducted by Heavy Chef among SA’s small business owners found that three out of four SMEs believe they will not survive beyond July, due to the repercussions of the lockdown on their margins.

Fincheck, which bills itself as SA’s biggest financial comparison site, says with some businesses cutting their marketing budget, this has been detrimental to the company’s balance sheet.

Michael Bowren, CEO of Fincheck, notes: “Some banks and insurers have tightened their belts and risk appetites due to a rise in default rates and employment uncertainty, whilst others have remained open to new business and potentially more risk. The companies that have remained open are looking to take advantage of having 'less competition' during this period and move ahead with client acquisition.”

Nedbank forecasts that 1.6 million jobs will be shed in SA in 2020, with National Treasury projecting that SA’s GDP rate will contract by between 5.4% and 16.1%.

Digital economy firms Uber, Airbnb, WeWork and Lyft in May announced they will retrench thousands of employees, as a result of the economic downturn caused by thepandemic.

Nicky Swartz, founder of Spoon Money, a savings and lending platform for SA’s female informal traders, says the lockdown has been enormously challenging for the business:

“Our clients, informal traders in township environments, have been deeply constrained in trading, and then, where they can trade, they do so from decreased demand. This has a direct knock on our revenues and planned growth. Like every other business, we have re-forecast the rest of the year looking at the worst-case scenarios.”

However, Swartz says the lockdown has presented an opportunity for more customer engagement, to get a better understanding of their evolving needs.

“On the upside, we have automated processes and have tested for levels of digitisation in anticipation of growth post-lockdown. We're using the opportunity to engage with our clients to understand their immediate and medium-term business needs and that's opening our eyes to new possibilities.”

Some SMEs have resorted to crowdfunding platforms to keep their businesses afloat.

Andile Maseko, head of ecosystem development at AlphaCode.
Andile Maseko, head of ecosystem development at AlphaCode.

Business is better than usual

While it’s not business as usual for start-ups operating in the ICT sector, COVID-19 has proven to be a growth opportunity for some, as more consumers look to online platforms for healthcare, financial and e-learning services.

Andile Maseko, head of ecosystem development at tech start-up incubator AlphaCode, explains: “Mixed experiences are expected for our start-up members but those with a digital-first approach are benefiting the most. Those experiencing difficulties are evaluating product offerings to better address the new normal, but the uncertainty of the COVID-19 environment adds complexity to pivoting.”

Tami Ngalo, founder of Oyi medical card, a savings card for medical spend, says COVID-19 has accelerated digital advancement for local consumers.

“We've had some challenges but we managed to unlock opportunities from people being at home and hungry for digital. Our complete digital experience came through for us as we acquired 150% more customers last month. This pandemic has slowly eroded establishments which have a physical presence and created enormous opportunities for remote and digital healthcare services,” notes Ngalo.

Oyi’s engagements with medical providers suggest a surge in demand for remote medical consultations, e-scripting, remote diagnosis, self-medication and remote payment, as patients avoid contracting the virus through face-to-face medical consultations, he adds.

Graham Rowe, who heads Guidepost, a health and insurtech innovator, also paints an encouraging picture of his company’s growth rate during the lockdown.

“We had one of the best months ever during April. Providing virtual and remote healthcare services, we have seen even more appetite from our customers, medical aids and pharmaceutical companies to get great healthcare services to people that they can access telephonically from their home.”

Adoption of e-learning platforms has witnessed increased demand since the COVID-19-induced lockdowns led to schools across the globe temporarily shutting. Worth, an edtech business that delivers financial education to employees and customers through its online training portal, says the current crisis has led to a boom in the industry.

Hayley Parry, co-founder of Worth, says: “Because finances are such a significant source of anxiety for staff, we have seen that online learning through our platform has increased significantly.

“Employees are using this time to take control of their finances. In fact, we have seen the highest course completion rates during lockdown. We also created a new course around COVID-19 – a financial shock course via webinars and an online short course for employees developed for people in a household that’s had a financial shock.”

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