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SFC startups that are beating the crisis

COVID-19 will change the way we do business – and some SFC portfolio companies are already ahead of the game

Although the COVID-19 crisis has hit the economy hard, startups have the potential to be real winners in this new world. The digital transformation of society is being massively accelerated and never before have such drastic changes occurred in such a short timeframe. This creates significant opportunities for small and lean startups that are able to adapt more quickly to new market conditions than larger businesses.

At SFC, our belief is that a new generation of startups will emerge in every industry to take advantage of the new paradigms of a post-COVID-19 world. These companies will be able to tailor their products to meet the new needs of their customers and to occupy the void left by struggling incumbents. Our job as investors is to fund these innovations now and build a portfolio of companies that will solve tomorrow’s problems.

We see plenty of examples of this already within the SFC Alumni. We are fortunate to be generalists, which means that our portfolio is not overly exposed to any industry. Out of the 200+ companies that we have invested in, a significant number are operating in sectors that are unaffected or even benefiting from the crisis. We count around 30% of SFC companies that have actually been booming since March, which has had a positive impact on our portfolio overall.

The first trend that has been widely reported is the boom in e-commerce, which is estimated to represent over 30% of all current retail transactions. A notable example is SFC portfolio companyBloom Magic, an online flower delivery service based in Dublin. As a result of the lockdown, the startup’s order volume has surged dramatically as supermarkets are no longer giving flowers space on the shelves and many local florists and online competitors have had to close. Almost overnight, Bloom Magic has become the number one online florist in Ireland.

Consumer brands selling ‘lockdown-friendly’ products are also doing very well at the moment, especially if they are keeping children occupied.Mayku, the brand behind tabletop forming machine FormBox, has been booming recently and is seeing exceptional levels of sales. We have seen similar trends elsewhere in our portfolio in brands such as home-baking mixes producerSuperfood BakeryorNimble Babies, a company selling plant-based cleaning products – which are currently in high demand.

Tech products can also address many issues created by social distancing measures. We are particularly excited aboutSceenic, a software company powering interactive, ‘Watch Together’ viewing experiences – which could become the norm of how we consume live events in the near future. Online learning platforms such asSmartellaandLanguare also seeing strong growth in usage and revenue. Our portfolio star, B2B sales software companyCognism, closed an extension of its Series B round led by AXA Venture Partners in March and is well positioned to provide the tools for businesses to generate sales remotely in this new environment. Freelance marketplaceCG Herohas also just raised a new funding round to grow its global pool of CGI talent and match it to relevant jobs, all remotely.

It is also clear that COVID-19 will transform the way we go around. Public transports’ capacity will likely remain low while social distancing is in place and new individual forms of mobility will be encouraged. In this context,Swytch, a manufacturer of battery kits that can turn any bike into an e-bike, has recently done phenomenally well and generated record-breaking pre-orders from all over the world for its latest product. Another interesting trend is around Electric Vehicles, which are now the best-selling cars in the UK. This is likely to accelerate further and much more quickly than predicted before the pandemic.Petalite, an SFC company based in Birmingham, has developed a fast-charging battery technology that could be a game-changer for this market. The tech startup raised a funding round led by a new strategic industrial investor in March to bring its technology to market at the end of 2020.

Finally, we are pleased to see so many portfolio companies doing their bit to support the fight against Coronavirus. For instance,Transcend Packaging, the manufacturer of sustainable packaging products – including McDonald’s’ paper straws –, recently announced that it will be adapting its production to makea million face shields a weekfor the NHS in Wales, with the capacity to increase it to two million.

Of course, the current events and uncertainty about the future can be very daunting. But seeing all these companies perform well and new opportunities arising every day makes us feel optimistic overall, and fortunate to be supporting entrepreneurs and innovations that will help us recover from this crisis and adapt to this new world we live in.

 

By Joseph Zipfel, Chief Investment Officer at SFC.

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SFC startups that are beating the crisis

By SFC Capital04 Jun 2020