As many companies witness a decline in revenue due to the COVID-19 pandemic, and with over 50 percent of startups in Maldives reporting a runway of fewer than 2 months, the local ecosystem has become a 'die or don’t' scenario for many new businesses.
Without a doubt, the COVID-19 pandemic and its subsequent rapid global economic slowdown, has brought forth the biggest challenge the world’s economy has seen in over a century. This, in turn, has led to international economic crises shared by many countries, as flourishing growth is replaced by a host of roadblocks with the survival of many businesses at stake.
Sadly, the Maldivian startup ecosystem is no different.
To assess the impact of the COVID-19 pandemic on the Maldivian Startup Ecosystem, a survey was recently conducted by Sparkhub LLP from April 30th to 11th May 2020. The survey saw participation from the local startups across the Maldives, all at different growth stages. The varied participants also helped reveal the massive impact this ongoing pandemic has had on the local startup ecosystem, which has now snowballed into a climate of survival for the entire local business sphere.
The report highlights that more than 80 percent of startups witnessed a revenue decline, while over 50 percent of startups had a runway of less than 2 months.
This has resulted in many startups having to suspend their operations.
A worrying 90 percent of startups recorded a drop in customers following the pandemic hit. Just as concerning, if not more, beyond half of the survey participants reported introducing salary cuts and furloughing, while over 35 percent of startups reported that they were forced to lay off a number of their staff.
As the local outbreak of the contagious COVID19 virus prompted citywide lockdowns and ground the tourism industry to a halt, the economic crisis imploded. Given that the industry contributes to well over two-thirds of the country’s GDP, Maldives’ is heavily dependent on tourism and its rapid decline has, according to survey records, had a significant impact on the purchasing power of the primary target markets of most startups.
The disruption is also highly felt across the value chain, with many startups reporting difficulty and struggle in finding new project pipelines as well as with regards to scaling their businesses.
To survive the economic downturn, most of the startups have reported seeking financial assistance to better ensure their business growth and survival.
Through the SDFC 'COVID-19 Viyafaari Ehee' (translates to Business Aid) program and the income support programs initiated by the government, many startups have got the breathing space needed, as they pivot and adapt their business to the changing environment.
The report highlights that many startups were unsure on ways to seek the state-initiated support and shared doubts on whether they would be eligible as candidates for the schemes. of
SparkHub LLP also noted that with over 50 percent of startups reporting a runway less than 2 months, seeking debt financing (which is the only available option) would likely bankrupt the startups. According to government projections, economic normalcy would reach a resolution no sooner than in the year 2022.
However, interestingly, many startups are seeking technical support to understand financial management, which includes forecasting, cash flow management, revenue generation and new market penetration.
“As the world’s economy collapses and countries shut their doors to the rest of the planet, the global impact on startups has been rather heavy. Of course, it is much more challenging in Maldives - where we find ourselves in earlier stages, without proper policies or institutions to support the startups' ecosystem”, explained Hussain Jinan, Co-Founder and CEO of Spark Hub LLP.
“This report was aimed at providing an overview for the benefit of our stakeholders, on the current situation of the business ecosystem that has affected the whole country, and to inspire ideas on possible ways that we could support the survival of this ecosystem”.
Jinan adds, “We hope that this report might help in planning a way forward, in terms of a post-pandemic recovery for Maldives’ startups, which may then benefit our local ecosystem and spur innovation”.
With the enactment of the Small and Medium Enterprises (SME) Act in 2013, a clear definition was set for classifying SMEs based on their strength of employment, annual turnover or income of the registered business in Maldives.
Yet, even today, a number of small businesses continue to refer to themselves as “startups”, depending on whether they just recently started their business.
The same misconceptions, particularly the idea that Startups and SMEs are one and the same, are unfortunately carried on by policymakers as well as entrepreneurs.
In reality, however, startups are generally regarded as being geared towards disrupting existing markets, with a strategic focus on innovation and experience scaling and revenue generation at a much faster pace
Since there is no proper definition for startups in Maldives, for the purpose of the report, SparkHub LLP developed and adopted the following definition:
“A startup is an early-stage company founded by one or more entrepreneurs to solve a pressing problem, using innovation that results in a unique product or services, is either bootstrapped or funded through friends and family, and has a business model that would be scalable and has high growth potential.”
Spark Hub LLP has highlighted that the combined issues of the current health crisis and subsequent lockdown during the survey period, resulted in a weaker response to the survey than intended.
Most startups were pivoting or working on mechanisms to overcome the business shutdowns and could not partake in the research.
Nevertheless, Sparkhub was able to get 51 startups to participate in the web-based survey and share their honest concerns at this time.
In addition, Spark Hub LLP ensured that most of the notable startups established in Maldives did take part in the survey and that a representative startup from each sector was able to complete the questionnaire.
For the full COVID-19 Startup Impact report, please visit the link below:
Formed in 2018, Sparkhub LLP is a management consultancy firm, with local and international affiliations, that utilizes core resources toward strengthening the startup ecosystem of Maldives.
Sparkhub’s main purpose is to work on creating a thriving environment that supports and nurtures the growth of startups in Maldives.
In addition to being actively involved in the development of the local startup ecosystem and creating a conducive environment through promoting innovation, the firm has invested time and energy to accelerate startup ventures in collaboration with entrepreneurs and enterprises.
A lot of effort has also been put on building and maintaining global partnerships with organizations involved in the startup scene.
Over the last two years, these efforts have allowed Sparkhub to introduce and facilitate internationally renowned events such as Angelhack, Techstars Startup Weekend, Lean Startup Machine, Seedstars Maldives and Startup Grind X, all of which have helped develop Maldives’ startup ecosystem.
SparkHub LLP launched the Startup Maldives Network in 2019, a platform that provides support to local startups seeking investment opportunities and networking through the Huddle events organised by SparkHub. Last year, SparkHub LLP was awarded the company portfolio status by Amazon Web Services (AWS) and has thus far provided approximately USD 60,000 worth of AWS to Maldivian Startups through the AWS Activate Programme.
The company also continues to host a monthly podcast and fireside chat dubbed ‘Spark Chat’, an informal online conversation that features local entrepreneurs, investors, funders and policymakers and hosts discussions around the Maldivian Startup Ecosystem. The initiative takes a lighthearted dive into serious topics such as the many challenges startups face and how we can create a better, more sustainable environment for these businesses to thrive in Maldives.
SparkHub LLP is focused on developing the startup culture in Maldives by bringing into play strategic time investment and efforts, creating successful entrepreneurs through collaborative engagement between thinkers, decision makers and enterprises, fostering solutions to meet ever-evolving global demands.