Entrepreneur

Is The Covid Recession Starving Startups Of Talent?


Entrepreneurs are many things, but one thing that is common in many portrayals of them in popular culture is their acceptance of uncertainty, their courage in the face of risks, and their determination to overcome seemingly insurmountable obstacles.

It’s an enticing image, but as new research from Suffolk University reminds us, it may not be entirely accurate. The research finds that the huge uncertainty caused by events such as the COVID-19 pandemic has resulted in many would-be entrepreneurs adopting a somewhat safer career path.

“There is so much happening in the world, one can’t help but think about events that are looming and large-scale, with enormous consequences that can impact our lives for decades,” the researchers say.

Starved of talent

The pandemic may also have had a similarly disastrous impact on the ability of startups to attract the talent they need to grow. Recent research from Harvard Business School shows that employees are adopting a similarly risk-averse strategy and appear to be opting to work for larger, more stable firms than startups.

The researchers tracked job applicants on the AngelList Talent website, which is a leading platform for startups to hire talent. The analysis revealed a distinct shift in job searchers towards larger companies after the national state of emergency was officially declared by federal officials on the 13th of March.

This flight towards larger firms was especially pronounced among higher-quality and more experienced talent, thus leaving startups with a smaller and lower-quality pool of talent to pick from. It’s a phenomenon that the researchers believe has profound implications.

“[It] means not only that the pool of potential human capital for startup companies began declining when COVID started, but also that the quality of the pool has deteriorated,” they say. “The incumbent [companies], just by nature of having more cash or by being more established, are perceived safer during the crisis, and suddenly have a unique advantage in terms of attracting talent.”

Safe haven

In total, the researchers tracked around 84,000 job applicants who were active on the platform between February and June 2020. They gauged experience via the number of years they had spent in their current role, as well as using a proprietary score used by AngelList that is a composite of one’s skills, education, experience, and job area. This score helps to identify who the platform regard as high-quality talent.

The researchers observed a clear shift in the type of firms people were gravitating towards in those early months of the pandemic. Job hunters began searching for jobs at companies that were around 25% larger than those they were looking for before the pandemic. They were also around 20% more likely to look for jobs at firms with over 500 employees.

This obviously creates a clear advantage for established businesses, such as Google and Uber, at the expense of startups who are unable to offer the same level of security and stability. The researchers believe this is a widespread trend, as it even held when they removed applicants from Massachusetts and California, which are obviously two major tech hubs so contain a lot of startups.

This was especially prominent among those people who AngelList identify as high-quality talent, who were much more likely to favor either large firms or late-stage startups than riskier, early-stage endeavors. For instance, startups with fewer than 50 employees were hit especially hard, with a 14% fall in applications during the pandemic, and a fall in the quality of applicants by 8.4% on average.

“In contrast, larger and later-stage startups saw no significant declines in applicant quality and, if anything, experienced increases,” the researchers explain.

Immune to risk

The findings belie the suggestion that the most talented among us are somehow immune to any economic risk and can always rise above whatever turmoil is afflicting average people. Instead, they are just as likely to seek safe harbor as anyone else in times of turbulence. What marks them out, however, is the way in which their expertise and experience give them greater bargaining power to get the kind of roles they want.

This is a problem as much of the value of startups is their appetite to take on the kind of risks that established firms are not. The Covid pandemic has clearly reduced our collective appetite for such risks and created a culture of uncertainty.

“[Early in the pandemic], there was not enough time for the underlying economic conditions to change,” the researchers say. “So changes in behavior were driven mostly by changing beliefs or changing expectations of the job seekers.”

For startups, raising capital can help to alleviate those concerns. Indeed, recent data has shown that venture backing for tech startups has been strong, especially in the autumn of 2020, with around $5 billion raised in September alone. It’s a surprising level of resilience that has put the total valuation of tech firms founded in Europe since 2000 at nearly $1 trillion.

“Early-stage startups have been really vulnerable during this year and that has affected their talent recruitment, but the €60 million Crisis Response Initiative we set up was designed very much to help provide the kind of security that startups and talent need,” Willem Jonker, CEO of EIT Digital, says.

In total, EIT supported 207 ventures in 32 countries with the fund, which helped provide the kind of stability startups need to be able to attract the talent they need in order to grow.

A separate paper from Harvard also highlights the value of having a top-tier VC firm back a venture in terms of attracting talent, and having that kind of signaling is clearly a good way of reducing the risk for the best talent. It’s certainly not an easy time for startups across the world, but it seems like those with the highest pedigree will manage to ride out the storm and live to fight another day.



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