Wednesday, March 11, 2020

March 11 Coronavirus (COVID-19) Update For Startups

Last updated: March 11, 2020. Google doc version here.
For Feb 28 doc, please see Google Doc or Blog.

Its been less than two weeks since I posted on COVID-19 / SARS-CoV-2. A lot has happened during that time. Rather than update the old document I decided to write a new one. More background is in the old one. 

Some updates in the last ~2 weeks. This is clearly not “just the flu”.
Given that cases are spreading exponentially, and many areas are undertested, cities or countries can, like Italy, go from a few cases to quarantine in just 2-3 weeks. It should be noted that Wuhan was locked down at 495 cases and 20 deaths. In contrast, Washington State is at 267 cases and 24 deaths, while the Bay Area is quickly growing.

Interventions: Spreading the Epidemiological Curve
In the absence of drugs or a vaccine, non-pharmaceutical interventions like social distancing, the shutting of schools, and quarantines are enacted in epidemics. The most famous studies of social distancing techniques focus on the 1918 flu pandemic.

The key takeaways from these studies include:

Relatedly, the number of hospital beds and ICU capacity matters. Once front line health care workers become tired, exposed, and sick, the system can unravel rapidly. Italy has asked doctors to come out of retirement and graduated nurses early to try to fill the gap.

Much of the goal is to “flatten the curve” - that is spread out the case load of sick people so that the healthcare system does not get overwhelmed to the point of collapse. This prevents both death from COVID-19, but also death from other disease not being treated by a hospital and healthcare staff overwhelmed with an epidemic.

The US has so far not been proactive at epidemiological controls as well as testing and measurement. This leaves it up to individual companies and citizens to act in the general interest of their neighbors until government action is initiated.

Expect More Quarantines
The places with highest risk or both an overwhelmed health care system and quarantine are ones where there is a big up swing in cases and deaths. Given the lack of robust testing in much of the world, case loads are probably dramatically understated. A simple rule of thumb is that if you assume a 1% mortality rate, and 3 weeks for the first people to die, 5 deaths today from COVID means ~500 cases 3 weeks ago. If the case count doubles every week, that means 8*500=4000 cases today. Notably, Washington State has 29 deaths. Assuming we are overcounting cases due to clustering by 2X, we still end up with >10,000 people in Washington state infected, versus the official 290. This math is undoubtedly off, but probably not by 30X.

Given the death and case loads, expect more quarantines to occur. Italy has now quarantined the entire country. Washington State is likely to issue a quarantine. The next most likely candidates for quarantines include France and Spain in Europe and San Francisco Bay Area, NY, and Boston (as a reminder, Wuhan locked down at 495 confirmed cases and 20 deaths)

Table from Austrian site:

Chart above suggests 1-2 weeks before multiple countries hit their own “Italy” moment, at least in terms of cases. Exponents move fast.

If you plan on traveling, you may want to chose a location that you would not mind suddenly finding yourself quarantined in for a few weeks or more.

What about the countries with few cases?
A number of countries claim few to no cases of COVID-19, including Indonesia, India, Russia and Thailand. These countries have taken limited actions to suppress spread or cause social distancing. This suggests a number of these countries may have uncontrolled community spread on their hands which is about to expand dramatically.

Impact To Elderly and Children (and Adults!)

There is an unfortunate meme that COVID-19 is “just the flu”. The reality is, that for 80-85% of people it does indeed seem to be a flu like disease. Unfortunately, around 10% of people end up in the hospital, and 1-3% in the ICU. This is dramatically worse then the flu and causes healthcare resources to get depleted, leading to excess deaths. Above is data from the Chinese CDC (biased undoubtedly due to Wuhan) versus US CDC on flu versus COVID-19. In general, the disease seems to be most aggressive in elderly. However, the case fatality rate in younger adults may still be 2-10X that of the flu.

Below is an interesting graph showing the trade off between event size and likelihood of someone infected with SARS-COV2 being in attendance. Biogen recently held a 175 person event in Boston, which is now tied to 70 cases of COVID-19 including 25+ of the attendees. 

This suggests it is worth canceling most events above 100 people. It also suggests that things like cruise ships, Disney Amusement Parks, marathons, parades, and concerts might not be the best things to pursue right now.

So, What Should My Startup Do? Part 1: Protecting Employees
  • Move to remote working or work from home (WFH).
    • Companies such as Google, Microsoft, Twitter have adopted WFH nationally. This is meant to both protect employees from illness, as well as help the communities in which employees live. Companies are adopting social distancing policies as many governments are determining their course of action.
    • If needed, do first week as a pilot. Try it out, get the kinks out. Fix them, and then try again / keep going. It may take adjustments in processes or tooling to be effective as a work from home startup.
    • Schools will likely shut down in many parts of the US (300 million students are already out in many parts of the world) so many employees will need to be home to take care of kids as soon as that happens. At some point, the local or state government may mandate WFH. Expect this to last 4-12 weeks.
    • Not every company can do WFH without shutting down. For example if you have a biology lab, you will either need to shut all progress or move to a skeleton crew. 
    • Not every employee can WFH. You may need to reserve space for people unable to work from home. If possible (1) space people out at least 6 feet (2 meters). (2) remove communal food and eating. People should either bring in their own food or get individually wrapped food if possible. (3) ensure proper sanitation of work place and availability of cleaners for hand washing. This may shift if the government gets its act together and mandates work from home for non-location-essential work.
    • Let employees know that “working from a coffee house” is not working from home. This defeats the point of social isolation.
    • Plan for the remote work contingency. If you do not immediately adopt work from home, it is worth planning how your company will work if the virus takes off in your country, or in countries where your employees work. Do you adopt a work from home policy or other approaches? What is the threshold for work-from-home? Coinbase has a guide like this
    • In general if you want to help slow the virus moving to WFH now is best (as long as it does not destroy your business, in which case people will permanently be home - no work!)
  • Encourage hand-washing. You can watch a video here for best practices. You may want to add a few purell dispensers around the office as a reminder.
  • Wipe down work areas regularly. There is some evidence suggesting the virus may stick around for at least a few hours, if not more, on surfaces. You may also want to wipe your phone down on a regular basis.
  • Encourage flu vaccination. This will decrease health burden on hospitals and also prevent people from getting the flu and thinking they have COVID-19.
  • Curtail travel and conferences and move to video calls. Your employees may generally want to cease travel and in particular avoid countries where either COVID-19 has started to spread (China, Hong Kong, Iran, Italy, Japan, Korea, Singapore, Thailand).
  • Curtail visitors from other countries. A number of companies are starting to adopt a “no visitor” policy and moved such meetings to a video call.
  • Cancel events. It is wise to cancel group company events. Biogen recently held a 175 person event in Boston, which is now tied to 70 cases of COVID-19 including 25+ of the attendees.
  • Paid sick leave and zero tolerance sick policy. You may ensure all employees have paid sick leave. This is especially important if you still have people in the office and do not want sick employees coming in to make their payday.
  • Hourly workers. Some companies like Microsoft have continued to pay hourly workers displaced by WFH. You may or may not be able to afford this as a company.

So, What Should My Startup Do? Part 2: Dealing With A Downturn
Sequoia Capital has created a lucid guide to the coming economic storm, and how to weather it as a startup. Andressen Horowitz has also added some resources, as has General Catalyst.

Key takeaways:
  • Make your cash last. Imagine the global economy is now in a recession and it will be another 6-12 months before enough people are infected for the virus to go away. Do you have enough money to last until mid-2021 before fundraising if you need to?  It is always possible the economy will escape unscathed. It is best to prepare for this not being the case.
  • Expect slowing growth. Customers may cancel deals last minute or take longer to close. For many startups, sales will slow. If you were growing 3X a year, you may be down to 1.5 or 2X. Can you front load contracts and payments, or find other ways to make up for lost customer in terms of locking in cash? 
  • Can you uniquely win right now? Alternatively is your business uniquely suited to this environment? Can you buy a competitor, accelerate growth, or make the situation workable?
  • Raise money. If you need to, raise money. You may want to do it as a flat round or small bump to close money rapidly. Are there people who wanted in on the last round you can include now? The markets may recover quickly. Alternatively, valuations may be on a slide for the next 6 months. It is often better to have cash than over optimize.

Some resources for startups:

Open Questions
Flu and colds tend to die down in warmer, humid weather. Given the R0 is high for this disease and the human population largely naive (i.e. has never seen this disease), will weather make a difference? Recent modeling paper here (note this is not peer reviewed). Alternatively, will this die down in the northern hemisphere with weather, only to flip to the southern hemisphere for their winter, to return for round 2 in the northern fall and winter? Importantly for the world economy - will China see a second wave?

It is notable that many warm places (UAE, Bahrain, Qatar, Malaysia) are all reporting more cases per capita than the US despite hotter weather. Given the undertesting everywhere, it is hard to tease out reality.

In many epidemics disease course follows two waves. In wave one, an initial infection happens followed by warm weather, governments tightening movements, shutting schools, and in general decreasing the spread of the diseases. Controls are eventually relaxed (people need to work, kids need to go to school etc.) or the weather changes, and then a few months later a second wave of the disease hits and infects a subset of the people who were not infected in the first wave. Eventually, enough people get sick, develop antibodies, and there is a strong enough herd immunity in the population to decrease future out breaks in size.

1918 Spanish Flu had two predominant waves of virus spread.

C. Are any numbers accurate?
An open questions is the accuracy of COVID-19 case numbers. For example, Chinese cases numbers have been thought by some epidemiologists early on to be understate by up to 10X. The US is clearly undertesting. What was the real case load? What is the real denominator to the disease?

D. When will US test sufficiently?
South Korea controlled the outbreak via aggressive testing + social distancing. The US only tested 4500 people as of last week, while South Korea is testing 10,000 a day. While test capacity is starting to ramp, many people are still complaining of a lack of testing for obviously sick patients. At what point will the US truly accelerate testing?

E. How will this impact US politics?
As noted above, COVID-19 is most severe in elderly, although a number of young adults have also been affected. Given the age of the political class, a number of French members of parliament have been hospitalized, the Head of Italy’s Democratic Party and the Health Minister of the UK have all caught the virus. 

At what point does this jump to the US political class? The average age of a US senator is almost 58, with almost 50% of senators over 65. Assuming a number of them catch COVID-19, what are the implications? (I am of course hoping none of them sicken and the country moves aggressively before such a terrible thing happens).

Relatedly, will this impact the election? For example, all the candidates of note are over 70. Will any of them catch COVID-19? Can they still hold events and rallies? Will elderly stay away from polls leading to favoring of a candidate that young voters prefer? This is truly a black swan year. (Or perhaps, more fittingly, a black bat year)