Visible detritus strewn about the beaches near where Hurricane Sandy made landfall may not be the only testimony to the storm’s disruptive power. Judy Shapiro, in her article, “The Quieter Wreckage That Sandy Left Behind,” says the massive storm disrupted many fledgling startups.
That’s not a surprising revelation. Yet the true scope of the economic damage to the region’s economy cannot be understood at first glance, notes Shapiro. The financial reporter for The Huffington Post says the storm system also disrupted a delicately balanced “bootstrapped” financial system that provides startup capital for small businesses.
As it turns out, capitalists on the Eastern Seaboard differ from other regions of the nation in that they are not as forbearing to funding requests as their West Coast counterparts, Shapiro says. That’s why the flow of venture capital in this region of the country is more akin to what she calls a “juggling act.” As a result, startups struggle to receive capital funding sufficient to keep the business afloat during that critical launching phase.
To further complicate matters, Shapiro says the personal needs of those venture capitalists that lost homes to the raging waves trumped pre-existing plans by investors to provide capital to startups.
There is a positive aspect to the cash crunch, as the scope of the disaster prompted government officials to fill the cash crunch gap. In an April 2013 press release, the Small Business Administration announced $2.2 billion in SBA disaster loans would keep the capital flowing in the aftermath of the storm. A disaster of this great a magnitude hampered the free flow of capital, and the quick response of the SBA was crucial to keeping the area’s businesses flush with cash.
One loan recipient was IceStone, LLC, a countertop manufacturer that managed to keep the business going in the wake of the disaster. A quick disbursement of $988,000 from the SBA enabled the firm to bring 127 employees back to work following the storm.
Here’s another factor that made the difference in recovery for the region: New York City’s tech-savvy entrepreneurs. For example, H.Bloom, a florist startup in the city, tapped geo-location technologies to keep delivery trucks on the road as long as possible by monitoring fast-changing weather conditions.
Preserving capital for these startup businesses kept commerce going and proved a critical strategy to softening the impact of the storm.
Here’s the take-home lesson: A capital infusion ahead of, during and after a disaster makes the difference in the ability of a private enterprise to stay afloat amid a natural disaster. Keeping your head above water requires cash liquidity in a crisis. It may not be venture capital per se, but it is capital, and no one is going to debate the necessity for liquidity amid such a sweeping disaster.