The 'Base' Case and 'Bear' Case For COVID-19

June 28, 2021

Given the volatility we’re now experiencing, we thought it would be useful to share our current thoughts on how we see the crisis evolving over the coming months.

TLDR: The two possible scenarios

Base case - Business-as-usual within 6 months

We believe that at best, extraordinary business conditions will last for the next 6 months, with current isolation measures in place for at least another month (if not more). Following this, we’ll see a gradual easing of government controls, accompanied by a rebound to levels of economic output near-to or equivalent to those seen at the beginning of the year.

The unprecedented levels of disruption have been met with similarly unrivalled levels of support for businesses and workers. For this reason, after this period, we expect to see a sharp recovery in the real economy.

Bear case - A 2008-style recession

However, there is a very real possibility of an alternative scenario, where we find ourselves in a situation not too dissimilar to 2008/09, with dramatic business disruption, a tougher recovery/walk-back, decreasing consumer confidence and sector-wide unemployment. This case could come to fruition if we fail to effectively contain C-19, resulting in extensive isolation measures being prolonged beyond a couple of months.

The ‘Base’ Case

A health crisis first…

First and foremost, C-19 is a global health crisis. We join you in applauding the tremendous efforts and sacrifice that the frontline and essential workers have made to keep our critical services functioning.

At Forward Partners we don’t expect a return to normal life until the risk to lives of people and the pressure on our health system can be managed. The key milestones that we are monitoring for are:

  • A reduction in new cases and flattening of the curve
  • widespread and accessible testing (including the introduction of random and symptomatic testing)
  • successful trials of existing drugs that prove effective at fighting the disease
  • discovery and development of an effective vaccine


For the economy, we believe that the C-19 crisis has two distinct stages.

  1. Lockdown (length: 3-6 months)
  2. Aftermath and Recovery (length: 3-9 months)

Source: FP analysis, McKinsey

We are currently in the midst of the first stage - The Lockdown - where tight domestic controls are causing huge disruptions and dislocations across the economy. We are planning for the current isolation measures to be in place until May/June, followed by a gradual easing of controls over the coming months.

The second stage will be dealing with the aftermath of the lockdown. Our view is that, as with other epidemics, a V-shaped recovery or something close to it is plausible. Unprecedented levels of disruption have been met with similarly unprecedented levels of support from the Government’s stimulus which supports our view that we could expect a sharp recovery to near pre-crisis levels of business activity over the next nine months.

The ‘Bear’ Case

However, if isolation measures have to be prolonged, or reintroduced at later dates, we can see a route to the ‘bear’ case - a broad economic depression where the 'rebound' of job losses/reinstatement does not reach close to pre-crisis levels.

Source: FP analysis, McKinsey

If this downside scenario did occur, we would experience a real economic freeze with high levels of unemployment and low levels of consumer spending. In this scenario, we could see a defensive environment similar to 2008 for startups. The number of deals would fall (with the greatest pinch felt across series A and B) with valuations compressed, and the market would take two to four years to recover to pre-crisis levels.

The impact on startups?

The Lockdown will cause a strain on cashflows and growth, with the greatest negative impact felt on industries that require high levels of person-to-person contact (e.g. retail, travel, entertainment). However, there are a number of sectors that help facilitate life during lockdown (for example, eCommerce, enterprise productivity tools, cashless payments, telemedicine) and start-ups in these areas will have opportunities for growth.

For B2C: we expect to see lower levels of activity as consumer confidence falls and discretionary spending begins to reigned in. This will be a tailwind for those start-ups that offer a clear economic advantage over traditional competitors.

For B2B: as enterprise customers try to get their own house in-order, expect sale-cycles to be longer and at lower conversion rates. In many cases, we expect that conversion of new clients will not be possible. The impact will be felt most in those industries that have themselves experienced the greatest pullback in activity.

The funding environment will be challenging (we have already seen a pull back in activity in the UK across March), taking longer to raise and at lower valuations. We look forward to and are hopeful for government support packages directed at helping the early-stage tech economy.

Source: Crunchbase

Final thoughts...

At Forward Partners we are committed to the UK startup ecosystem.

Although we are collectively facing the largest societal challenge of this century, we believe that it is these testing times that create the opportunity for great innovations and businesses to be born. Some of the greatest companies in history were forged during periods of economic crisis (here and here).

Share this article

June 28, 2021