Student entrepreneurs got an early taste of the pandemic's economic effects on the startup world. As they graduate into a bleak economy, some have already seen funding fall through and business prospects evaporate.

Before the coronavirus outbreak, recycling startup Dispatch Goods had momentum.

The University of California, Berkeley, startup was working with three companies, including Yelp, and a dozen local restaurants to launch a service that collected and distributed reusable food containers for takeout lunches.

Then the Bay Area shut down, closing corporate campuses and the restaurants that serve them. As the company's near-term prospects collapsed, the business was forced to shelve its plans to raise a seed round.

Dispatch Goods' experience may sound familiar to other fledgling startups. So far this quarter, seed, pre-seed and angel investments in the US are on track to see the fewest quarterly deals since 2011, according to PitchBook data.

"Everyone is hearing that the funding is drying up," said Dispatch Goods CEO Lindsey Hoell, a graduate student at UC Berkeley.

Many investors have shifted their focus toward their portfolio companies throughout the crisis, leaving less time for new investments, said Kyle Stanford, an analyst at PitchBook. First-time founders are at an added disadvantage, since they often lack existing relationships with investors and have been unable to pitch their business in person.

The collective struggles of student entrepreneurs could have ripple effects in the startup world. Since 2006, the 10 most entrepreneurial universities have produced nearly 9,000 founders who have collectively raised more than $200 billion, according to a 2019 PitchBook ranking.

For Nanodropper, a medical device startup out of the University of Washington, the crisis hit in the middle of its first major fundraising effort. Its investors, mostly practicing physicians, were called to battle the unfolding crisis in Washington state, an early coronavirus hot spot.

"They just got absolutely swamped," said Nanodropper co-founder Mackenzie Andrews.

Their funding delay was compounded by other problems. The production of their medical device—an eyedropper that produces smaller droplets to avoid wasting medicine—was prolonged by months due to pandemic-related delays at sterilization facilities.

With only three months of runway left, Nanodropper cut back on expenses and secured a Small Business Administration loan through the first round of the Paycheck Protection Program.

But despite setbacks, many students are forging ahead with business plans—either by sticking to their guns or pivoting.

"There's been a boom of ideas ... that people are turning into startups to help with the COVID situation," said Mallika Jhamb, one of the student leaders of the Business Association of Stanford Entrepreneurial Students. Academic departments have stepped up to support students with ideas, including a Stanford computer science course called "Hacking the Pandemic."

American VC investors are also pitching in with programs to support student entrepreneurs who have been separated from their college communities. Organizations like HBCUvc, which supports entrepreneurs and aspiring venture capitalists at historically black colleges and universities, have also been instrumental in supporting student-led companies.

As it grappled with production delays, Nanodropper was able to make its first hire, and the company is moving ahead with its fundraising efforts.

UC Berkeley's Dispatch Goods is among those student-led companies who have now pivoted. The startup is piloting a reusable container system with a pizza delivery company. Once again, it's partnering with corporations. And the pandemic-fueled surge in takeout containers has only motivated the eco-minded team. 

"All of us are haters of single-use packaging," Hoell said.

Featured image via Chinnapong/Getty Images