“Unbridled Optimism at an Unprecedented Time” – Guest contribution by James E. Mister
As the pandemic wears on and shifts in the acceptance of home office and remote work find greater resonance in Germany and Europe, Silicon Valley’s storied ecosystem of fledgling start-ups, tech giants, and financiers has yet again demonstrated its agility, ingenuity, and resilience. Since the spring I have taken part in roundtables, conferences, and events – even a virtual gala honoring Zoom founder Eric Yuan – aimed at better understanding the impacts of the pandemic on the tech industry. I have distilled a few of these insights herein and hope sharing them sparks conversation on entrepreneurship and funding in the time of Corona.
Opportunities amid the Pandemic
Despite the crippling impacts of last spring’s stay-at-home orders, lockdowns, and quarantines – shuttered businesses, supply chain disruptions, and major layoffs at fast-growing start-ups – the intervening summer and fall months offered a much-needed respite. As firms adjusted to the new normal and sought to maintain an innovative edge – some while implementing ad-hoc health, safety, and physical distancing protocols – there were clear opportunities for growth in many verticals. Diverse offerings spanning digital transformation and AI, productivity tools, meeting and conferencing, delivery and logistics, cloud computing, testing and diagnostics, and even travel and tourism, buoyed positive customer sentiment and a desire for normalcy. Formidable names like Postmates, Slack, C3.ai, Snowflake, DoorDash, and Airbnb are thriving – the latter four have all recently gone public; Salesforce recently acquired Slack for nearly 28 billion dollars, while Uber acquired Postmates for 2.7 billion dollars. Even newcomers have found the shift to all-things-virtual profitable: backed by Silicon Valley VCs Accel and The Slack Fund, London-based conferencing platform Hopin raised 6.5 million dollars in February just before the pandemic struck. Within just 18 months it has reached a valuation of 2.1 billion dollars and attained unicorn status.
US Venture Capital funding at All-Time High
In Q3 2020, 36.5 billion dollars in venture funding was raised across 1461 deals; year-to-date, 92 billion dollars has been raised in 2020. Though the number of Q3 deals shrank by 11 percent year-over-year compared to Q3 2019, US venture capital funding had its second-best quarter ever, just behind the historical record of 40.5 billion dollars raised in Q4 2018, the strongest year ever for US venture capital to date (121 billion dollars). There is one major caveat, however: mega-rounds, i.e., multimillion dollar funding rounds, accounted for more than half of these investments, a trend that has taken hold over the last year both in terms of funding volume and number of deals. Nevertheless, the uptick in seed funding this year vis-à-vis 2019 was noticeable as a contrast to the dip in Series A activity over the same period.
Beyond the San Francisco Bay Area and Silicon Valley, two major US metro regions stood out for big jumps in deal activity between Q2 and Q3: Los Angeles (with an increase of 33 percent) and Seattle (with an increase of 34 percent). LA’s 3.9 billion dollars in funding was concentrated in aerospace, automotive, software services, and defense, while Seattle’s 1.2 billion dollars in funding was spread across payments, data storage, biotech, and software services, among others. Venture capital investors are likely investing more heavily in these markets than in years past as Southern California and the Pacific Northwest have been attracting Millennial techies seeking an alternative to the Bay Area for years. LinkedIn’s workforce reports noted this trend back in 2017; pandemic-induced remote working just exacerbated the geographic shifts.
The Path Forward
Entrepreneurs and executives would all agree that steering an early-stage, venture-backed company through this period has required active collaboration between senior leadership and investors, employees, clients, and partners. As this challenging year draws to a close, the conventional wisdom proffered by many VCs at the start of the pandemic still holds true: extend runway by lowering operational costs and reining in discretionary spending. Those active in the early-stage funding space have drawn some additional lessons from what 2020 has wrought upon tech adoption, entrepreneurship, and funding:
“Early-stage funding is back to 2019 levels as start-ups have shown resilience to the general gloom. This may be attributed to confidence downstream from large late-stage funding rounds and the wide-open IPO window.”
– Prescott Watson, Maniv Mobility
“2020 accelerated the move towards flexible living. Systems widely adopted during quarantine like remote work, telemedicine, and food delivery are here to stay.”
– Marquesa Finch, Pyrium.co
“Logistics and healthcare have seen an uptick in deal activity. Companies intelligently applying AI and increasing automation are finding opportunities to break into otherwise slow-moving areas.”
– John Fan, Blumberg Capital
“Remote work has accelerated the adoption of startup innovations in fintech, edtech, telemedicine, B2B e-commerce (Faire, Mirakl), and fitness tech (Zwift).”
– Dr. Tobias Strobl, ARIAx
As we enter stricter winter lockdown measures across the US and Europe and vaccination efforts begin in earnest, I am cautiously optimistic for a return to steady, stable growth in 2021.
James Mister keeps his finger on the pulse of the fast-paced tech and venture funding world as Executive Director of the Bavarian US Offices-West Coast Division, the Free State’s foreign direct investment and tech innovation outpost in San Francisco. He has recently launched a Substack here – feel free to follow his upcoming musings about “Scaling Product & Operations Globally: Tips, Tales, & Trends.”