Venture capitalists behave a bit like oracles. They imagine the future, make prophecies about how we’ll get there, and decide the fate of founders and startups. Usually these divinations take the form of money, showing where the VCs are located. place their bets. But sometimes they also share the prophecies with the rest of us, in the form of public writings. “Coronavirus is the black swan of 2020,” venture capital firm Sequoia told its founders in a note posted March 5. It was time to cut expenses, reconsider his goal, and plan for the worst. “We suggest that you question all assumptions about your business.”
The last year has been intense for many startups: many have gone bankrupt, others have had to lay off tens of thousands of employees. Those that relied on in-person interactions (for example, a travel reservation service) went into hibernation, while those that met pandemic needs (for example, a cereal start-up direct to the consumer) have switched to overdrive. Many startups have had to radically change, reconfiguring their product and / or pivoting to fit into the pandemic world. As Sequoia puts it in its memo, the startup world reflects biology in times of crisis: “Those who survive ‘are not the strongest or the smartest, but the most adaptable to change.’”
Now another change is underway. As millions of Americans get vaccinated and states lift restrictions on gatherings, people are bracing for a grand reopening by the summer. Comparisons in the 1920s abound. And this has led the venture capitalists to make new prophecies. Sequoia, for example, sent a new memo to all its founders in recent weeks. The message? “Now is the time to start stepping on the accelerator.”
“The advice we give to founders is, in some ways, quite similar to what we published a year ago: a lot is changing, so seize the moment,” says Alfred Lin, partner at Sequoia Capital. “But this moment is much more optimistic.” Lin says the pandemic has reshaped consumer and business behavior in multiple ways; Now is the time to make bets – and potentially fortunes – that the changes will stay on. (Work entirely remotely might not, But home fitness equipment Many VCs expect the immediate benefits to be for startups in categories like entertainment and travel, areas where people will want to spend their money after vaccination. At the same time, says Lin, “we want to build a ten-year-old business, so we need to focus on things that last, not things that are trendy.”
“There are huge markets to be seized right now,” says Kim-Mai Cutler, partner at Initialized Capital, a early-stage venture capital firm. Some of these markets experienced growth during the pandemic, such as grocery delivery. Instacart, in which Initialized has invested, saw a 500% increase in orders in the first half of 2020 – and while it is unlikely to retain all of its pandemic customers, it will likely retain some.
Other markets will see more benefits as the vaccinated population increases and there is a return to pseudo-normality. “There are definitely companies in our portfolio that were put on hiatus during the year that basically set the stage for a comeback,” says Cutler.
Pent-up demand is a major topic of discussion in venture capital firms. Anis Uzzaman, General Partner of Pegasus Tech Ventures, has started to prepare his portfolio for the “Roaring Twenties of Consumer Spending”. In the United States, consumer spending jumped more than 5% in January and is expected explode in the coming months. Categories like travel and live entertainment are expected to benefit from this push; The same goes for cosmetics and fashion startups as people break out of their sweatpant cocoons. Start-up funds, like Pegasus, are particularly on these emerging trends, as they invest in younger startups that may have been created to respond right now. Uzzaman says he is looking for founders who can “create new sources of income from this increased activity.”