There’s no doubt that COVID-19 has affected nearly every industry globally. Supply chains have been disrupted, businesses have had to close or operate at limited capacity for months, and even founders have had to expand their fundraising timeframes as we saw in our 2020 Female Founders Data Report.
As a VC firm, we’ve had to adapt many aspects of our business as well. From taking all aspects of our accelerators digital (including our Demo Day) to rethinking the opportunities of the future, we’ve taken this moment to analyze what innovations can come from this time and new opportunities that arise from our changing environment.
As society begins the delicate phase of re-opening, we have also given much thought to how we look at companies moving forward. To that end, we developed the following framework for evaluating the impact that COVID-19 has had on different sectors, with a focus on the nature and the duration of the impact.
While experts have said that this will most likely not be the last pandemic, there are some products and services that we realize have experienced a surge in demand, but the surge will likely be short-lived. Some of these items include the technologies for contact tracing and other supply-constrained items like PPEs, ventilators, and hand sanitizer. To be sure, there may be long-term benefits from processes and infrastructure developed to create a vaccine in record time, even if the product itself meets short-term demand. However, it is easy to overstate the permanence of a change when we are in the midst of experiencing it.
While venture investments typically focus on creating value over a long period of time, we are extremely proud of the 500 community and our portfolio that has adapted part of their main operations to help meet some of those needs. For example, OmniLabs is deploying “telepresence robots” in hospitals around the world that allow people to communicate via video with quarantined relatives and friends stricken with COVID-19. We hope to see companies continue to band together for our collective health and well-being during these tough times.
Various sectors are impaired in the short-term directly due to COVID-19 or as a result of the second-order effects from sheltering in place or constrained demand but will revert back to pre-COVID-19 levels in the long-term. Examples of sectors that are currently on pause include public and private transportation (e.g. ride-sharing) and oil and gas. In some cases, these paused services may even see a return that is even greater than levels prior to COVID-19 for a period of time, such as could be seen in the case of elective surgeries that have been delayed due to COVID-19.
Our New Normal
Industries in this category were already experiencing headwinds from existing trends, but COVID-19 accelerated that decline. For the most part, we expect these companies and industries of our “old reality” to return, but not at the levels that existed prior to COVID-19. Instead, existing businesses in these industries will return, but to a lower baseline that will become the “new normal” if they fail to innovate and embrace disruption.
This acceleration of existing decline heightens the urgency for the likes of retail, travel and hospitality, and food and beverage to reconsider every aspect of their business going forward. Ironically, the sudden and complete existential threat posed by the impact of COVID-19 may provide these businesses with a rare opportunity to make necessary changes to survive. Consider, for example, how businesses like Barnes and Noble and Blockbuster might have reinvested their efforts had they been forced to shut down every physical location at the height of their popularity.
Our current opportunity is to redesign these industries from scratch and to invest in technology that helps transform them to become a thriving part of the modern economy. Local restaurants, for example, have been decimated despite increased demand for delivery and take-out orders, but a fundamental shift in approach (e.g. with ghost/dark kitchens) will be required compared to the current food delivery solutions that are unsustainable.
A quote that has been borrowed and used in the context of venture capital is a belief that “the future is here, it’s just not evenly distributed.” Over the last decade, 500 Startups has identified and invested in industries that have gone on to become widely distributed trends such as the rise of AI, FinTech, e-commerce, and more.
Trends in this category gained momentum even before COVID-19, and the changes required by the global pandemic have radically accelerated–or rapidly distributed– that future. One trend in which we’ve invested in the past includes the rise of distributed teams like that of GitLab, the largest fully distributed company in the world, and with whom we discussed the best practices for fully-remote teams back in March when many businesses made that switch for the first time.
Some of the other existing trends that we believe may be further accelerated by COVID-19 are the following:
- Healthcare (e.g. telemedicine, remote patient monitoring, mindfulness and behavioral health)
- Productivity tools (e.g. enterprise SaaS, distributed teams)
- Entertainment (e.g. e-sports, media, digital events)
- Logistics/supply chain
While some businesses in this category are experiencing demand that we think will likely diminish post-COVID-19 (e.g. use of video-conferencing), they will likely return to a baseline that was much higher than prior to COVID-19. Sheltering in place and remote work have created behavior for a long enough time that some will turn into habits, and that change in behavior has the potential to benefit sectors similar to emerging platforms in the past.
Following the Global Financial Crisis of 2008, we witnessed an unprecedented bull run for technology, fueled by emerging platforms like mobile and cloud that ultimately became mega-trends that continue to provide opportunities for innovation. We believe COVID-19 will have a similar impact on accelerating the demise of businesses already experiencing a slow-motion decline or fueling the arrival of new behaviors and trends that provide a massive opportunity for innovation. While many are closely observing the impact of COVID-19 on the immediate term for understandable reasons, we remain focused on the opportunities created by the New Normal and the Accelerated Future and what that means for our next generation of founders.
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