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Coverage | Newsletter | Intel | Events
Coverage | Newsletter | Intel
June 27, 2020
It's a great time to build a company, but the coronavirus pandemic, economic downturn and Black Lives Matter movement will shape startups in new ways, according to top venture capitalists.
Co-founder of LinkedIn and general partner at Greylock
The class of 2020 startups will be unique in two ways: 1) the massive shift in market readiness, and 2) nearly every founding team will be distributed.
The pandemic has set certain markets back (e.g. coworking spaces), but it has also created the conditions for other markets to take a giant leap forward. A specific example: telehealth startups. While the majority of health visits have now moved to video calls, the implications go well beyond a simple shift in delivery mechanism.
Moreover, older adults represent a large proportion of patients, and an even larger proportion of market power. Not previously early adopters of telemedicine, older adults are now developing what is likely to be a lasting habit, accelerating the industry adoption cycle by several decades. This will speed up the deployment of new technologies such as AI and machine learning to make diagnoses via smartphone imaging, or to extract information from doctor-patient interactions and improve follow-up and follow-through. And while the pandemic will eventually recede, we will see a permanent change in how we access health care.
Another impact for the class of 2020: All founding teams will be distributed. Previously, most founding teams coalesced in a specific place, but there isn't much social distancing in a garage! Teams that want to build world-changing products together will need better ways to communicate. It will be more difficult — and more important than ever — that co-founders find ways to quickly connect and align. And when people are sheltering-in-place, the geographic density of talent in Silicon Valley is much less relevant. The techniques that Silicon Valley uses to scale companies, such as Blitzscaling, can be learned and practiced by anyone. The next generation's big winner could be based anywhere with sufficient access to financial capital and virtual access to technological expertise.
Co-founding partner at Floodgate
- Areas where I think there are interesting new opportunities for startups:
- They will leverage new knowledge management tools: Knowledge management hasn't been rethought in some time, but with the move to remote work — whether they are fully remote teams or hybrid teams — documentation will become a central focus of organizations. Some interesting tools have popped up (Supernote.io and Almanac.io are two we have invested in, but Notion and Roam Research are two other examples) and we're still investing in this space. In particular, I'd be interested in companies that are creating deeper knowledge management and search as well as a social network for knowledge, which is more consumer-facing.
- They will empower the solopreneur: With the uncertainty of the go-forward economy, many individuals are taking matters into their own hands and becoming their own businesses. Digital tools like Dumpling.us and Mighty Networks (our investments) enable the solopreneur to build their own clientele, set their own schedule, and create their pricing on their terms. We also think that companies like Substack and Cameo and Patreon power a new content path for solopreneurs
- They will rediscover the Future of Joy: With money saved on gyms, travel, events and eating out, consumers will start to look for new ways to experience joy. There are opportunities for creating new categories of spend. One example we are seeing is Learn Monthly, where we believe consumers are mastering creative pursuits like oil painting or music production in a similar manner to how they might pursue running a half marathon (social, bragging rights). What other ways of experiencing joy are new and unexpected?
- How startups will be run differently than in the past:
- Essentialism: Companies started this year will know what is essential and what is not. Employees will not be bogged down by face time but will be evaluated on the quality of their work and measured by the contributions they make to their company. Many of us have applied the Marie Kondo principles of decluttering our homes to decluttering our work lives and businesses. It enables us to rethink fundamental assumptions about the world — what we need and what we simply do because it's the way that it has been done. My feeling is that this means management moves from storytelling to execution with a renewed emphasis on wisdom rather than hope.
- Minimum viable companies: Companies started this year will not try to buy the perception of product market fit with growth of vanity metrics. Instead, they seek to build first a minimum viable company that balances product innovation and value with a business model that is not dependent on scale for margins. Such companies have the ability to outlast competitors and are not required to outspend them. While this may mean less reliance on venture capital, most companies don't need venture capital anyway.
- Renewed focus on access and inclusion: Founders are focused on creating diverse teams from the get-go. This means diversity of viewpoints. Diversity in lifestyle. Diversity in background. Much of this is enabled by geographical diversification through remote work. Continued work needs to happen to make sure that this representation happens at the executive level, board room and cap table.
Managing partner at Forerunner Ventures
This year has exposed so many important issues, including the crisis of COVID and the deeply important and impactful work of Black Lives Matter. Because these long overdue issues have surfaced and cracked the outdated veneer of status quo, this breakthrough class of startups will be reevaluating long-held business values and instead lead with compassion to make a real social impact.
These new startups are likely to be more purpose-driven with regards to their missions, business impact and cultures. The ones that capture our attention will be built around solving customer needs versus desires; they will prioritize sustainability practices and be hyper aware of their overall footprint on the planet; and importantly, they will be building diverse teams with inclusive practices. These startups won't be afraid of having important and often difficult or uncomfortable conversations and will understand their ability to influence for good.
In terms of operating, because of the pandemic, millions of workers experimented with working from home for the first time in their careers. And given that many tech companies have already mandated work-from-home until 2021 (Twitter, Google, Microsoft), many others will likely follow suit. As we continue to adapt to remote work, employees are operating within different frameworks, and companies will need to reimagine new ways to foster bonds and build strong team dynamics, especially from the top down.
In the face of unknowns and unimaginable hurdles to growing a business, flexibility and the fortitude to make swift changes will be more essential than ever for founders. Founders set expectations on growth, and it's their responsibility to build teams that can deliver on those visions, but now more than ever they have to have the adaptability to react to and ensure solid foundations for achieving considered growth and recalibrating their businesses for ever-changing environments. Resilience is the key word here.
Venture Partner at NextGen VP
We've left the pre-COVID world, where companies can easily raise millions amid major money losses and ignore human and social dynamics. New startups will be molded by the implications of COVID and the social and racial justice movement.
Startups will be remote-first to preempt health issues and avoid unnecessary real estate costs. Startups will focus on problems that affect the many and not just the elite few because of the work-life challenges that COVID has brought about (e.g., job loss, WFH). Startups will bootstrap, prioritize revenue, profit and performance more than ever. Because of the tightening of purse strings, startups will prompt side-hustling entrepreneurs looking for extra cash. This new breed of entrepreneur will create products and services (a la passion economy) and generate additional revenue streams.
From a social and racial justice movement perspective, startups with underestimated founding teams will get their moment to shine with capital coming their way from the VC and tech ecosystem that is putting their money where their mouth is (e.g. a16z's Talent x Opportunity Fund, SoftBank's Opportunity Growth Fund, Google investing $100 million in underestimated founders and funds).
Funding will come from a more diverse set of vehicles, from alternative VC funds to equity crowdfunding, to debt to newly activated diverse angels. Underestimated founders will build the companies of the future — ones that represent the diversity of our population and produce the products and services that the mass market sorely needs.
Partner at First Round Capital
The national conversation around race and equality is creating a renewed emphasis on the importance of diversity in the startup and venture ecosystem. I'm hopeful that this much-needed and long overdue pressure — on both the startups being built and the investors tasked with backing them — will result in a more diverse class of founders than ever before.
Founders are taking a hard look at the composition of their founding teams, their cap tables, their board rooms, and their early hires — and will be less willing to let "diversity debt" accrue as the costs are impossible to ignore. As investors, we have a tremendous amount of work to do here. That work consists of 1) acknowledging and dismantling the bias within narrow "traditional" founder archetypes, 2) putting in the legwork and process changes it will take to back more founders of different backgrounds, and 3) pushing ourselves and the companies we back to build more inclusive organizations that are more representative of the country that we live in.
Whether it's fully remote or some kind of hybrid model, we're also seeing a broader shift toward both distributed workforces and distributed systems. We're noticing that companies in our community are increasingly opting to buy rather than build, and we expect to see developer focused API services proliferate. We're excited about this trend because it empowers new companies to focus as much as possible on their core product and creates a new category of developer focused companies for us to partner with as investors.
Finally, the growth-at-all-costs mentality is becoming more muted in the 2020 startups. We are seeing a shift from a "tell me the story" fundraising environment to a "show me the proof" fundraising environment. Conversations around contribution margins and unit economics are starting much earlier on in a company's life. We think businesses without a very strong economic engine will face challenges when they go to raise money this year, and the class of 2020 founders will take this into account when balancing growth vs. profitability.
Biz Carson ( @bizcarson) is a San Francisco-based reporter at Protocol, covering Silicon Valley with a focus on startups and venture capital. Previously, she reported for Forbes and was co-editor of Forbes Next Billion-Dollar Startups list. Before that, she worked for Business Insider, Gigaom, and Wired and started her career as a newspaper designer for Gannett.
More from Braintrust
The Federal Trade Commission has begun sending letters to businesses that have filed for mergers with a warning: If they proceed with a merger before the FTC has completed its review, the commission may later find that those mergers were unlawful.
The FTC is sending the letters in response to what it called a "tidal wave" of merger filings this year that have strained its ability to investigate deals in the standard 30-day time frame.
"For deals that we cannot fully investigate within the requisite timelines, we have begun to send standard form letters alerting companies that the FTC's investigation remains open and reminding companies that the agency may subsequently determine that the deal was unlawful," Holly Vedova, acting director of the Bureau of Competition, wrote in a blog post Tuesday. "Companies that choose to proceed with transactions that have not been fully investigated are doing so at their own risk."
The FTC posted a sample letter, which warns that companies "cannot stop the investigation or avoid an enforcement action by consummating" their merger. "To the contrary, and in keeping with its commitment to aggressive enforcement, the Commission may challenge transactions — before or after their consummation — that threaten to reduce competition and harm consumers, workers, and honest businesses," the letter reads.
The FTC's ability to retroactively review mergers has been the subject of criticism by Facebook, which accused the FTC of trying to rewrite history with its antitrust lawsuit against the company. "Years after the FTC cleared our acquisitions, the government now wants a do-over with no regard for the impact that precedent would have on the broader business community or the people who choose our products every day," Facebook tweeted last December.
A district court has since dismissed the FTC's Facebook complaint, but said the commission could amend its complaint and try again.
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A gig company collective that represents Uber, Lyft and DoorDash, among others, is pushing for a new 2022 ballot measure in Massachusetts that would define gig workers as independent contractors, similar to California's Proposition 22.
The group, called the Massachusetts Coalition for Independent Work, plans to file a proposal for a ballot measure Wednesday that would guarantee paid sick time and health care for gig workers while also making it impossible to define them as full-time employees, instead permanently classifying them as independent contractors, according to a company press statement.
Massachusetts legislators and gig-worker advocates have been preparing for this battle since the passage of Prop. 22, which exempted Uber and other gig companies from a California law that uses an ABC test to define whether or not a worker is a full-time employee or an independent contractor. Prop. 22 passed by an overwhelming majority in the state after gig companies spent more than $200 million campaigning for it, and after many of them used their platforms to message drivers and riders about the campaign.
Massachusetts has a similar law to California's ABC test, and the state's attorney general has already filed a lawsuit against Uber and Lyft that claims the companies have failed that test and should be classifying workers in the state as full employees.
The Coalition to Protect Workers' Rights, which opposes the measure and any like it, had already begun campaign preparation and fundraising well before the announcement of the ballot measure Tuesday. "We know the way to beat these big tech companies with their endless money is to organize early and to make sure that we're driving an affirmative agenda on this and not allowing the companies to set the terms of the debate," Mike Firestone, director for the Coalition to Protect Workers' Rights, told Protocol in July.
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Activision Blizzard President J. Allen Brack is stepping down from the company after Blizzard was sued by the state of California last week for discriminating against women and fostering a "frat boy" culture that entailed sexual harassment and discrimination. He will be replaced by two executive vice presidents, who will serve as co-leaders.
Jen Oneal and Mike Ybarra, the former executive vice president of development and the former EVP and general manager of platform technology, respectively, will take the helm at Blizzard and share responsibility for development and operational accountability. The company is continuing to face an outpouring of stories of misconduct, and workers who organized a walkout have demanded a set of new rules for handling reports of sexism, harassment and discrimination.
"Jen and Mike will share responsibility for development and operational accountability for the company. Both are leaders of great character and integrity and are deeply committed to ensuring our workplace is the most inspired, welcoming environment for creative excellence," Blizzard president and COO Daniel Alegre wrote in a letter to employees Tuesday morning.
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The National Labor Relations Board today made an initial recommendation to redo the Amazon union drive election in Bessemer, Alabama.
The presiding hearing officer in the case is now recommending that the NLRB Regional Director disregard the April election results and hold a new election. A formal decision, however, has yet to be made. In April, Amazon workers in Bessemer voted 1,798 to 738 to reject the union.
"Throughout the NLRB hearing, we heard compelling evidence how Amazon tried to illegally interfere with and intimidate workers as they sought to exercise their right to form a union," Retail, Wholesale and Department Store Union (RWDSU) President Stuart Appelbaum said in a statement. "We support the hearing officer's recommendation that the NLRB set aside the election results and direct a new election. As President Biden reminded us earlier this year, the question of whether or not to have a union is supposed to be the workers' decision and not the employer's. Amazon's behavior throughout the election process was despicable. Amazon cheated, they got caught, and they are being held accountable."
Both Amazon and RWDSU are now able to file any exceptions. Then, the regional director will make a final decision regarding whether there will be a new election. The NLRB expects this process to take several weeks.
The decision comes after RWDSU alleged Amazon illegally interfered during the union voting process. An officer with the NLRB has since determined that Amazon acted unlawfully.
"Our employees had a chance to be heard during a noisy time when all types of voices were weighing into the national debate, and at the end of the day, they voted overwhelmingly in favor of a direct connection with their managers and the company," an Amazon spokesperson told Protocol via email. "Their voice should be heard above all else, and we plan to appeal to ensure that happens."
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Facebook said Monday that it will start requiring U.S. office workers to wear masks at work, joining Apple, Lyft and Uber in that policy. Amazon is also requiring masks at a number of its U.S. offices, according to an employee who agreed to speak on the condition of anonymity.
Facebook cited several reasons for its new mask policy, which goes into effect on Tuesday. "Given the rising numbers of COVID cases, the newest data on COVID variants and an increasing number of local requirements, we are reinstating our mask requirements in all of Facebook's U.S. offices, regardless of an employee's vaccination status," company spokesperson Chloe Meyere said in a statement.
A number of Amazon offices in Los Angeles, New York and Las Vegas now require employees to wear masks, according to an Amazon employee. LA County's mask mandate does apply to public, indoor spaces, including offices. San Francisco officials also announced their own mask mandate on Monday, with other Bay Area counties expected to follow.
But the ecommerce giant hasn't imposed a nationwide mask mandate, Seattle-based company spokesperson Angie Schneider said. "I'm on site right now and am not masked," Schneider noted in an email.
Amazon's chief financial officer, Brian Olsavsky, said on Thursday that the company was still planning to return to the office next month and would not require vaccines. Apple, Facebook, Google and Uber have told employees they can work remotely until October, while Lyft has pushed back its full reopening until February.
In addition to these mask requirements, Facebook, Lyft and Uber have recently imposed vaccine mandates. Google is also requiring employees to get vaccinated in order to return to the office, but hasn't publicly announced a mask mandate. The search giant did begin strongly encouraging workers at its Bay Area offices to wear masks in mid-July.
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