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 United Kingdom's Competition and Markets Authority announced Tuesday it would require Meta, formerly known as Facebook, to sell Giphy over competitive concerns.
The CMA's decision reflects a rare regulatory blocking of a Big Tech company's acquisition. Such small deals often face little scrutiny, although research by U.S. competition authorities suggests such transactions are key to how the largest tech companies attained their current size.
The U.K. regulator's investigation found that, if Meta were allowed to keep Giphy, the larger company "would be able to increase its already significant market power in relation to other social media platforms." The CMA said Meta could deny, limit or change the terms of access to GIFs by rival platforms like TikTok or Twitter.
The CMA also said that, before the deal was announced, Giphy was providing "innovative" services in the digital ads market that could have put pressure on others in the sector. Meta, though, shuttered the services after the transaction, "removing an important source of potential competition," according to the U.K. body.
Last month, the CMA also fined Facebook nearly 51 million pounds (approximately $67 million) for refusing to provide full information about the steps it was taking to keep the two companies separate.
EXPAND Show less
U.S. Commerce Secretary Gina Raimondo urged the House of Representatives to immediately pass a bill that includes roughly $52 billion of incentives for the semiconductor industry at a Monday roundtable discussion outside Detroit.
The billions of incentives would help reduce U.S. dependence on foreign sources of semiconductor manufacturing, which could help avert future disruptions in the chip supply, Raimondo said. The shortage of chips has cost the auto industry hundreds of billions in lost revenue, and triggered plant shortages in the U.S. and elsewhere in the world.
Raimondo noted that the U.S. was once a chip manufacturing leader, accounting for 37% of global production in 1990, according to the Semiconductor Industry Association. But it now accounts for 12% of global production, and produces none of the most advanced chips.
“If we are serious about increasing American competitiveness, protecting our national security, and hitting President Biden’s electric vehicle goals, it is imperative that we reinvest in this critical industry and ensure that more chips are made here at home,” Raimondo said.
The roundtable included Democratic lawmakers, union representatives, and Michigan Governor Gretchen Whitmer, among others.
Lawmakers have packaged the $52 billion worth of incentives, called the Creating Helpful Incentives to Produce Semiconductors for America Act, or CHIPS Act, inside the U.S. Innovation and Competition Act which passed the Senate earlier this year, but has stalled in the House. The CHIPS Act includes provisions that would help boost domestic chip manufacturing, design, and research.
“We need the House to pass the Chips Act immediately,” Raimondo said at a separate event Monday, at the Detroit Economic Club.
Semiconductor shortages have hampered a range of industries because an increasing number of consumer goods use chips. But the automakers have been especially hard hit, and consulting firm AlixPartners has estimated the industry will lose $210 billion in revenue this year as a result. Newer cars also tend to use more chips to help power systems such as assisted driving and electric and hybrid propulsion systems.
EXPAND Show less
The FTC said Monday it had sent information demands to Amazon as the agency delves into supply chain disruptions.
The commission is investigating "serious and ongoing hardships for consumers" as well as competitive concerns arising from issues that have delayed deliveries and raised prices ahead of the holiday season. The FTC sent letters to eight other companies in various parts of the global supply chain for goods, most of them primarily offline, including Walmart, Procter & Gamble and Kraft Heinz.
The FTC sent the letters on a bipartisan basis under powers that allow the commission to obtain information as it examines trends within or across industries. The commission said it wanted the companies to send internal documents related to strategies, pricing, marketing, profit margins and more.
The probes don't require a law enforcement purpose, though the responses can end up in competition or consumer protection probes that are the FTC's traditional focus. The commission is also investigating Amazon's competitive conduct.
EXPAND Show less
The National Labor Relations Board has ordered Amazon to allow workers in the Bessemer, Alabama facility to participate in a second election to decide whether to unionize, after union organizers challenged a sweeping Amazon victory in the first vote earlier this year.
NLRB Region 10 Director Lisa Henderson ordered that a second election be conducted, NLRB spokesperson Kayla Blado confirmed. No date has been set for the new election and the NLRB has not yet determined whether it will be conducted in person or by mail-in vote.
The first election was rife with allegations of the company trying to coerce warehouse workers to vote against the effort to unionize with the Retail, Wholesale, and Department Store Union. That election, a mail-in vote that ran over the course of several weeks, ended in April.
Immediately after the Amazon victory was announced, the RWDSU said it would file 23 charges of election interference against Amazon, including several charges related to Amazon having a post office box for the ballots installed directly in front of the facility, in violation of the NLRB's orders for the election. During the union's campaign, Amazon also posted anti-union flyers in bathrooms, held small meetings with workers, and created an anti-union website that gained widespread internet ridicule for its use of stock photos and pro-Amazon quotes.
After the union election ended in favor of Amazon, the company said that the vote expressed its employees' disinterest in the effort. "It's easy to predict the union will say that Amazon won this election because we intimidated employees, but that's not true," an Amazon spokesperson said at the time.
No effort to unionize any Amazon workers has yet been successful, though since the start of the RWDSU's push in Alabama, two other major union organizing efforts have emerged at other facilities. The International Brotherhood of Teamsters union has committed to organizing delivery drivers and truckers as a nationwide priority, and an unaffiliated union effort in Staten Island has fought for enough employee signatures to request an NLRB election at the facilities there.
"Our employees have always had the choice of whether or not to join a union, and they overwhelmingly chose not to join the RWDSU earlier this year," Amazon spokesperson Kelly Nantel told Protocol. "It’s disappointing that the NLRB has now decided that those votes shouldn’t count. As a company, we don’t think unions are the best answer for our employees."
EXPAND Show less
Jack Dorsey has stepped down as CEO of Twitter and has been replaced with Parag Agrawal, Twitter's current chief technology officer, according to an announcement from the company Monday morning.
Dorsey wrote in his departure note that Agrawal was his top choice for the CEO job and that he was selected by unanimous decision from Twitter's board. Bret Taylor, the president and chief operating officer of Salesforce, has been selected as the Independent Chair of the Board of Directors. Dorsey will remain on the board until his term expires in 2022.
"There's a lot of talk about the importance of a company being founder-led. Ultimately I believe that's severely limiting and a single point of failure," Dorsey wrote.
Agrawal has worked at Twitter for the last decade and served as CTO for the last four years. "We recently updated our strategy to hit ambitious goals, and I believe that strategy to be bold and right. But our critical challenge is how we work to execute against it and deliver results," Agrawal wrote in his all-staff note.
Dorsey, who is also the founder and CEO of payments device company Square, has come under repeated fire from investors for allegedly failing to focus his energies fully on running Twitter. In addition to his leadership of Square, the Twitter CEO has become a bitcoin evangelist and launched a new startup called TBD earlier this year that aims to build a decentralized cryptocurrency exchange.
Dorsey previously came closest to losing his job after he announced a controversial plan in late 2019 to spend half of his time living in Africa in 2020, a move that prompted activist investors at Elliott Management to try to force a leadership change. Dorsey survived the challenge from the Elliott investors and did not make the move, though he cited the coronavirus pandemic as the main reason for delaying the plan.
Correction: This story was updated to correct Parag Agrawal's current role at Twitter.
EXPAND Show less