Shifting Landscapes: Looking Back To Look Forward
COVID-19 has accelerated digital transformation by triggering the need for human behavior to change
Since 1990, TSVC's Partners have witnessed Silicon Valley go through three down cycles prior to 2020. Each time was different, however, this time proved to be the most unexpected. Many famed VC firms froze their checkbooks for at least three months, no longer doing new deals as the world was facing an entirely unknown future.
Like everyone else, we faced the same uncertainties. But we are specialized in writing the first check to seed stage startups, as we need to spot opportunities earlier than other investors. That's why we worked full gear to identify true innovations created by the pandemic.
Despite needing to pivot and adjust, it has been a successful year. Over the course of 2020, we experienced two lines of business development, one line that needed to adapt to the impact of COVID-19, and the other that didn't. This trajectory mostly depended on the nature of the business of our portfolio companies. Some new investments benefited from the pandemic while others did not. For new deals, we also asked startups to prepare for a longer runway; and to support our existing portfolio companies, we hosted a round-table session to let founders share tips on government aid and cost cutting.
With support, determination and smart business decisions, many of our portfolio companies have managed to successfully navigate the pandemic, and some, such as Zoom, Lambda School, Opentrons, Tippsy, Avoma and CITCON, have grown tremendously.
COVID-19 has accelerated digital transformation by triggering the need for human behavior to change. The massive costs that the pandemic put on our societies, both financially but also in the tragic cost of human lives, was a tipping point. In 2004, SARS in China created the opportunity to adopt online payment such as Alipay on a massive scale. This type of market demand can never be generated by any marketing campaign.
On both business and individual levels, the transformation will be long term, and perhaps even ever-lasting in many areas. As an example, it is our belief that online Yoga teaching won't disappear even if offline activities return. Additionally, services that help enterprises to ensure secure remote access and so-called trustless security for home offices, will continue to be a heavily relied upon tool with many companies looking towards more flexible work-from-home policies in the future.
Simply put, the pandemic is acting as a driver of market-creating innovations.
Tech has emerged as the engine of the whole economy. As early-stage investors, we're looking for companies that will have a huge impact over the next 5-10 years. Often this involves an idea about something that wasn't possible until recently, because some enabling technology or infrastructure just became available. When the US railroads were built, it enabled Sears Roebuck to create the catalog-sales industry; 10 years earlier that would not have been possible, and 10 years later competitors had to overcome Sears' incumbency. Uber was possible because of widespread smartphone adoption and location services. Instagram was enabled by good phone cameras and the popularity of the selfie. Zoom was possible because of widespread broadband and highly performant computers.
So the question each year is, what's now just barely possible, that was not possible at all last year?
One place to look is the "COVID dividend". The Pfizer and Moderna vaccines both use an entirely new synthetic-mRNA technology whose development was accelerated massively. Now that synthetic-mRNA has been proven viable, what other applications will it find? That's not our area of expertise, and as a firm we don't do a lot in drug discovery investing, but this is an example of something that is now "just barely" possible and will likely unleash a new class of value-creating businesses.
Besides technology changes, behavior changes are also a good place to look. Companies and employees have embraced working from home, and while there will be a return to the office, for most knowledge workers it will include a higher proportion of remote work than it did pre-COVID. We expect to see products emerge that solve problems inherent to remote work, and other products that solve problems that couldn't be addressed when remote-work wasn't accepted. We are already starting to see the rise of Telemedicine, with companies such as Musely pioneering tele-dermatology. Once customers discover how conveniently something works remotely, many of them won't want to go back to in-person later.
Overall, 2020 has been an unrepeatable year for investments.
The behavior change driven by COVID-19 created a new demand, and thereafter new opportunities. Even when faced with something never before seen, something that hasn't been experienced in the last century, it is important to trust your gut, adapt, and carry on. To always prepare for the unexpected.We don't wait for certainty, we make high-risk bets on things that have the potential to be transformative, and then we help those innovators with big ideas to the best of our abilities.