With half of Americans now ordered to “shelter in place,” we’re definitively in the throes of the Coronavirus (COVID-19) outbreak. In the startup world, venture capitalists have put the breaks on new deals as they assess the cash positions of their portfolio companies, potential systemic risks, and what the new normal may be. Meanwhile, scrappy startups seeking capital are evaluating strategic changes that will draw the attention of investors when deal activity resumes.
Sudden events with global implications are referred to as black swans — high-profile, rare and unpredictable occurrences that have an outsized impact on the status quo. Other examples are the introduction of the iPhone in 2007, which led to the rapid proliferation of personal computing devices that connect nearly all of humanity, and the terror attacks of September 11, 2001 (which many are likening this outbreak to) that rocked markets, caused decades of geopolitical turmoil, and left a lasting cultural impact on daily life.
While black swan events deliver an initial systemic shock, invariably disrupting culture, politics, and business, they also trigger sudden attitude shifts that ripple throughout the world and present new opportunities. The COVID-19 outbreak is no exception.
The Answer to “Why Now?”
In any market, one of the toughest questions venture capitalists must resolve is why current conditions present the ideal opportunity to make an investment. The best answer is almost never “because we were the first to think of it” (investors have undoubtedly seen several iterations of the same concept), and sometimes it’s the case that there was a recent technical breakthrough, but most often founders resolve the “why now” question with an insightful interpretation of macrotrends.
Because startups are both nimble and brittle, they can just as easily be lifted by a favorable current as they are crushed by a punishing wave of market forces. Founders must make a best-effort to align their companies with emerging tailwinds rather than try to fight them.
Emerging COVID-19 Pitch Narratives
To help others reimagine their pitch narratives, we’ve compiled a comprehensive list of emerging trends we’ve heard from founders and investors (some have clearly materialized while others have been recently catalyzed):
The most obvious near term winners are those that help humanity manage daily life through the isolation induced by the outbreak and raise the awareness of new conveniences likely to have a persistent presence after it has subsided.
Healthcare: With the risk of spending time in a waiting room at an all-time high, anyone with a sniffle who hasn’t yet tried telemedicine apps will certainly be curious about such conveniences now. At-home diagnostics, especially those that don’t require handling by overburdened laboratories, are also benefiting from a massive uptick in demand.
Enterprise: For the white-collar crowd, tools that support group collaboration or nurture the spontaneity of office chit chat are perhaps in greatest need.
Education: Primary and Secondary Public schools shifting to online curriculums en masse is one of the most surprising cultural changes and presents a massive long term opportunity. In the future, a sick day won’t mean a child falls behind his or her peers. In the near-term, an army of virtual tutors will be needed to help the many students who will sadly fall behind from not being in school this semester.
Autonomous and DIY Personal and Home Services
With restaurants, salons, barbers, pet groomers and home service professionals shut-down due to safety concerns, a brief window of opportunity has opened for those selling convenient autonomous and do-it-yourself alternatives as consumer spending has shifted to these areas at a rate unprecedented in modern times.
Consumerization of Security Technologies
This is a watershed moment for enterprise-grade cybersecurity technologies being brought into the home to support the performance and availability requirements of mobile workers and students.
Physical home safety technologies are also having a moment as those desiring deliveries or home services have an increased need to receive them securely without face-to-face interactions.
Virtual Group Experiences – The Peloton Effect
Just as Peloton has upended a large segment of studio fitness, we will likely see both increased adoption of virtual home fitness solutions, but also rapid shifts in analogous areas where there is a desire for live interaction but also an emotional or financial cost to attending a large gathering. This event will drive faster adoption of emerging entertainment mediums such as virtual sports, concerts, and conferences.
Organizers of traditionally in-person gatherings will also accelerate their adoption of live-streaming. Will this be the end of the neighborhood church as parishioners discover the convenience and allure of on-demand services led by preachers with global appeal?
With mass transit systems around the world closed or operating at reduced capacity, modes of individual transit, such as e-scooters and traditional cycling, will gain renewed appeal to those who still need to get around.
Mitigation of Supply Chain Risk
China’s rapid response has raised awareness of single points of failure within our supply chains. Fortunately, it appears they have their outbreak under control, but the memory of this risk will be fresh in the minds of business operators and their investors for a long time to come.
An Agent of Change for Conference-Driven Industries
For industries that traditionally conduct a large amount of its business through its conference circuit, technologies that facilitate transactions digitally are in an advantaged position. Even if the total spend in the vertical dips in 2020, it’s likely the serviceable market will explode as buyers and sellers seek an available alternative.
The Retail Apocalypse
Retail locations in many major markets were already shuttering at record rates, now there will even more interest in innovations attempting to revitalize brick & mortar commerce. Ghost kitchens, already a quickly emerging industry, will become much more prevalent if the global restaurant industry is besieged by this virus much longer.
Economic Pain Pills
Of the Better, Faster, Cheaper trifecta, Cheaper had been overlooked in the past decade of boom times. Now, the desire to save money will return with a vengeance! Startups that solve an economic pain point for both businesses and consumers will be winners within their market segments.
Gen-Z: The Isolated Generation
Just like the Great Recession left a lasting impact on how Millenials view asset ownership and financial risk after they witnessed their parents lose their jobs and homes, Generation Z will be left with a fear of germs rooted in memories of their schools closing indefinitely, only going out to walk their dogs, and playing long-forgotten board games while their parents yell at them to quiet-down in their attempt to work from makeshift home-offices.
The first beneficiary may be online therapy applications. Anxiety, fear, and social isolation will drive teens and young adults to improve their mental health. Decades later, will this generation prefer suburbs to cities and avoid retirement communities?
I’ll keep this list up-to-date as we hear of new takes on emerging opportunities. Contributions from our readers would be appreciated too. Just write to hello at foundational.nyc.
Harlan Milkove is a repeat VC-backed startup founder, and Managing Partner at Foundational where he works with early-stage startups to expedite their pursuit of venture capital. His prior venture Reonomy, a commercial real estate data analytics platform, has gone on to raise $125M+.
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