“Risk-On” And Digital Antibodies

With the arrival of June 2020, it’s almost as if there is no pandemic when it comes to the early-stage investment market in the Bay Area. The early-stage tech formation world and the VCs that support them are mostly “back in business.” Some never really were out of business, to be clear — while deal pacing was slower and choppier at the beginning of Shelter-in-Place, it’s all picked back up. Deal activity is up. Competitive Series As and Bs are coming back. Rounds that should be small and pre-seed are being pursued by the biggest funds out there. It’s game on, pandemic or bust.

It was just about 3 months ago when we in California were asked to take shelter and most of the economy stopped. There was a famous “Black Swan” memo, which felt like getting a warning from the CDC. I spent most of March trying to write down a guide for founders and investors for weathering the storm — now looking at the series, it feels entirely outdated. As folks emerge from their home office Zoom caves and the economy slowly reopens, we see that the largest firms have been quite active and looking for more.

Right now, in June, it feels like February. it feels like nothing has changed in terms of deal activity, competition, and pricing. Q2 isn’t done yet, but I would not be surprised if we end the month with Q2 looking more or less like previous quarters. Again, I don’t know the data, but I am sharing what I sense and in feel by being on the ground in the market.

Why could this be happening? First, we know more about COVID-19 now. Being outdoors in very small groups seems a risk many (not all) are willing to take. Second, the Bay Area has had very few deaths attributed to COVID-19 so far. I tallied all counties a few weeks ago and it was around 500. Third, there is limited reopening happening where folks do feel more comfortable about stepping out but still taking precautions. Fourth, most venture capital dollars In the U.S. are located in the Bay Area and the biggest top funds are sitting on lots of dry powder. Fifth, VCs as companies have finally adapted to being entirely remote and also making investment decisions, including wiring money to people they’ve never met face to face. (I think people will do f2f outside in a socially-distant way to handshake on deals.)

And sixth, the very clear shift in public market comps for digitally-native companies is shining a light on the scale of the opportunity ahead for tech startups and the VCs that fund them — I call this “The DocuSign Effect.” Years ago, I recall folks being surprised when DocuSign started to grow. “It must be a feature,” they said. Then more surprise when it was valued at $1B in a private round. And more surprise as it planned to go public. And then all of a sudden it was a $10B company. Today I checked, and it’s almost near $30B. There are millions of businesses worldwide who once resisted digital signatures (tip – go chase Notarize in Boston!) and now who have no choice but to be enterprise customers.  Some founders have a new tailwind behind their sails — sectors which got a jolt from the event-driven growth triggered by the forced shutdown, and now where going back in time doesn’t make business- or common-sense — from tele-health to live video, from click and carry to an entire Shopify wave.

Yes, I know we may see a terrible resurgence of cases, second waves, and third waves. I am personally worried about it. My #1 source on COVID-19 is Don McNeil from The New York Times, and he gave a must-listen update on today’s “The Daily” podcast, here. McNeil paints a grim vision for the summer, fall, and winter,. And maybe this June snapback in the Bay Area will be short-lived. I have no idea, really. I am frankly shocked I’m even writing this piece, it is surreal compared to the darkness of March and April. But, what do I know? The assets valued today are digitally native. Tech equities are all the rage, they’re mostly immune to the pandemic and lockdown. This was hard to see a few months ago. I got it wrong and, well, here we are, back in full swing. Buckle up!