At the end of each year, I sit down and distill what happened in our industry. For 2020, it would be trite to say it was a year like no other. Everyone I know is pretty tired of these topics. So, I’m keeping this extra brief and overly simplistic by design, but still writing it for me, to remember what changes occurred this year and what the ramifications could be on our work.
The analogy I use here is making a soup or stew. Imagine a big cauldron. There are starter ingredients to get the stew going. Then, you heat and combine them, add heartier elements to the base. And as the stew stews, you throw in more things to spice it up. It’s not the most elegant analogy, but as a former amateur cook, hopefully it works.
Before the coronavirus took root in the U.S. in late February, what ingredients were already in the cauldron? Oh, where to begin. The amount of dis- and misinformation has exploded. High-tech companies and the idea of “Silicon Valley” had continually drawn the ire of many in media and elected officials. Social media feeds addicted users, fertilizing anxieties and, in turn, finding new pores for conspiracy theories to take root. A presidential impeachment was attempted (after failing to prosecute the defendant for collusion), after years of sowing confusion within government agencies, after tolerating numerous cyber attacks, and after eliminating local and state deductions from federal income taxes. The nation’s economy was soaring, with technology companies driving the bus and small-medium businesses becoming the new consumer class; however, massive racial and wealth inequalities rippled under the surface of the cauldron, with tens of millions of citizens either living month to month, or systemically disadvantaged, or both.
So, we’re making that 2020 stew. Things are heating up at the bottom, browning, caramelizing, smoking. It’s time to add to the base — and what does life bring? A global pandemic! If I think back to March and NYC, it is terrifying. All of a sudden, we shut down. We didn’t know how fatal Covid-19 would be, or how transmissive it was, or how it spreads. We ordered groceries online from Instacart, accepted them with plastic gloves, and washed bananas before peeling them. Investors conducted portfolio triage. We all read Sequoia’s Black Swan Memo with fear.
The initial reaction of most of our industry (and mine, frankly) was that we would see a major slowdown. Looking back, that was wrong. There was a brief slowdown associated with the shutdown, but government quickly reacted with multi-trillion dollar stimulus, the virus seemed to peak in certain places, and we learned much more about the virus properties — mainly that it was relatively safer to be with a mask outside with a very small group; that it didn’t seem to transmit via packages/surfaces; that children were far less likely to contract and/or spread the virus; and that closed-air indoor environments where people would congregate (bars, restaurants, churches, etc.) were responsible for super-spreader events. The government launched Operation Warp Speed to unleash innovation in the biotech sector to find a vaccine, antibody, or therapeutic for the vaccine. The portfolio approach taken here may turn out to be a sole bright spot given recent efficacy statistics.
By late May or June, the parts of the economy picked back up. And in the world of tech, startups, and VCs, this is when things shifted into a new gear. The lockdowns and need for physical distancing accelerated two decades worth of digital software adoption into the span of two months. Restaurants that weren’t on EATS or DoorDash needed to adapt to survive. Businesses that still relied on wet signatures for documents and FedEx had no choice but to turn to DocuSign and Notarize. Small merchants needed to tap into e-commerce platforms like Shopify and Faire. Many citizens turned to Airbnb as a preferred travel vendor, helping revive the company after a massive Q2 revenue drop. And of course, with business travel stunted and in-person meetings put indefinitely on hold, the world (including classrooms) turned to live video, schools turned to Brightwheel and Outschool, events were reimagined through breakouts like Hopin or Hubilo, or meetings on Zoom, Teams, or Whereby. This was all reflected in public and private startup valuations — Zoom rocketing to nearly a $150B public company at one point, and Hopin going from a $30M valuation to over $2B in value in less than 12 months time. I briefly chronicle *why* this all happened in this short post called “The Quest For The Next DocuSign.”
While the 2020 stew is almost ready, let’s throw in some garnish in the form of venture financing innovation. Throughout 2020, separate from these core ingredients, the world of venture capital witnessed its own cauldron of change. First, we saw an explosion of SPACs, with credit to Chamath for resurrecting the SPAC a few years ago. SPACs wield numerous advantages to all participants when designed thoughtfully. Second, AngelList unleashed Rolling Funds, a software innovation to abstract away the procedural and administrative complexity of raising and managing small venture capital funds, while empowering limited partners to move in and out of funds like SaaS subscriptions. An evolution on AngelList’s SPV product, Rolling Funds also empower angel/operators to not only scale up their early stage investments, but also to create a wider on-ramp for aspiring private investors to get their feet wet. Third, a new wave of “Solo Capitalists” emerged as VCs, raising and deploying at scale driven by a single figurehead. Back in 2010, this type of model would be an anomaly and likely not pass institutional committees; fast-forward to 2020, and it’s one of the most intriguing disruptions to the venture capital stack. The “who” of who gets to invest early, the funds competing for Series As and Bs now, and the new routes to go public all exploded in 2020.
The 2020 stew fortified some, and it severely harmed others. While the tech sector, startups, and the market for venture capital accelerated, certainly the same cannot be said for many other sectors of the economy. In the U.S., each state governor wielded control over their state’s Covid response, many of them in larger states abdicating some leeway to county-level authorities. This made for various responses and more conflicting public health messages to citizens, against the backdrop of having basic precautions like face masks become politicized elected leaders. The result – the virus raged through the U.S. and will end the year with over 300,000 known deaths as a result of Covid. LA will ring in 2021 as the latest pandemic epicenter. If this were not enough, we saw the George Floyd protests unleash a national movement and conversation around racial justice. Once September arrived, the west coast was engulfed in wildfires, the south and southeast battling hurricanes and storm surges, and other corners of the country — from the Dakotas to the Bayou. Those involved in the technology sector, those who saw no stoppage of work and shifted to Zoom, saw little to no change in their situation, and in many cases, were beneficiaries. Small and medium businesses, those in the services sector, hospitality, arts, and entertainment suffered greatly, and as the incoming President has signaled, all stimulus payments made to date may just be a down-payment on what’s needed in 2021 to help Main Street stand ground.
All of the above make up the bubbling cauldron that is 2020 in tech startups and VC. The hangover effect in the Bay Area became more dynamic as this year closes. Tens of thousands of households left the city of San Francisco. Many emigrated to surrounding counties, driving up real estate prices even more . The stretch of wildfires that surrounded the Bay Area in September proved to be a knockout punch for many residents — it was a really tough time. Imagine a dual-income household with small kids in school via Zoom, parents working via Zoom, and stuck inside in 100 degree weather with 8-10 days of extremely unhealthy air quality. I can’t prove it, but this tipped many people over. Once the fires subsided, major issues remained. Seeing newer companies reach scale in a remote and distributed manner (like GitLab), having the ability to buy/sell real estate online with networks like Opendoor, the impending impact of California’s and San Francisco’s looming budget crises, the impact of SALT deductions being stripped, and with much of the industry adapting quickly to a video-first environment, for the first time a considerable number of people I know who would have never left the Bay Area began to spread out — Europe, Seattle, Austin, and so many other places around the world.
And of course, there is Miami. For sure, you can bet I’ll end my “End of 2020” in tech/VC post talking about Miami. While the statistical odds of the world being put into lockdown because of a global pandemic were incredibly small, perhaps even smaller was the likelihood that a young mayor of a major U.S. city in a state without income taxes would not only woo and recruit technology founders, executives, and investors to his city on Twitter, but that he would engage in a way that triggered an ongoing dialog for weeks on end. Sure, parts of this have turned into a meme, but there is a real shift going on, not just in Miami. The new innovations brought to venture capital (listed above), combined with the conditions on the ground in California, combined with how SF as a city has been managed to date, combined with the rising antagonism toward the tech industry, combined with the rising costs of living — these have all been put under the microscope. Just like Covid seems to be most unkind to those with underlying conditions, the same could be said for regions or governments, where the underlying conditions could be budget largesse, anti-business policies, and a politics too far afield from the mainstream.
The final 2020 stew in the cauldron is a potent mix: A public health crisis, which triggered economic crisis, social crisis, and a mental health crisis, with a side of climate change crisis. On top of this, we all have friends who have now lost loved ones due to Covid, or lost income or means, or was forced to move to a new place, or has been isolated from his/her grandkids, and on and on. We have friends who experienced social and/or racial inequity and feel more comfortable to share it, and the audience is more comfortable to listen to it. We have had friends houses burn to the grounds, and friends who became climate refugees. If this weren’t enough, being at home without the daily routines of going to school or the office, commuting to decompress, going out to eat to get a break from doing dishes, and limiting social gatherings has eliminated the common distractions we used to carry ourselves through the day. Instead, we are more in-tune with all the craziness going on around us, in a year packed with crazy events. I’ll talk more about how I’m planning for 2021 as a result — not in the sense of making predictions, but how this year as informed my planning for next year. For now, I wish you all a very happy and safe new year.