How Venture Capitalists Are Rethinking Post-Pandemic Investments

What business models will thrive and how will consumers spend their money beyond COVID-19? We ask four female investors for their post-pandemic insight.

By Jenna Birch

In a matter of weeks, the coronavirus pandemic changed everything. Thriving businesses like co-working spaces, salons, and spas saw revenues screech to a halt, with retail giants experiencing a 79 percent decrease in sales during the month of April. Meanwhile, tech-abled businesses focused on remote work saw massive surges. Zoom’s customer base grew from 10 million in December 2019 to 300 million, seeing revenue double from the same point last year. InstaCart saw a 500 percent increase in order volume, while Peloton reported a whopping 172 percent sales increase in Q4. 

This pandemic has not only laid bare the future roadmap of innovation—what services are essential, what business models will thrive, and how consumers will spend money beyond the COVID-19 crisis—it’s also been a lesson in pivoting, getting leaner, and, as we look to 2021, understanding what types of businesses investors want to bet on in a post-pandemic world. How should founders position their companies for society’s newly-formed values? What categories are exciting investors? And which companies are the Zooms of tomorrow? We asked four women VCs for their insight on how we’ll be buying clothes, where we’ll be socializing, and the rise of vice-driven deals.

What Investors Want to Invest In

Janice Fraser, a San Francisco-based angel investor, has been noodling on Maslow’s hierarchy of needs since the start of the pandemic. She thinks he got something wrong. “He put belonging and social connection higher up, toward the top, when really it’s all the way at the base of the pyramid,” she says. “Our connection to others is right there with grocery, physical safety, clean drinking water.”

As such, Fraser is reimagining authentic connection and how to keep it accessible. In many ways, as the entire country works from home, she’s rethinking concepts like “work-life balance,” breaking it apart, and asking if work and life are really so separate. She believes “enabling tools and technologies” will have to come online for verticals like churches, weddings, funerals, workouts, dentistry, law, banking, schools, and doctors. “All the stuff you used to think you could only do in person, you’ll need to have enabling tools for all of that—online connection to other people that is deep and real is so important.” 

Of course, we all have needs, and companies that address core human necessities will always be relevant, but we also have vices that are frequently a source of stress relief during hard times says Alyson DeNardo, a partner at MaC Ventures and founder of Alden. “I’m seeing the world a little bit differently from an investment perspective,” she explains, noting Catherine Dockery’s success from Vice Ventures. “She started a fund two years ago about investing in vices: cannabis, alcohol, sex, nicotine, all of the things that are thriving right now. She’s done really well in all of this and rightly so.” 

Connection to others is right there with grocery, physical safety, and clean drinking water.

The necessary innovations of the pandemic will be the mainstays of a future remote world. Fraser is looking for “digital everything” right now. “The startups I’m looking for are those that are leveraging some of the digital trends,” she explains. “Everything that can go remote will stay remote, and we need the tools to enable that. We’ve seen applications like Miro really take off because they are online versions of behaviors that were previously done in conference rooms at corporations.”

DeNardo has seen the vice-driven investments succeed in her own portfolio companies in areas like gaming, e-sports, and alcohol. “It’s been an interesting way to see the companies that are thriving, and to me, that comes down to a lot of the vices,” she says.

Fun and downtime are important, especially during hard times. Fraser is thinking about products that will revolutionize virtual happy hours—allowing us to connect socially beyond the Zoom strategy of a one-hour remote meeting. “Some of the most interesting things that have happened during COVID are, for instance, the DJs doing remote dance parties,” Fraser says. “I participate in a worldwide group meditation at 11 p.m. every night. Maybe it’s a device. Maybe it’s a combination of devices and wall screens. But I think there will be a lot of consumer electronics coming out as a result of the pandemic environment.”

Rachel Star, a senior associate at Unusual VC, is also thinking about tech, but not so much innovation as to how to get mass adoption. How do you get your parents or grandparents hooked on the next InstaCart? “Some of these conveniences and services that millennials and younger people have been using for years, it will be interesting to see how adopting these trends looks with the older population in time,” she says. “The venture community has been intrigued by older demographics, one of the issues has just been acquiring those customers. You can serve me an Instagram ad and chances are I’m going to see it, my grandma is a little tougher to reach. This is bringing to the forefront some of those challenges, and creating an opportunity to serve those populations.”

And naturally, in pandemic times, it’s hard not to see the possibilities in healthcare. Sydney Thomas, a senior associate at Precursor VC, says she is “bullish” about companies innovating in this space. “I’m excited about companies focused on building a fully remote hospital. My current thesis is people, especially with COVID, and afterward, we’re going to see hospitals as places of death and disease, not rehabilitation and health. It’s going to upend the entire healthcare system.” 

Thomas read a report earlier in the pandemic about United Health, which is returning $1.5 billion in premiums back to customers who are not using their coverage to see doctors. “It’s an interesting question to ponder,” she says. “If people continue to not use healthcare insurance as it was intended, what is the use of healthcare insurance providers, and how can we reimagine what healthcare insurance looks like? I’m seeing my doctor from the comfort of my home. I am getting a midwife to come to me when I’m pregnant.” Thomas is eager to see companies attempting to solve these new healthcare problems.

The Sectors That Should Be Pivoting

What industries need to change for the new world, and which ones are simply not going to make it into a post-pandemic, sustainability-minded landscape? “Travel, particularly business travel, is not going to have a comeback,” Thomas says. “In 10 years, when I tell kids that I used to go to New York one month, Chicago the next month, and Austin the next, they are going to be like, ‘That’s so stupid. Why were you so harmful to the environment flying to all these places when you could have just put on a headset?’”

Thomas is also watching for pivots in fashion. “The emphasis is going to be on utility,” she predicts. “I have seen a few setups in this space—for instance, one dress to go hiking, have brunch with a friend, and then out on a date night. We’re going to see more optimizing; five outfits and wear the same ones every week.” Especially if people are not getting out of their homes like they used to, there will be no need for fancy cocktail attire and chic power suits.

As consumers become more price-savvy, Fraser expects any startups that are built on non-necessities and superfluous services will not make it into the future without a major makeover. “There’s a whole genre of startups that I refer to as ‘the startups that recent college graduates can think up,’” explains Fraser. “Recent college graduates haven’t had a tremendous amount of life or professional experience, so they’re never going to be the deep supply-chain companies. It’s the ‘what to have for dinner’ app. Those are going to go away because nobody really needs them; nobody wants things they don’t need right now.” 

Business travel is not going to have a comeback.

Fraser imagines there will be a cleanout of startups that would usually get some funding, and then have “a long, slow death.” This was perhaps inevitable. “The whole economy is being reset in a lot of ways,” says DeNardo. “Last year to this year, with the Casper IPO and the WeWork situation, to where we are now, I think a lot of this economically was predicted. At some point, the market would crash and all the private equity deals would reprice.” 

People in venture capital were hoping for this, DeNardo explains. “We were seeing companies that were overvalued and unjustly priced—it’s part of what caused the WeWork problems,” she says. “[The valuation] didn’t make sense for where they were as a company, then there was a crash. If a company is valued at $50 million unjustly and they tried to sell tomorrow with an initial product and some customers but not anywhere near that valuation, no one would buy them. They wouldn’t get acquired for $5 million, much less $50 million.”

The forced startup-repricing scenario will cause companies to be valued at a much lower rate than they were before the pandemic—while some will not get funded at all—but DeNardo maintains this is better for the founder and the investors. “It’s a better price, better deal, higher ownership percentages, and less dilution,” she says. “When you go to exit or IPO, or some kind of liquidation event, it’s more straightforward—which is what I’m excited about. There’s been a dramatic shift in valuations, even from last year, where there were seed rounds priced at $25 million when they should have been priced around $10 million.” She says, now, nine months after the world as we knew it shifted, businesses are “more focused on actually making money rather than setting money on fire.”

How Founders Can Fulfill a Real Need in 2021

First, it’s critical to make sure your company is still serving a purpose; you may need to pivot.  “I had one [portfolio] company that was trying to do an innovative new bank,” Fraser says. “They shut down that business and started a new business; this was more than a pivot.” Rather than enter banking, the team leveraged their backgrounds for a “supply chain optimization play,” which would help get PPE to customers. “In January they were able to get their contacts in China manufacturing certified medical grade PPE and by April, were already delivering physical goods from the manufacturer into people’s hands.” It wasn’t what the group envisioned themselves doing in 2019, but it was what 2020 (and beyond) needed.

The supply chain will always need to be more efficient, says Fraser. “If it’s not PPE, it’ll be something else,” she insists. “There will always be a product that is spiking.” When in doubt, founders should make sure they are fulfilling a real need in the post-COVID world. Look at those foundational elements of Maslow’s hierarchy: safety, security, financial wellness, food, community. Oh, and people want to play, too, Fraser says. 

For startups experiencing a spike in sales, activity, or signups, it’s important to not lose sight of the core, target customer, adds Star. An influx in traffic in certain industries—delivery services, entertainment portals, etc.—might not be sustainable, and some of the “fringe customers” will defect or be less engaged as time goes on. “Whether they’re turning earlier, they’re not purchasing as much, not as engaged, I think I’d be really cognizant of some of those metrics to make sure the focus is on the best-performing customers,” she says.

As a founder, you also need to be capital-efficient, says Thomas. The pandemic brought this to light more than ever, but it’s an attractive quality that investors look for in founders at any time. “Founders who don’t need hundreds of millions of dollars to prove out or get a product to market” will see more success, she says. In a downturn, Thomas explains, “that’s going to be even more important as capital becomes more scarce.”

To preserve capital and lengthen your runway, take a hard look at every expense, notes DeNardo. “For example, if you take 15 minutes to audit your expenses today and cut down on subscription charges, certain software you aren’t using, people that aren’t using the tools in your organization, all of that is a part of increasing revenue and decreasing burn,” she says. “Ten times out of 10, focus on decreasing burn. Whatever you can do: renegotiate your lease, make sure there are not things you are paying for that you don’t know about.”

It can feel overwhelming, staring down a recession, seeing massive changes to our economic infrastructure, but these downturns are cyclical, says Fraser. “It will take time but we’ll all get through it—it will be something that ends up in the rearview mirror eventually, so don’t panic,” she says. Focus, iterate, reimagine, pivot, streamline, and “be kind to yourself.”

Jenna Birch is a freelance journalist and creative content consultant. She has written for Vogue, Harper’s Bazaar, ELLE, O, Real Simple, Man Repeller and The Washington Post, among others.

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