The arrival of several highly efficacious vaccines – whose rapid advent is itself a modern technological marvel – allows us to finally ask with more temporal certainty, “what’s next?” and “what’s next for tech?” While at the same time we hunker down and take precautions for what may yet be the most painful and dangerous months of the pandemic, we may now hopefully look to mid-2021 when a semblance of normalcy for our lives and all sectors of the economy is likely to return.

Just as we planned and adjusted when COVID hit, it’s time to do it again. Naturally the exercise is largely dependent on how a startup was initially affected by COVID and whether those trends will have inertia or fully abate. However, every startup needs to consider implications to cash and the longevity and viability of remote working in a less contagious world:

The few companies that benefited from COVID have to make bets on behavioral inertia.

Whether a D2C e-commerce brand or a telemedicine startup, each startup that benefited from COVID is asking the question, “how long will this last?”. In many cases, we expect modified behaviors to have permanence. It’s reasonable to believe that many consumers who recently crossed the abyss to online grocery ordering may want to remain there much of the time, or that remote employees will want to keep working from their new pied-a-terre in the country. In fact, many of these changes have taken structural form, including the flight to the suburbs and office down-sizing. Purchased homes and new leases have permanence. We also know that it won’t all stick. Zoom stock is down 27% from its peak a month ago as the light at the end of the pandemic tunnel emerges. While there is no single expectation that fits, VC Fred Wilson suggests that a 50% reduction in excess demand caused by a shock is a reasonable place to start in planning for the aftermath. If companies can flex that assumption in their model up to 75% and down to 25% while still achieving solid growth and efficient burn, that is a robust plan.

Not yet party time for everyone else

So for the companies that were deeply impacted by COVID or for those that were relatively unaffected, is 2021 going to be a party? Not likely. For example, the travel industry may take years to return to pre-pandemic levels. Some of this will be a result of lingering contagion or fear and some the result of entrenched behavior change. Even less affected industries are not likely to see a rapid jump back to pre-pandemic levels as demand and job recovery always take time. The exception may be in consumer goods and experiences, where an unprecedented increase in consumer savings rate over the last six months may portend a release of spending in 2021 when confidence and job prospects improve.  We are encouraging our most heavily affected companies to take it slow in 2021 and allow each increase in spend to prove itself with commensurate demand before taking on more expense.

Cash is still king

While venture capital didn’t experience the apocalyptic decline some predicted – and in fact had a banner third quarter this year – much of that favored a few late stage winners or COVID standouts. Moreover, the standards and milestones of success have not loosened because of COVID. Startups are still expected to at least double year-over-year to be fundable through Series B. That was uniquely difficult in 2020 and will remain so in 2021. Without a free pass on a bad year, most companies that limped through 2020 will have to preserve cash through 2021 as they slowly claw back towards growth. This will be very hard for most, and there may yet be casualties.

Remote people and culture are here to stay

By 2025, it may be that the most permanent vestige of the pandemic at startups is remote teams and culture. Before COVID, about 10 to 15% of companies we saw had majority remote teams. With that number now near 90%, we think it will settle in the 50 to 60% range in a few years. The barriers to productivity have largely fallen as we’ve all learned to work remotely, and the benefits of being able to hire anywhere, including on a contract basis, can make a startup more nimble. As a geographic focused investor, we’ve thought a lot about what that means for us. While we still believe our geographic focus brings network effects in our ability to find and help startups, we expect more of our investments to have a considerable remote workforce, albeit with a mid-content HQ. You have to host the holiday party somewhere!

While it is a relief to look ahead to a brighter 2021, we know that the next few months will be difficult for all, directly painful for many and tragic for some.  Let us all be safe and good to each other as we transit this last leg.

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