Opportunities for Relentless Talent and Capital In a Pandemic World and Beyond

For the last several months, I have been looking to invest with the fervent belief that the largest and most significant companies in the world in the next two to three decades are going to be built in the categories of healthier living, sustainability and the environment, and human capital (education broadly, tools and platforms for small business, and products that facilitate access, identity, or self-expression). I believe now, more than ever, that these themes will attract inspired talent and capital and that opportunities which stress social responsibilities will have a better chance to be successful — looking out for the good of all will drive returns. Furthermore, in the face of economic challenge, I think that these companies will be the catalysts for economic revitalization. These sectors:

• Are more durable and resilient. They are solving critical problems that are “must have” versus some other categories, which are more “nice to have”
• Attract more mature and seasoned founders. I expect that the founders who build companies in these sectors will tend to have more operating experience (founding or otherwise) and generally be further along in their careers. I fundamentally believe founders should start companies to solve a problem that they have deep professional or personal experience with, and the challenges confronting these categories lend themselves to these types of founders.
• Should not be as susceptible to winner-take-all or winner-take-most dynamics, particularly within healthier living and sustainability and the environment. The magnitude of the challenges in these categories should yield many large winners.

I referenced one such company here:

In the face of COVID-19, laws are being re-written, policies are being amended, and consumer behavior is being re-shaped in real time. These alterations will change the face of industries forever. For example, new policies that enable physicians to practice medicine across state lines to meet doctor shortages in certain areas now can accelerate the adoption and growth of telemedicine startups. And, while I believe that in-person interaction is a critical component of teaching and learning for nearly every discipline, the rise of virtual education, broadly defined, during this period is allowing people to access teachers and instructors remotely. Certainly, this behavior was already taking place; however, it has become a necessity during this period, and so new adopters have joined this wave. This trend aligns with my belief that education is being unbundled, as students, just like any consumer, start to pick and choose where they get information and skills on an a la carte basis. These are just two examples of many others, including: regulatory barriers being lowered around HIPAA and telemedicine, increasing attention on the importance of family care, and a re-focusing on the importance of science in everyday life.

With such large-scale changes occurring, I believe that a new wave of enterprising founders will start companies and build products to address the problems and challenges we are facing now; these will scale beyond this moment to solve less acute pain points in the future. Some of today’s biggest companies were started in 2008–2009 in the throes of the Global Financial Crisis (GFC). Uber and Airbnb were founded, and one could argue that their rise and ability to build a strong supply base was due in part to people’s desire for extra income. Other companies started during that period include Stripe, Pinterest, WhatsApp, and Square, among others. While those companies weren’t necessarily a direct outgrowth of the GFC, the founders with the audacity to start companies during that period were likely the ones to be the most mission-driven (i.e. solving a problem and pain point because they genuinely want to; not because they want to be a founder), the most capital efficient (because they had no other choice), and the most resourceful. I strongly believe that we will see a similar emergence of relentless, mission-driven founders in the wake of this period — the exact type of entrepreneur that I love to invest in and support. For all of the reasons mentioned above, I expect that starting a fund around this time and / or having the capacity to invest meaningfully in time for Q3 and Q4 of this year will yield strong returns in the long run.

Lastly, there is no doubt that lots of small venture funds have been raised in the last three to five years. But how many of those are stepping up to invest the amount of capital necessary to lead pre-seed and seed rounds? And, more importantly, how many of them have the conviction (and the stomach) to manage portfolios and continue to raise in the face of economic uncertainty? Too many funds have been raised by people who want to say they’re a VC, and too many funds have been raised by people who aren’t devoting 100% of their time to managing that fund (i.e. they are running another company or working at another company). I expect a number of these to fold or stop trying to raise new capital. I already believed that the seed environment is not as crowded as the data would have you believe (i.e. there are not many funds that submit term sheets and truly lead), and I think this space will continue to get less crowded.

The last couple weeks have been challenging and I’m sure that will continue to be the case for the near future. But as I evaluate the conversations I’m having with founders and other investors, I gain confidence in what I’ve outlined above, and I’m certain that the founders, companies, and investors focused on these areas will play a major role in overcoming the health and economic crises we are facing now and in shaping our world over the next decade and beyond.