Venture capitalists behave a bit like oracles. They imagine the future, make prophecies about how we get there, and decide the fate of founders and startups. Usually, these divinations take the form of cash, showing where the VCs are placing their bets. But occasionally, they also share the prophecies with the rest of us, in the form of public writings. “Coronavirus is the black swan of 2020,” the venture firm Sequoia told its founders in a memo posted March 5. It was time to cut spending, reconsider purpose, and plan for the worst. “We suggest you question every assumption about your business.”
The last year proved intense for many startups: Many went out of business, others had to lay off tens of thousands of employees. Those that relied on in-person interactions (say, a travel-booking service) have gone into hibernation, while those that met pandemic needs (say, a direct-to-consumer cereal startup) have gone into overdrive. Many startups had to change drastically, reconfiguring their product and or pivoting to fit into the pandemic world. As Sequoia put it in its memo, the startup world mirrors biology in times of crisis: “Those who survive ‘are not the strongest or the most intelligent, but the most adaptable to change.’”
Now another change is underfoot. As millions of Americans get vaccinated and states lift restrictions around gathering, people are preparing for a Great Reopening by summertime. Comparisons to the 1920s abound. And that has led venture capitalists to make new prophecies. Sequoia, for example, sent out a new memo to all of its founders in recent weeks. The message? “Now is the time to start stepping on the gas.”
“The advice we’re giving founders is, in some ways, quite similar to what we put out a year ago: A lot’s changing, so seize the moment,” says Alfred Lin, a partner at Sequoia Capital. “But this moment is much more optimistic.” Lin says that the pandemic has remade consumer and corporate behavior in myriad ways; now is the time to make bets—and potentially fortunes—on which changes will stick. (Fully remote work might not, but at-home fitness equipment might.) Many VCs expect the immediate payoffs will be for startups in categories like entertainment and travel, sectors where people will want to spend their money post-vaccine. At the same time, Lin says, “we want to build a decade-long company, so we have to focus on things that endure, not things that are fads.”
“There are huge markets to seize right now,” says Kim-Mai Cutler, a partner at Initialized Capital, an early-stage venture firm. Some of those markets experienced growth during the pandemic, like grocery delivery. Instacart, which Initialized has invested in, saw a 500 percent increase in orders in the first half of 2020—and while it’s unlikely to keep all of its pandemic customers, it probably will keep some of them.
Other markets will see more benefits as the vaccinated population grows and there’s a return to pseudo-normalcy. “There are definitely companies in our portfolio that had their businesses put on pause for the year that have been basically laying the groundwork to come back,” says Cutler.
Pent-up demand is a major theme of discussions at VC firms. Anis Uzzaman, general partner at Pegasus Ventures, has started preparing his portfolio for the “roaring ’20s for consumer spending.” In the United States, consumer spending jumped more than 5 percent in January, and is expected to explode in the coming months. Categories like travel and live entertainment stand to benefit from that surge; so do cosmetics and fashion startups as people emerge from their sweatpants cocoons. Early-stage funds, like Pegasus, are especially on these emerging trends, since they invest in younger startups that may have been created to meet the moment. Uzzaman says he’s looking at founders who can “build new revenue streams from this uptick in activity.”
