Despite the multiple challenges posed by the COVID-19 pandemic, 2020 turned out to be a boom year for technology startups. According to the latest Pitchbook-NVCA Venture Monitor, US startups set a record in 2020, earning $156.2 billion, erasing the previous mark set in 2018 ($142.7 billion) and last year’s total ($138.1 billion).
Jeff Grabow, US venture capital leader at business advisory firm EY, said he anticipates that the venture capital market will remain active and strong in 2021, but perhaps not quite as robust as last year. "If a pandemic can’t slow the market, what can?" he asked.
The COVID-19 pandemic has led to fundamental changes in the way people live and work. "That creates new opportunities for entrepreneurs," said Harvard Business School professor Tom Eisenmann, author of Why Startups Fail (Crown-Currency 2021). The crisis has also led to many talented, creative people losing their jobs, giving them more free time. "They’ll spend that time cooking up startup ideas," he noted.
It was widely expected that the pandemic would lead to a major reset in the startup sector. "This hasn't played out," Grabow observed. In fact, the biggest challenge today’s startups are facing is finding the right talent to staff and grow their businesses. "With over 35,000 venture-backed startups out there, [investing in] the human capital element and recruiting will be a vital strategy to propel companies forward," Grabow predicted.
Transformation leads the way
Many startups are benefitting from the fact that COVID-19 has accelerated the rollout of digital transformation initiatives, creating a sudden demand for innovative products and services. "It’s a great time to build an enterprise-focused startup, given the current focus customers have on using technology to address a number of needs," said Matt Carbonara, managing director, venture investments, at Citi Ventures. "If you're building a startup in the cybersecurity, data, developer tools, or automation space, we would love to hear from you," he quipped.
With many enterprises shifting to virtual workforces, numerous startups are offering solutions related to communication, collaboration, and virtual management. "The rise of remote work required companies to approach digital transformation out of survival rather than as an item to check off their to-do lists," Carbonara said. "Whether it's HR tech built to make onboarding and offboarding processes easier to do virtually, cloud-based collaboration and communication apps, or security tools that protect sensitive company data, enterprise tech players are poised to win 2021," he explained.
Not all startups are targeting enterprise markets, however. On the consumer side, many new firms are exploring various types of real-time communication services. "Communication with your physician, car repair, etcetera, will continue past the disruption," observed Peter Koen, an associate professor at the Stevens Institute of Technology.
Carbonara is also bullish on consumer-oriented communication services. "Today, customers expect a seamless digital experience, especially when interacting with a brand's customer service team," he said. "Although traditional investments in support products have been costly, recent advances in automation have created cost-effective opportunities for businesses to enhance their customer experience."
Green-rooted startups, meanwhile, are looking forward to sunnier times. "With the Biden Administration, there will be huge trends in getting to zero carbon," Koen predicted.
Startups are benefitting from the fact that venture funding access is becoming faster and easier. "No longer do you have to be old and rich to be a VC," said Saxon Baum, vice president of investor relations at Florida Funders, a venture capital fund and investor network. He noted that social media platforms now allow investment information to move quickly, allowing funding deals to be completed promptly and with relative ease. "The rise of crowdfunding platforms has given anyone the ability to invest in early-stage companies and truly make a difference," Baum explained.
Today's startups are also becoming increasingly flexible as well as highly responsive to rapidly evolving market demands. "Those willing to embrace an experimental perspective and understand how to use lean startup methodologies to quickly understand the problem they're solving -- learning and failing quickly and then repeating the process -- will increase their chances of success," Koen said.
The current startup market favors visionary founders who can make measured guesses about what the world will look like in the second half of the decade. "Founders who can drive their companies to meet needs that have not yet emerged or been identified, while accurately meeting today's emerging needs, will have a significant advantage," observed Rob Enderle, principal at technology research firm Enderle Group.
How long will the current startup boom last? "It's really hard to predict tech trends," Eisenmann said. "If you go back to 2001, you won’t see many predictions that Google would soon dominate search, or [that] user-generated content in the form of blogs and YouTube videos would explode."
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