Six leading investors assess the remote-work startup landscape
The COVID-19 pandemic has shaken up the startup world, slowing some high-growth unicorns and promoting others onto the coveted list. In the earlier-stages of startup land, the same patterns of acceleration and braking can be found.
TechCrunch wanted to dig more deeply into the cohort of startups that are seeing acceleration, so we put together a list of investors who have put money to work in startups building remote-work tooling and sent them a raft of questions. We wanted to better understand if SaaS fatigue is real for the startups in question, where open-space still exists in the remote-work world and how the economics of the companies compare to other software shops.
And, yes, we did ask about valuations and intra-venture competition for the rounds that we keep hearing about.
Not every deal from these venture capitalists fits the remote-work mold, but they and their firms and funds are involved with enough in our view to give them good perspective about what’s going on in the space as the world continues to get into shape regarding remote work. This week’s news from Google makes it plain that tech companies are prepping for a long run of forced remote work, let alone the more hybrid remote-and-office future that seems to be the new conventional expectation.
A lasting COVID-driven remote-work boom is predicated on remote-work services not only meeting the moment, but iterating to support a world that just got pushed into a faster digital transformation than anyone expected. It’s a busy space for good reason.
Here’s who TechCrunch collected notes from this time around:
- Minn Kim, investor at Bloomberg Beta
- Elliott Robinson, growth equity partner at Bessemer Venture Partners
- Clement Cazalot, managing director of Techstars Boston
- Ryan Kuder, Techstars Anywhere
- Eamonn Carey, managing director at Techstars London, partner at The Fund
- Alexa von Tobel, founder and managing partner of Inspired Capital
As usual, we’re going to riff over some key trends and themes that stood out from the group’s collected answers, after which we’ll share their answers at length, edited for clarity and formatting.
Trends, themes
Picking through the answers we received, one thing that stood out was the simple fact that VCs do not believe that the remote-work services and tooling world is solved. In fact, the group was not shy of suggesting areas where there’s still more work to be done.
As you might expect, the issue of security came up a few times. Processes are being digitized across workplace verticals but there’s plenty of room for improvement in bringing security and compliance standards into the remote-work age.
“All the security [and] compliance while being remote is still largely untapped as companies are figuring out the answer,” said Techstars’ Cazalot, to pick one quote from a few.
Other items that popped up include front-of-office collaboration and personal remote process automation. Once basic communications are sorted, the sorts of tools and services that folks-at-a-distance need to work well both alone and and as a team will be varied.
It would be simple to presume that a growing library of apps and services would lead to software (SaaS) fatigue, but our VC group isn’t too worried about the concept.
Then there was the talk concerning economics and fundraising. TechCrunch wanted to know if remote-work startups have better or worse economics than other startups that are delivered along similar channels (SaaS, etc.). Our summary of answers it that their economics are at least as good, with some exceptions that their performance could in fact be better than other groupings of their business-model peers.
Regardless, the wave of companies hunting up new apps and services to fuel and empower their suddenly remote workforce is driving venture interest in the companies welcoming the demand. But notable is that prices, per our collected investors, are not as wild as you might think. Bessemer’s Robinson said prices were not low (“growth equity investors are paying high multiples to get a shot at the category defining [remote work-focused] app companies”), but most others offered some more tempered notes.
Reading their answers, it appears that the further an investor is from the Silicon Valley startup hub, the more reasonable prices look; that was likely true before the pandemic, mind, but that the pattern is holding up during COVID-19 implies that there is available price arbitrage available in the market that persists even into this hot niche.
That’s our first read, but there’s a lot more below.
Minn Kim, investor, Bloomberg Beta
It’s now common knowledge that the digital transformation has been accelerated by COVID-19. What portion of your active portfolio benefits from this change in pace?
Given our firm’s focus on the future of work, we’ve observed that a little over half of our portfolio companies have benefited from the digital transformation accelerated by COVID-19. These have been in areas like digital productivity, security, developer collaboration tools, network infrastructure and online education. This is also because several of our portfolio companies were built with a remote workforce in mind, including coaching platform Sounding Board and team success software Range.
Will the influx of single-purpose remote-work apps and services lead to app fatigue, and thus a return of more bundled solutions?
For those of us fortunate enough to do most of our work online, the rise of single-purpose remote-work apps reflects the limitations of the tools that we relied on in our previous “work stack.” If there is new bundling, I believe we may see it on platforms we’re newly relying on heavily, such as those offering great ways to run online sprints, remote offsites, and collaborative screen sharing.
Is there an upper limit to the number of tools that a single company may want to buy? Put another way, is SaaS fatigue real?
An upper limit for tool purchasing is more likely indication that a product is not yet hitting on the most important priority for its customer at the right time or price. SaaS fatigue is real until a solution comes along that addresses the user’s pain point in a clear, compelling and differentiated way.
As companies begin to go back to the office, do you think they are going to trend back toward their old processes and ditch some of their new remote software?
For knowledge work, I believe some behaviors will naturally default back to old processes, such as in-person water cooler conversations in a shared common space. Even when companies begin to go back to the office, I imagine some people on our teams will continue to be remote, at least for awhile. With this in mind, I foresee an ongoing reliance on tools like Pinpoint, for helping software engineers collaborate more efficiently, and Bonusly, for ongoing encouragement and recognition to team members (in-person and remote).
Are there areas inside of the world of remote tools and services that you think are under-served, places where you’d like to place a bet?
I’d love to see more founders building solutions around lightweight automations (“personal RPA”), software for better decision-making and products that use digital nudges to make unstructured collaboration more effective, such as gesture recognition or sentiment notifications in video conversations. There are also many opportunities to build useful products that use the metadata in our online interactions to help us become more effective teammates. For example, we’re investors in a company called Cultivate that analyzes a team’s digital conversations to help leaders improve and get notified when they’re sending too many emails during evening hours or sharing recognition unevenly across a team.
Does the availability of ample private capital give remote-tooling startups the flexibility to put off going up-market to the mid-market and enterprise areas?
It’s less about the flexibility of delaying moving up-market. It’s more about the freedom to experiment, iterate and get a product closer to product-market-fit with its earliest representative customer segment.
Do remote-tooling-focused startups have similar, better or worse economics than the average venture-backed SaaS startup?
This answer will vary depending on what you’re comparing. Because many of the newer remote-tooling-focused companies offer freemium business models to encourage new users, the sustainability of a company comes down to the cost to serve each new customer. We’ve seen that remote-tooling-focused startups that are laser-focused on a specific use case and narrow the pool of potential early customers are often in a better position to understand their unit economics.
How competitive are remote-work tooling venture rounds now? Are prices out of control?
It feels like the right time to build and raise for a Zoom competitor was at the beginning of 2020. Now, we’re seeing competitive rounds for companies building on top of Zoom or around workflow-specific features, such as event and community management or meeting analytics. That said, prices at the pre-seed and seed stages haven’t changed dramatically since pre-Covid-19.
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