pandemic
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US seed-stage investing flourished during pandemic
As the United States entered its first wave of COVID-19 lockdowns, there were wide expectations in startup land that a reckoning had arrived. But the expected comeuppance of high-burn, high-growth startups fueled by cheap capital provided by venture capitalists raising ever-larger funds, failed to arrive.
Instead, the very opposite came to pass.
Layoffs happened swiftly and aggressively during the early months of the pandemic era. But by the middle of Q2, venture activity had warmed and third quarter dealmaking felt swift and competitive, with some investors describing it as the hottest summer in recent years.
Venture capital as an asset class has survived the pandemic’s stress test.
But somewhat lost amongst the splashy megarounds and high-interest IPOs that can dominate the news cycle were seed-stage startups. The raw little companies that represent the grist that will shape itself into the next set of giants.
TechCrunch explored what happened in seed investing to uncover what was missed amidst the storm and fury of late-stage startup activity. According to a TechCrunch analysis of PitchBook data and a survey of venture capitalists, a few trends became clear.
First, the pattern of rising seed-check sizes seen in prior years continued despite the tumultuous business climate. Second, more expensive and larger seed deals were not only caused by excessive capital present in the private markets. Instead, COVID-19 shook up which startups were considered attractive by private investors. And the changeup did not necessarily raise their number.
Let’s dig into the data and see what it can teach us about this wild year. Then we’ll hear from Eniac Ventures’ Nihal Mehta, Freestyle’s Jenny Lefcourt, Pear VC’s Mar Hershenson and Contrary Capital’s Eric Tarczynski about what they saw in 2020 while writing a chunk of the checks that our data encompasses.
The American seed market in 2020
If you didn’t think much about seed in 2020, you’re not alone. Late, huge rounds consumed most of the media’s oxygen, leaving smaller startups to compete for scraps of attention. There was so much late-stage activity — around 90 $100 million or larger rounds in Q3, for example — it was difficult for smaller investments to command attention.
But despite living in the background, the dollars invested into seed-stage startups in the United States had an up-and-down year that was fascinating:
Image Credits: PitchBook
Seed dollar volume fell as Q1 progressed, reaching a 2020 nadir in April, the start of Q2. But as May arrived, the pace at which investors put money into seed-stage startups accelerated, recovering to January levels — which is to say, pre-pandemic — by June. The COVID dip, for seed, then, was a short-term affair.
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Amid pandemic, returning to offices remains an open question for tech leaders
As COVID-19 infections surge in parts of the U.S., many workplaces remain empty or are operating with skeleton crews.
Most agree that the decision to return to the office should involve a combination of business, government and medical officials and scientists who have a deep understanding of COVID-19 and infectious disease in general. The exact timing will depend on many factors, including the government’s willingness to open up, the experts’ view of current conditions, business leadership’s tolerance for risk (or how reasonable it is to run the business remotely), where your business happens to be and the current conditions there.
That doesn’t mean every business that can open will, but if and when they get a green light, they can at least begin bringing some percentage of employees back. But what that could look like is clouded in great uncertainty around commutes, office population density and distancing, the use of elevators, how much you can reasonably deep clean, what it could mean to have a mask on for eight hours a day, and many other factors.
To get a sense of how tech companies are looking at this, we spoke to a number of executives to get their perspective. Most couldn’t see returning to the office beyond a small percentage of employees this year. But to get a more complete picture, we also spoke to a physician specializing in infectious diseases and a government official to get their perspectives on the matter.
Taking it slowly
While there are some guidelines out there to help companies, most of the executives we spoke to found that while they missed in-person interactions, they were happy to take things slow and were more worried about putting staff at risk than being in a hurry to return to normal operations.
Iman Abuzeid, CEO and co-founder at Incredible Health, a startup that helps hospitals find and hire nurses, said her company was half-remote even before COVID-19 hit, but since then, the team is now completely remote. Whenever San Francisco’s mayor gives the go-ahead, she says she will reopen the office, but the company’s 30 employees will have the option to keep working remotely.
She points out that for some employees, working at home has proven very challenging. “I do want to highlight two groups that are pretty important that need to be highlighted in this narrative. First, we have employees with very young kids, and the schools are closed so working at home forever or even for the rest of this year is not really an option, and then the second group is employees who are in smaller apartments, and they’ve got roommates and it’s not comfortable to work at home,” Abuzeid explained.
Those folks will need to go to the office whenever that’s allowed, she said. For Lindsay Grenawalt, chief people officer at Cockroach Labs, an 80-person database startup in NYC, said there has to be a highly compelling reason to bring people back to the office at this point.
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SaaS earnings rise as pandemic pushes companies more rapidly to the cloud
As the pandemic surged and companies moved from offices to working at home, they needed tools to ensure the continuity of their business operations. SaaS companies have always been focused on allowing work from anywhere there’s access to a computer and internet connection, and while the economy is reeling from COVID-19 fallout, modern software companies are thriving.
That’s because the pandemic has forced companies that might have been thinking about moving to the cloud to find tools what will get them there much faster. SaaS companies like Zoom, Box, Slack, Okta and Salesforce were there to help; cloud security companies like CrowdStrike also benefited.
While it’s too soon to say how the pandemic will affect work long term when it’s safe for all employees to return to the office, it seems that companies have learned that you can work from anywhere and still get work done, something that could change how we think about working in the future.
One thing is clear: SaaS companies that have reported recent earnings have done well, with Zoom being the most successful example. Revenue was up an eye-popping 169% year-over-year as the world shifted in a big way to online meetings, swelling its balance sheet.
There is a clear connection between the domestic economy’s rapid transition to the cloud and the earnings reports we are seeing — from infrastructure to software and services. The pandemic is forcing a big change to happen faster than we ever imagined.
Big numbers
Zoom and CrowdStrike are two companies expected to grow rapidly thanks to the recent acceleration of the digital transformation of work. Their earnings reports this week made those expectations concrete, with both firms beating expectations while posting impressive revenue growth and profitability results.
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China’s smartphone shipments are reportedly up for April, following COVID-19-fueled decline
Smartphone shipments are reportedly beginning to see signs of life in China, after a sizable dip from the COVID-19 pandemic. New numbers from China Academy of Information and Communications Technology (a government-connected agency) point to a 17% rise in shipments for April, pointing to some recovery for the market.
The figure, from the China state-supported group, is virtually a mirror reflection of the 18% dip Canalys reported for Q1. COVID-19 was the primary culprit for those figures, through a combination of decreased spending among China’s phone-buying public and sizable supply chain constraints, as many Asian nations were on lockdown to slow the spread.
Both Huawei and Apple benefited from the rebound, though Reuters notes that the firm opted not to include an OS breakdown for the first time in a while, making it more difficult to parse market share.
Smartphone shipments have suffered across the board, along with countless other industries. A rebound for China’s market could be a bellwether for positive numbers for the industry moving forward — especially given the country’s close ties to the global supply chain. In spite of being the first country hit, China’s official figures for COVID-19 deaths have remained low, compared to countries in Europe and North America.
That’s likely due in part to some draconian measures used to stop the spread. Other countries (the U.S. in particular) may not be so likely to rebound from the pandemic, leading to a more protracted impact on the global market.
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Kinsa’s fever map could show just how crucial it is to stay home to stop COVID-19 spread
Smart thermometer maker Kinsa has been working on building accurate, predictive models of how seasonal illnesses like the flu travel in and among communities — and its fever map is finding new utility as the novel coronavirus pandemic grows globally. While Kinsa’s US Health Weather Map has no way of tracking the spread of COVID-19 specifically, as it looks only at fevers tied to geographic data, it could provide easy-to-grasp early indicators of the positive effects of social distancing and isolation measures at the community level.
At the time that Kinsa’s health weather map was covered in the New York Times in February, the company had around a million thermometers in market in the U.S., but it had experienced a significant increase in order volume of as many as 10,000 units per day in the week prior to its publication. That means that the company’s analytics are based on a very large data set relative to the total U.S. population. Kinsa founder and CEO Inder Singh told me this allowed them to achieve an unprecedented level of accuracy and granularity in flu forecasting down to the community level, working in partnership with Oregon State University Assistant Professor Ben Dalziel.
“We showed that the core hypothesis for why I started the company is real — and the core hypothesis was you need real-time, medically accurate, geolocated data that’s taken from people who’ve just fallen ill to detect outbreaks and predict the spread of illness,” Singh said. “What we did with our data is we punched it into Ben’s existing, first-principle models on infectious disease spread. And we were able to show that on September 15, we could predict the entire rest of cold and flu season with hyper-accuracy in terms of the peaks and the valleys — all the way out to the rest of flu season, i.e. 20 weeks out on a hyperlocal basis.”
Prior to this, there have been efforts to track and predict flu transmission, but the “state-of-the-art” to date has been predictions at the national or multi-state level — even trends in individual states, let alone within communities, was out of reach. And in terms of lead time, the best achievable was essentially three weeks out, rather than multiple months, as is possible with Kinsa and Dalziel’s model.
Even without the extraordinary circumstances presented by the global COVID-19 pandemic, what Singh, Dalziel and Kinsa have been able to accomplish is a major step forward in tech-enabled seasonal illness tracking and mitigation. But Kinsa also turned on a feature of their health weather map called “atypical illness levels” a month ago, and that could prove an important leading indicator in shedding more light on the transmission of COVID-19 across the U.S. — and the impact of key mitigation strategies like social distancing.
“We’re taking our real-time illness signal, and we’re subtracting out the expectation,” Singh says, explaining how the new view works. “So what you’re left with is atypical illness. In other words, a cluster of fevers that you would not expect from normal cold and flu time. So, presumably, that is COVID-19; I cannot definitively say it’s COVID-19, but what I can say is that it’s an unusual outbreak. It could be an anomalous flu, a strain that’s totally unexpected. It could be something else, but at least a portion of that is almost certainly going to be COVID-19.”
The ‘atypical illness’ view of Kinsa’s US Health Weather Map. Red indicates much higher than expected levels of illness, as indicated by fever.
The graph represents the actual number of reported fevers, versus the expected number for the region (represented in blue) based on Kinsa’s accurate seasonal flu prediction model.
In the example above, Singh says that the spike in fevers coincides with reports of Miami residents and tourists ignoring guidance around recommended distancing. The steep drop-off, however, follows after more extreme measures, including beach closures and other isolation tactics were adopted in the area. Singh says that they’re regularly seeing that areas where residents are ignoring social distancing best practices are seeing spikes, and that as soon as those are implemented, via lock-downs and other measures, within five days of those aggressive actions, you begin to see downward dips in the curve.
Kinsa’s data has the advantage of being real-time and continually updated by its users. That provides it with a time advantage over other indicators, like the results of increased testing programs for COVID-19, in terms of providing some indication of the more immediate effects of social distancing and isolation strategies. One of the criticisms that has appeared relative to these tactics is that the numbers continue to grow for confirmed cases — but experts expect those cases to grow as we expand the availability of testing and identify new cases of community transmission, even though social distancing is having a positive impact.
As Singh pointed out, Kinsa’s data is strictly about fever-range temperatures, not confirmed COVID-19 cases. But fever is a key and early symptom of COVID-19 in those who are symptomatic, and Kinsa’s existing work on predicting the prevalence of fevers related to cold and flu strongly indicate that what we’re looking at is in fact, at least to a significant degree, COVID-19 spread.
While some have balked at other discussions around using location data to track the spread of the outbreak, Singh says that they’re only interested in two things: geographic coordinates and temperature. They don’t want any personal identification details that they can tie to either of those signals, so it truly an anonymous aggregation project.
“There is no possible way to reverse engineer a geographic signal to an individual — it’s not possible to do it,” he told me. “This is the right equation to both protect people’s privacy and expose the data that society and communities need.”
For the purposes of tracking atypical illness, Kinsa isn’t currently able to get quite as granular as it is with its standard observed illness map, because it requires a higher degree of sophistication. But the company is eager to expand its data set with additional thermometers in the market. The Kinsa hardware is already out of stock everywhere, as are most health-related devices, but Singh says they’re pressing ahead with suppliers on sourcing more despite increased component costs across the board. Singh is also eager to work with other smart thermometer makers, either by inputting their data into his model, or by making the Kinsa app compatible with any Bluetooth thermometer that uses the standard connection interface for wireless thermometer hardware.
Currently, Kinsa is working on evolving the atypical illness view to include things like a visual indicator of how fast illness levels are dropping, and how fast they should be dropping in order to effectively break the chain of transmission, as a way to further help inform the public on the impact of their own choices and actions. Despite the widespread agreement by health agencies, researchers and medical professionals, advice to stay home and separated from others definitely presents a challenge for everyone — especially when the official numbers released daily are so dire. Kinsa’s tracker should provide a ray of hope, and a clear sign that each individual contribution matters.
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