How Will Covid-19 Affect The Tech Industry?

Covid 19 has changed everything in business. In recent weeks, I’ve been spending a lot of time with my portfolio companies as we think through the impact of the pandemic on their prospects and how they should respond. Honestly, the answers are very clear for some but for others, it’s too early to tell.

For the travel and hospitality industries, who’ve been hit the hardest, the decisions are easier to make because they know their revenue will drop to almost zero in the near term and likely will be challenged for some time regardless of how the economy comes back. It’s hard to imagine anything but absolutely essential business trips for the foreseeable future.

As a result, they know they need to cut costs drastically. Airlines across the world are furloughing staff. Here in California, Tripactions, an extremely promising SaaS travel startup, had to lay off 30% of their staff last month via a Zoom call. Brutal, but unfortunately I am not sure they had a choice. I cannot see travel resuming to pre-coronavirus levels until there is a vaccine or some effective antiviral which could be a long way off.

For others, the damage will take longer to unfold. It could be a couple of quarters before we really know the impact on the economy. When it comes to enterprise tech / b2b saas companies that were funded pre- covid19 pandemic, I think there ought to be more focus on how to play offense as well as defense.

Defensive measures are all about cash conservation, hiring freezes, salary reductions, and in the worst cases, layoffs. But companies can also be thinking about how they will emerge from all of this stronger and better positioned to succeed. This is their offense. Now might be an opportunity to rethink the product or re-tool the sales strategy.

Of course, you must survive this pandemic with cash on the balance sheet because if you go out of business, or need to sell in a distressed situation, none of this matters. With that said, a strategy of treading water isn’t going to set you up for success in the years to come. Now might just be the best time to think about how you can transform your business so that it adapts to the new reality. The virus is not going anywhere anytime soon.

Psychologically, this period will be tough. Probably one of the hardest times in terms of business psychology: how to stay focused on the future but balanced in the reality of the times. Business valuations have never really been based on the number of their employees but more about some mixture of revenue and growth.

Going forward, I think there will be more and more focus on margins and the underlying business. The new psychology will have some impact that will be hard to look past for any investor. There are many companies that try to present as technology businesses with high margins but in reality they are something else, closer to technology enabled services.

For some in technology, the future looks a bit brighter. I think areas like security will probably continue to do well as we all continue to work remotely. The need for security is now persistent and critical. Anywhere there was already a shift from physical to the cloud, is likely to accelerate as a result of the pandemic.

We have a company in our portfolio called TalkDesk that enables distributed cloud based call centers. They have continued to do well, for example. We also have a company called Splashtop that enables people to remotely login to servers as well as other devices, perform maintenance or stream applications. They have seen a significant increase in demand as many organizations scramble to fortify their remote work and work-from-home capabilities.

Venture investors will be thinking about the effects of the pandemic on the future with remote work investments more attractive than ever. However, I think many of the trends we were already funding, like moving applications to the cloud, are part of the broader trend that will just accelerate after the pandemic.

Although we do not fund any life sciences at Storm, I would not be surprised to see many new companies appear with the aim of better addressing the threat of a pandemic in the future. We were woefully unprepared for Covid 19 and I imagine there will be significant dollars allocated to avoiding a similar situation for both the private and public sectors.

Overall, I don’t think you are going to see massive shifts in investor focus but there will be tweaks. After all, the pandemic is a once in a generation event and it’s hard to really build an investment thesis around the pandemic as a permanent fixture on the investor mindset. But who knows at this point.

One thing is for sure, those who survive and really thrive after the pandemic will be the winners and the companies that attract the new frenzy of investor interest.

Written by Ryan Floyd. Here’s what you’ve missed?
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