My 16th year old son has a small group of besties he talks to every day. One girl lives in Newcastle, another boy lives in Kent (and goes to his school) and a third is based in Atlanta, Georgia – a state his American mother has never been to. This is a group my son considers his closest bunch of friends – they all know each other, they speak almost every day, over the past few years they’ve been involved in several of each other’s teenage dramas. Two of these teenagers – the girl in Newcastle in the UK and Atlanta in America – my son has never met in real life.
I can still remember my first proper adult bike (or push bike as they are called in the UK). It was a three speed, had a weird mouse trap style platform on the back where I could secure my bag, and a very comfy seat. For my 12-year-old self this bike meant freedom. Just about to start junior high – my world was about to get bigger than the dozen or so houses that lined our suburban street north of Boston. I made a new friend at school, to get to her house (without having to ask my parents for a ride) would mean I would need to get on my bike.
When my old Gen X self tries to make sense of my Zoomer son’s friend group I think back to that bike. My pleasant 1980’s three speed removed the barriers of ‘too far to walk, no ride available’ that kept me penned into my little neighbourhood. The internet, being ‘online’, is freedom to my son. WiFi is a life essential, not a luxury. Deep, meaningful friendships can be formed and maintained with people whom you’ve never shared the bit of oxygen. (As a mother, pushing 50, I did make an error a few years ago when I inadvertently dismissed a bit of ‘teenage drama’ that was unfolding in my son’s life with an off-hand comment ‘Have you ever met this girl?’ #MumMistake2019)
The impact of COVID and the global lockdowns over the past year and a half are often thought to accelerate trends that had started to emerge long before we all had a selection of washable masks hanging in our entry halls. Many have suffered through this unprecedented pandemic, and that should not be ignored. However, for many of us work, connections and business deals continued to happen – despite airport lounges remaining empty and corporate meeting rooms remained locked and unavailable for booking.
Work continued via laptops and webcams. The global startup investment ecosystems – a collection of angel, seed and VC funding – was no exception. Just looking at FinTech, the first half of 2020 global fintech investment reached 1,221 deals or a total of $26.5 billion, according to KPMG.
Tech Crunch reported on data from Dealroom that European startups had a record quarter in Q1 2021 back when April just got started. Its preliminary results for the first quarter indicated that startups on the continent raised €16.6 billion, or $19.9 billion at spring 2021 exchange rates.
According to the Extra Crunch blog at Tech Crunch: “That total was not only a record, but what Dealroom described as double the results of Q1 2020. While we’ve become slightly inured in recent months to the venture capital market’s rapid pace and capital-rich environment, it’s worth considering for a moment, as the first quarter of last year ended, how few of us would have guessed that just a year later — as COVID-19 still harms public health and disrupts life and business — we’d see numbers like this.”
Pre-COVID the conventional wisdom was that it would be unwise to invest in a startup, never mind find the next industry unicorn, without sitting down with the founding team to meet face to face. The bigger VC firms had a network of international hubs and conducted multiple weeklong roadtrips – a private jet enabled, global tech startup speed networking jamboree.
This method and style of VC funding tended to create regional investment identities and cluster start-up ecosystems into hubs. Large (some say too large) valuations and seemingly very open wallets created the mythology of Silicon Valley and a geographical hotspot of multibillion and trillion-dollar tech companies. Founders and investors on the other side of the Atlantic Ocean often lamented the ‘conservative’ nature of European investors, the smaller wallets, and more cautious valuations.
During the pandemic the ability to cross continents was enabled by webcams and WiFi and not jet fuel and posh offices. VC funding and investments did not ground to a halt just because roadshows and Demo Days were grounded. What does this mean for global funding identities?
Will Hackett, Head of FinTech Practice at Pangea has seen these changes, firsthand. “Yes, particularly in the last few months as business are racing back to scale. It’s impacted everything from valuations being off the chart, LOI’s being presented virtually (which would have been very rare pre Covid) and funds which were more home country based starting to open to broader global opportunities.”
In a recent podcast with McKinsey & Co: Global VC view: Funding startups in the next normal, Roelof Botha a partner at Sequoia Capital said:
“I’m not negative on Silicon Valley’s potential. I think Silicon Valley will continue to be a hub of incredible innovation. But the truth is that there are just many more places in the world where people can build interesting companies.
And we’re seeing this today all across the U.S. I think in the last six months, we’ve made five investments in companies that are not based in Silicon Valley, or not headquartered in Silicon Valley. Part of that is because of COVID. Part of that is because of the ability for technology to enable remote work.”
Although later in the podcast, Botha does express a bias towards ‘tech clusters’ to attract talent and hopes the new normal does not diminish the “intimacy” of finding a business partner/investor.
Hackett echoes that feeling that trust and empathy need a more ‘in real life’ experience. “Investors and companies we speak with, talk about the ability to take more meetings and run due diligence faster because it’s always favoured remote – data rooms etc. However, the trust and empathy that’s needed to close large transactions are still a challenge in a remote only world. Meaning more investors have focused on known companies or warm intros. Getting in cold is hard.”
In the same McKinsey podcast Pär-Jörgen (PJ) Parson, a general partner at Northzone, comments that the trend towards de-centralised connections was already in motion before the pandemic. “If you ask a 25-year-old today, they have a bunch of friends that they’ve never met in real life. They’ve been gaming together. They’ve been forming real authentic relationships that way. I think it’s also a generational thing that you can build trust in that different way,” he says.
Which brings us back to my 16-year-old son and his close group of friends he has formed close personal relationships with via his laptop screen. People of my generation point to the global pandemic as the main driver in breaking geographical barriers learning to maintain meaningful relationships online. But these cultural changes were well underway, before COVID, and our global lockdown has merely sped up those changes.
The ‘new normal’ we will all be operating in very soon is the world our children have been building for some time now.
Those are topics we will be discussing at the upcoming FinTech Talents Festival in November.
Going global without being local - Will a global funding culture emerge from a post-pandemic world?
Startup hubs have often been local. Focused within capital cities or global financial centres like London and Singapore or areas with a mature startup ecosystems such as San Francisco and Silicon Valley. The realities of working life within the COVID-era meant in person meetings were mostly impossible. However, companies have continued to grow and startups have managed to raise funds. The funding world has experienced a world where the ‘innovation hub’ no longer needs to be local.
Does this mean Silicon Valley is heading to London – via webcam?