The impending recession has triggered a slew of articles highlighting the tightening of fundraising in the VC ecosystem. In this blog BGV General Partner Anik Bose shares his perspective on the outlook for early stage enterprise investing in these challenging times. The broad trend of Digital Transformation will accelerate, he argues, with a shift in emphasis from “digitization of assets” to “automation of workflow” as enterprises face the reality of having to do “more with less.”
Automation acceleration
The Coronavirus pandemic has thrust the business world into uncharted territory. As companies adjust course, and adapt to the economic slowdown, a silver lining has emerged: enterprise cost-cutting may well precipitate a shift towards automation as industries seek to streamline their workforces. At BGV we believe tailwinds have emerged for horizontal innovations around process automation and AI assistants, enhancing everything from sales support and marketing optimization to routine back-office tasks. Automation acceleration has arrived. The impact of this automation, however, is likely to vary widely, depending on the industry.
HEALTHCARE – According to Pitchbook “Telemedicine startups in the US are experiencing a surge in demand amid the coronavirus outbreak, aided by a push from the federal government to remove restrictions on telehealth services for elderly Medicare patients and health insurers temporarily waiving telemedicine costs. The volume of virtual visits roughly doubled for AI-enabled telehealth platform 98point6, and virtual clinic usage at Amwell (formerly American Well) has surged roughly 40% since the start of the outbreak.” This crisis held a mirror on the unpreparedness of the healthcare sector. We believe that hospitals will need to have a “pandemic preparedness” as a key line item in their budgets. Use of technologies such as TAGNOS, will become essential for hospitals to coordinate their internal operations and break down information and process silos. Robotics will also play a role in augmenting the stressed hospital staff.
RETAIL – The overnight collapse of in-store traffic in traditional retail outlets has forced brands to accelerate omnichannel plans, including direct to consumer (DTC) offerings. BGV portfolio companies Webscale and Scalefast provide strong examples of businesses that enable this shift. E-commerce startups that enable retailers to level the playing field against industry disruptors like Amazon will see increased demand. Meanwhile, inside the stores, technologies that automate in-person human interactions (i.e. automated checkouts at grocery stores) are likely to enjoy earlier adoption than previously imagined. Finally, traditional retail jobs, such as loading trucks, stocking shelves and making deliveries, will see the positive impact of robotics in augmenting labor intensive roles.
MANUFACTURING – Tariff wars, and more recently pandemics, have spurred supply chain disruptions that will catalyze long term investments in automation. While manufacturers struggle to recover from shocks in the short term, the long term bodes well for companies that can generate clear efficiency gains and offer businesses greater visibility and adaptability. Startups like Drishti leverage computer vision to enable manufacturers to transform the productivity of their operations. As manufacturing plants ramp up, scale down, or even relocate their operations to new plants during crises, they will reap exponential benefits by being able to identify pain points and bottlenecks and make quick and precise adjustments in their labor and work process. Many supply chain and manufacturing systems are still on-prem and have resisted the cloud transformation, a place where we anticipate acceleration.
INDUSTRIAL/IOT SECTOR – We expect automated solutions to gain momentum across the infrastructure facilities for utilities, telecom and O&G verticals. Bayshore Networks, for example, equips facilities with automated industrial network security, and is enjoying a tailwind. Other solutions are emerging for maintenance, repair, optimization of remote facilities and protection of operational technology assets.
LOGISTICS – This sector will see an increase in demand for robots to help deliver everything from groceries to medicine. Government agencies like FEMA are investigating how drones can help deploy aid during this crisis, and the FAA is fielding requests for drone-enabled crisis-response missions tied to COVID-19. Flytrex, one of nine FAA recognized drone delivery companies in the US, is seeing increased demand for pilots to deliver food and medical aid without anyone needing to touch the drone. The FAA has been hesitant to roll out autonomous drone flights at scale in the US, however, we expect the pandemic to trim timetables.
FINTECH/INSURTECH – The significant ramp in insurance claims, due to the COVID-19 crisis, will likely serve as a catalyst to drive adoption of claims automation and fraud management technology. On the receiving end, payment delays during disbursements, and infrastructure inefficiencies baked into our existing system, are now exposed in plain view, and demand a revamp. Claims recipients, and consumers, especially in the US, are rethinking how they handle cash and enter PINs, or how they send, transfer and receive payments. This could also drive more adoption of and demand for tap and pay cards as well as increased adoption of mobile payments with biometric authorization.
FINANCIAL SERVICES – The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), a massive $2.2 trillion package, will, unfortunately, usher in fraud at a magnitude we have not seen before. The imperative to detect bogus financial claims will drive adoption of anti-fraud technologies for mortgages, check cashing, benefits and healthcare fraud and reimbursements. Digital identity verification and compliance technologies will also see a massive boost as in-person verification moves online. IdentityMind (now Accuant) pays testament to this emerging trend, as the company leverages digital fingerprinting to prevent fraud and anti-money laundering.
Remote working is the new normal
Beyond the shift towards automation, we anticipate our new business landscape will stimulate another key development: while “shelter at home” orders have enforced a work from home policy for non-essential workers across most of the US, we expect that a fundamental shift towards more remote work will endure well after this policy is lifted. Asian countries emerging from the first wave of Coronavirus pay testament to this emerging trend. Four key sectors stand to benefit from this shift:
● Digital marketing solutions that enable low touch sales models while improving the effectiveness of selling and marketing to enterprises will see increased adoption. Traditional thinking is mired with cliches such as “Marketing budgets are the first to be cut during downturns.” This crisis is different and unprecedented. Copy-pasting tactics from prior downturns is a recipe for disaster. Any company that is cutting digital marketing budgets in this crisis will not survive, as this is the ONLY way to reach their customer base. Folloze and Madkudu present two examples of intelligent marketing automation startups that are enabling enterprises to reach their customer bases in a personalized and engaging way.
● Enterprise collaboration tools that enable remote work productivity – Zoom is the clear poster child. Startups like Kaptivo that provide digital whiteboards for remote meetings will stand to benefit. The company offers a whiteboard camera system that turns any regular whiteboard into a smart, digital collaboration tool that can be shared live via a web browser, or with Zoom, Cisco and other collaboration tools.
● Customer success solutions that enable enterprises to solidify their existing customer base will prosper since existing customer revenues are the lifeline for enterprises in recessionary times. Subscription business models by their very nature expose companies to churn, for these companies Customer success technologies such as Totango become a necessity, enabling companies to identify leading indicators early and ensure the customers derive the maximum value.
● Cybersecurity – The sharp rise in activity, and transactions, conducted from personal computers has exponentially enlarged the attack surface for hackers. Inadequate home security policies leaves sensitive data (social security numbers, benefits data, tax information, etc) increasingly vulnerable. Demand for tighter cyber security, as a result, is inevitable. Companies like Cyberinc, that provide remote browser isolation, and 4iQ, that provide adversary intelligence to protect an enterprise’s digital assets, are well positioned for this impending reality
Ease of Consumption as a value proposition enhancer
A great user experience (UI/UX) promotes technology adoption, according to several studies. We believe that ease of consumption will make a similar contribution to new technology adoption in the future. This will include the consumerization of product development by applying new technologies like data visualization to enable non-technical users to extract insights from AI and large data sets. New business models such as Direct to Consumer (DTC) that promote ease of consumption are also seeing broader adoption. We believe that Data-as-a-Service will be another emerging business model that will improve ease of consumption in cyber security.
Conclusion
At BGV, we believe startups that deliver compelling automation propositions in vertical industries, such as those described above, present strong investment opportunities. What’s more, those that are prepared to address the new normal of working from home, by providing innovative collaboration, digital marketing and cybersecurity solutions are poised to generate exceptional value in our emerging business landscape. Furthermore, companies that design “ease of consumption” into their value proposition will see accelerated adoption. In challenging times like these, however, those factors are not enough. The experience of navigating previous economic downturns, and the resilience of entrepreneurs and VC’s, will play equally important roles in building successful companies, and maneuvering the course through this uncertain terrain.
