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The ongoing Covid-19 crisis has laid bare a number of challenges for investors, not the least of which was the seismic upheaval in activity in 2020. However, with the shift in economic priorities, the transformation of how we work and the ongoing evolution of small businesses to respond to the lasting impact of the crisis, there are a number of new investment opportunities to tap into.
Despite once-in-a-lifetime GDP declines and ongoing impacts to supply chain and economic fundamentals for businesses of all sizes, how can you leverage your investments to have a high impact in a post-pandemic world? Let’s take a look at five such opportunities.
1. The supply chain is transforming
The clogged supply chain has been an ongoing challenge globally, leading to shipping costs four to six times higher than levels recorded in 2019, shortages of everyday goods and interruptions to business operations in industries heavily reliant on global trade. While manufacturers attempt to increase inventory, suppliers remain pinched by the disrupted mechanisms in the supply chain — from a shipping industry still trying to catch up from the disruption of 2020 to the shortage of skilled workers needed domestically to unload ships and transport goods. Recent estimates suggest the supply chain woes will last well into 2022.
As such, many companies are investigating reshoring operations as supply-chain issues have been compounded by economic and political strains with China and the high cost of shipping so far. Whether bringing activity back to the U.S. or shifting to other countries, we’re likely to see major upheaval throughout the supply chain to address current challenges and reduce the impact of future crises.
2. ESG investing continues to grow
According to the U.S. SIF Trends Report, the amount of U.S. assets managed using ESG principles (environmental, social and governance) increased by 42% from 2018 to 2020. A growing number of investors engage with their investments through a socially conscious lens that is having a dramatic impact on portfolios across the board.
A growing need (and will) to address the impacts of climate change are creating opportunities for new technologies and service organizations. Expect a growing number of unicorns focused on environmental technologies and energy. At the same time, social issues like diversity, human rights considerations in the supply chain, fair labor practices, data management and internal structure are increasingly under scrutiny by investors. ESG investments as a whole have seen comparable or higher returns than traditional investments, and opportunities continue to grow.
3. An increasingly digital landscape
A recent TD asset management report showed 200% growth in the percentage of retail sales made online versus in brick-and-mortar locations over the last 10 years, even before the 2020 quarantine. Similarly, Shopify reported that 94% of its 1.7 million merchants were able to account for lost in-person sales through online stores in 2020. While ecommerce used to be a convenient alternative to in-person shopping, it quickly became a necessity for billions of people around the globe, resulting in a $183 billion increase during the pandemic. Technologies that improve on the ecommerce process, provide greater efficiencies and improve the user experience will continue to be good investments in the years ahead.
Other companies benefiting from the fallout of an increased digital landscape include those that focus on online-payment technologies that move Americans towards a digital wallet and on the implementation of more advanced and responsive telemedicine solutions than are currently available.
4. The removal of old barriers to success
Despite the rapid improvement of technology designed to eliminate geographic barriers, many companies still relied on in-person staffing and a significant amount of travel through the end of 2019. The 2020 health crisis forced almost all businesses that could do so into remote work. While the same crisis exposed weaknesses in physical elements of our economy — battering the supply chain and shuttering tens of thousands of brick-and-mortar stores — it also revealed that we have the infrastructure and technology needed to support remote work at scale.
Global Workplace Analytics estimates that 56% of U.S. employees have jobs that can be completed at least partially remotely, but that only 3.6% actually work at home. A year of remote work has changed this, with estimates of as many as 30% of those workers being at home by the end of 2021. Remote work not only reduces overhead expenses for startups with limited resources, eliminating the need for expensive physical office space, but it also broadens the talent pool without increasing the cost of talent. A startup in Chicago can hire a developer from Iowa without paying for relocation or the premium needed to have an employee in a major U.S. city. Not only will technology that enables remote work become a core staple of the business world, but it will also allow many startups that would have struggled to scale otherwise tap into a wealth of resources while remaining lean to reach their projections faster.
5. A shift in priorities in the post-crisis economy
VC investments have historically struggled with inclusivity. The out-moded means of evaluating new opportunities perpetuated the same trends, many of which disadvantaged female and BIPOC founders of more diverse startups. While a conscious effort is being made to address systemic issues, with female founders doubling in the last decade, it’s technology that is really changing how VC firms evaluate their investments. Many VC firms are utilizing AI to perform much of their vetting and evaluation of potential investments, removing the subjective human element from evaluating opportunity and instead focusing solely on the data of these companies. Some firms are reducing the time needed to make decisions to as little as 24 hours as a result.
Because of a data-driven approach, a rapidly broadening talent pool due to the advent of remote work technologies and the desire to diversify location of investments, this also opens new opportunities for startups that are not in the traditional coastal hubs of Silicon Valley, Boston, Seattle and New York.
Work is changing. Where we produce goods, the values we hold as a society, how we interact with one another and the resources needed to run a successful business are all changing. Some of these trends were already developing before 2020 but have now accelerated. Others are the result of a systemic revelation of past inefficiencies. For VC investors, they represent a new way to look at new and developing companies going forward, with a vast ocean of opportunity now in front of us.