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2021: Looking Ahead

Alistair OwenJanuary 19, 2021

2021: Looking Ahead

2020 was a very unexpected year.

The ongoing COVID-19 pandemic was disruptive in every sense of the word, leading to a mixture of fortunes across the startup world.

Ecommerce and on-demand delivery underwent a major shift as they became essential for delivery of foodstuffs, medicine and PPE. This accelerated adoption helped to propel Instashop to a record $360M exit to Delivery Hero in the summer and validated VentureFriend’s thesis on the value of marketplaces and other startups improving consumer services. Byrd, a start-up that helps retailers get immediate access to warehousing and logistics, was another beneficiary of the ecommerce boom.

There were also less obvious positive impacts. For example, the reduction in consumer spending resulted in UK household savings rates soaring and an increased interest in investing, as interest rates stayed close to zero. This resulted in consumers flocking to fintech apps (Plum, for example) that helped them to save and invest better than traditional banks and brokers.

It was, of course, primarily a story of headwinds, as many startups faced almost complete closure of their markets overnight.

As an early-stage investor, we not only focus on the skills/capabilities but also on the character of a founding team above all else and the latter becomes indispensable in times of crisis. Despite some of our startups experiencing devastating drops in revenue overnight, we were inspired by the resilience of their teams to ensure their survival and rebuild. It was a testament to their grit that we had zero VentureFriends startups close their doors during 2020.

WelcomePickups adapted to higher safety standards and also launched new destinations like London and Cancun to reach a total of 59 cities where people can prebook a safe ride. Blueground adapted in order to overcome the drop in demand and also supported healthcare workers across the cities they operate in. The company emerged stronger and will continue on its path as the category leader in the furnished apartment medium term rental market.

The virus also did more to accelerate the digital transformation of traditional businesses than an army of management consultants had managed across the last decade. This was keenly felt in the real estate sector, whereas Home-Made was able to keep the lettings market open when most lettings agents had to shut down.

Increased working from home also strengthened the business case for automated back office solutions, which was one of the reasons why we invested in Gaspardesk.

Black Swans and Flexibility

Much of the commentary on tech during the pandemic has centred on a “new normal”, that the pandemic has resulted in enduring change in human behaviour. Workers would forever be working remotely, education dispensed via video and international travel would become a niche pursuit.

We believe this is overfitting to the situation of the time. This was pretty clear when countries eased restrictions and people rushed back to the office, to the Greek Islands and parents were relieved they could send their kids back to school. Currently there’s still no substitute for human connection and experiences in real life.

Similarly, although ecommerce penetration leapt by 10% across many geographies, consumers rushed back to physical stores when they had the opportunity.

Instead, this challenging year has educated us all on the benefits of introducing flexibility into the cultural and business norms that had long been accepted. We know that productivity can be maintained without heading into an office five days a week and that it’s possible to invest in a startup without meeting founders face-to-face. As such, startups that improve the way we enable this flexibility will likely be the winners during the next economic cycle.

Emerging

We’re still in the midst of the pandemic, but the approval of vaccines shows us a path back to a safer world. We’re excited by the opportunities for European startups in 2021 and especially so in our core verticals.

Proptech had already been leading the way with introducing flexibility into how we find a place to live and work, but the value proposition of flexible providers such as Airbnb and Blueground have been strengthened further as remote work has become more accepted. Commercial real estate, especially offices, will need to incorporate more flexibility as workers spend less time in the office and ecommerce maintains its increased market share.

The pandemic has supercharged the transition to digital payments and app-based finance, but we’ve seen that challenger banks have had to provide more than a colourful debit card to customers to become their primary bank account. The opportunities in consumer fintech are now in broadening access and adding value. Robinhood improving access to retail derivatives trading in the US has propelled stocks during the crisis and startups such as Plum have enabled increasing the amount and frequency of passive saving and investments. As it does this, fintech will become increasingly horizontal and pervasive across all sectors.

Ecommerce has come of age during the pandemic, with many consumers forced to rely on this channel during lockdowns. The unbundling of Amazon will continue, from widening access to world-class logistics (thank you Byrd) to having a closer relationship with customers through channels like Shopify. Consolidation of Amazon Marketplace brands via M&A roll-ups will drive this diversification as the 21st Century versions of P&G and Unilever emerge.

Finally, travel. Prior to the pandemic the sector had already been undergoing a rapid transformation, and this will restart in 2021. During the Summer last year we saw how quickly travel volumes recovered as travel corridors were established. We expect travel volumes to recover in a similar manner in Summer 2021 (vaccine distribution bottlenecks notwithstanding) and the need for the travel industry to modernise has intensified.

There are still numerous obstacles to overcome before we can return to the freedoms of 2019, but we’re cautiously optimistic now that a pathway enabled by vaccination exists. What hasn’t changed throughout this challenging year is our belief in the incredible founders in Europe and elsewhere to continue to create world-changing businesses. We’re excited to continue backing these founders who will help us rebuild our post-covid world.

Watch this space for some exciting news to follow 😉

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