Reading fortunes: can venture capital give us a glimpse of the future of work?
Venture capital investors sit at the forefront of innovation and creative disruption, giving real insight into how our working lives will evolve after Covid-19 and beyond.
The venture capital industry’s aim is to back the young start-ups of today that will be at the centre of our working and social lives in the future. It is venture capital investing that originally built up Apple, Amazon, Google, Facebook and many other firms that we now can’t picture life without.
As the Covid-19 pandemic led to lockdowns around the world, it was a number of originally venture-backed companies that meant the vital transition to remote working was relatively smooth. From the start of 2020 to mid-October, shares in previously venture-backed conferencing tool Zoom rose over 650% as video conferencing became the norm over night. Other examples of newly-essential firms with venture beginnings include code sharing and publishing service Github, communication and collaboration tool Slack, and freelance employment platform Upwork.
From its early-backer vantage point, venture capital can give us a fascinating (and potentially valuable) glimpse into future of work, both in the short-term as well as further out. How did venture capital managers adapt to Covid-19 themselves and how do they expect work in the future? What does this imply for the future of work in general? What tools are the next generation of companies developing, how will they how we work, and how are those companies operating themselves?
To find out, Schroder Adveq conducted a survey with 16 leading venture firms across the US, Europe, and Asia with over 1,600 active portfolio companies in aggregate. We also spoke directly with several of the portfolio companies to find out more about the working world of tomorrow.
Is remote working expected to stick in the venture capital industry?
Venture capital managers typically depend – more so than many other industries – on close person-to-person interaction, due to the collaborative, innovative nature of company creation.
The work policy of venture firms varied significantly by geography before the Covid-19 pandemic, so it is little surprise that views on the future of work also vary widely by region. According to our survey, about 70% of US based venture firms offered remote work options “pre-Covid”. This compares to 50% of European firms and just 20% of Asia based venture firms to offer this option on a limited basis.
Covid-19 has accelerated the shift to remote and flexible working, and almost every venture firm we spoke to around the world worked remotely in the early part of the crisis. At the time of the survey, 78% and 50% of US and Europe based venture firms were fully remote respectively, and most of these have closed offices through the end of 2020. This has also prompted many firms to take initiatives to implement policies on remote work with a long term perspective.
So what about the future?
The vast majority of US-based venture firms see a clear trend towards more remote working. 89% of the US venture firms we spoke to plan to offer remote work option on a permanent basis by offering employees the flexibility to work remotely for part of the week.
Index Ventures is a leading international venture capital firm with offices in London, Geneva, and San Francisco. One of Index’ venture capitalists, Sarah Cannon, told us that "the trend is clear for more remote work options and increasingly a shift to a global and distributed team".
Again, only about 50% of European venture firms plan to offer similar option, while all Asia based firms’ desire to have everyone back in the office on full time basis.
Importantly, none of the firms that we spoke to expected to be fully remote on a permanent basis. Many respondents stressed that the office is integral to maintaining company culture and business activity, and requires a physical presence.
Others agree that the ability to work together in the same place is essential, but do not necessarily believe it needs to be a physical place. As stressed by Scott Kupor of Andreessen Horowitz, a top venture capital firm in Silicon Valley, California; “The future of work is flexible, but it is still necessary to have a centralised space, either in person or virtually.”
Tomorrow’s companies - working towards a less office-reliant world
The future of work has been a key investment theme for venture capital for some time. As we touched on earlier, many business productivity tools, backed by venture capital ten years ago, are the go-to communication tools of today. While the general view in venture capital managers is for the physical office to stay “flexibly-relevant”, an increasing number of companies being started and grown now expect to be fully remote, without a physical office presence at all. Indeed, our survey suggests as many as 15-25% of venture backed companies are expected to shift to fully remote working.
A partner at Index Ventures, Bernard Dalle, told us that “The future of work, especially for software development companies will be mostly remote".
For example, GitLab was founded as a fully remote firm, as were Invision, Pager Duty and Onepassword. Darren Murph is the “Head of Remote” at GitLab. It’s not a position most people will be familiar with, but it is one he believes will prove essential in coming years.
“The most progressive companies transitioning to remote will hire an executive to lead their journey in the next one to two years. This hire (or the lack thereof) will be a litmus test to job seekers who expect remote work to be supported, not merely allowed.”
GitLab has grown, from a fully remote start, to over 1,200 employees across 67 countries since 2014. According to Darren, “In 5-10 years, we will see significant increase in fully remote companies, especially from the startup class of 2020-2021, where many were founded as fully remote company due to the crisis”.
GitLab recently conducted a survey across 3,000 companies, of which 25% are fully remote companies and 86% believe remote work is the future. Darren also emphasised that fully remote doesn’t automatically imply working from home or no in person meetings. As a fully remote company, GitLab still holds in person meetings and has company organised events. Many join fully remote companies because they can work from any location, whether at home, in a coffee shop, or while traveling. It is a more inclusive method of working.
What are venture investments telling us about the future of work?
Venture investments in business productivity software and tools has increased significantly over the last five years, reaching $60 billion in 2019. Seed and early stage investments represented over $22 billion or 37% of the total investments for 2019.
Business productivity can be broken into four main categories:
- Communications platforms
- Collaborative software and tools
- Knowledge and project management
- Virtual workspace.
What is glaringly obvious, from a look at the top five companies by capital raised in each category, is that enabling work to be done more easily from a distance is a set to be a major theme for the foreseeable future.
Where is the money going?
The companies that are being backed by the most money, in each of the four main categories, are communication platforms and project management platforms. This is chiefly because of how developed the segments are, rather than an indication of future relevance. Zoom – as mentioned - was floated on the public market and Fuze is a relatively established tool. In general, sophisticated communication and collaboration tools are familiar and arguably essential. What is interesting is that – particularly within the collaboration segment – focus appears to have shifted from more efficient collaboration, to successful remote collaboration.
The virtual workspace category is comparatively small in terms of capital attracted now, but the investment here is further indication that the direction of travel is away from the physical office, rather than towards.
The future of work - Office space still valuable, but not indispensable
What is clear is that Covid-19 has accelerated the trend towards greater flexibility in where we work, albeit with the US and Europe embracing remote working more readily than Asia. With an industry as historically reliant on close collaboration as venture capital anticipating remote work to become more normal, industries less dependent on close-knit teams can be expected to make the transition with even less friction.
Clearly, the office remains an important aspect of company culture and collaboration, and for a number of industries it is almost impossible to envision it disappearing entirely. But in some sectors, more and more companies are starting up and growing without office space.
Venture back portfolio companies are developing new tools to make remote working easier, and more and more of the companies developing these tools are choosing to operate on a “fully distributed” basis themselves, thereby demonstrating the changes that might be ahead.
Overall, office blocks are not likely to disappear from our skylines, but the roles these buildings play in how we work is likely to change.
The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.