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- Venture capitalists are already trying to figure out how the coronavirus crisis is likely to reshape the venture capital and startup landscape.
- Two sectors likely to see a surge in the pandemic’s wake are artificial intelligence and automation, Bullpen Capital General Partner Duncan Davidson told Business Insider.
- In response to the supply chain problems they experienced during the crisis, companies are likely going to shift their production out of China, and that’s going to spur demand for industrial automation products, Davidson said.
- Other sectors likely to benefit are ecommerce and workplace collaboration software for remote staffers, he said.
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Duncan Davidson thinks the recovery from the coronavirus downturn could spur a rise of the robots.
The pandemic has made clear the shortcomings of the global supply chain. In response, governments around the world are likely to push their companies to shift production out of China and back to their home countries, Davidson, a general partner with venture firm Bullpen Capital, told Business Insider in a recent interview. In the United States and in other mature economies, the only way that’s going to work, economically, is via automation, he said. Thus, the robots.
“The biggest implication [of the coronavirus outbreak] is going to be more rapid adoption of automation,” Davidson said. “We’ve been talking about AI, robotics, additive manufacturing. I think that now accelerates.”
The COVID-19 epidemic and the resulting economic shutdown will almost certainly reshape the venture capital and startup landscape. Companies that seemed to be sure bets a few months ago may no longer make much sense. Startups that seemed to have off-the-wall ideas might now look like obvious winners.
Venture capitalists are likely to move money out of certain sectors and redirect it to others in response to, and in anticipation of these trends, Davidson said. Only a select few sectors will stand to reap the lion’s share of the redirected money, he said. Like other venture capitalists, Davidson and his colleagues at Bullpen have been trying to figure out just what those sectors are likely to be.
Countries and companies are rethinking their supply chains
One of the big ones is likely to be robotics and related areas such as advanced automation, Davidson said.
Countries and companies around the world are rethinking their supply chains in the wake of the pandemic. Early this year, in an effort to contain the epidemic in its beginning stages, China shut down large numbers of factories. The move delayed or throttled production of numerous products. Apple, among other companies, warned that it wouldn’t meet its revenue targets in part because of constraints in the production of iPhones.
But when the pandemic hit the US, it showed that relying so heavily on China for manufacturing could do more than cause business problems. It was a threat to health. Personal protective equipment such as surgical masks and respirators, much of which are made in China, have been in short supply around the country, as have cleaning supplies, which are often made with chemicals that come from China.
In response to such supply-chain issues, Japan has already committed to spending $2.2 billion to shift production out of China. The US and European countries will almost certainly follow suit, Davidson said.
Part of the reason why China has been able to dominate manufacturing for the last 20 years is that it has cost less to produce goods there than in the US or other countries, in part because wages have been considerably lower. One way to counteract that advantage would be through the use of automation, which would limit the amount of labor required.
“Everybody knows we’re going beat the crap out of Chinese supply chains,” Davidson said. “To make it come back home,” he continued, “you’ve got to believe in automation — robotics, AI, 3D printing. That’s another whole industrial sector that becomes a lot more interesting to invest in.”
Remote work isn’t going away
But it’s certainly not the only one.
One of the biggest beneficiaries of the coronavirus crisis thus far has been Zoom. With schools and workplaces closed, million of people have been using the company’s video conferencing software to get their lessons, or work from home.
Remote work and remote learning won’t go away when the pandemic is over, Davidson said. Many corporations, in particular, have learned from the experience that employees can be just as productive when they’re working remotely as when they’re in the office. That’s going to create a lot of demand for collaboration software and also for tools that companies can use to monitor what their employees are doing at home, he said.
Companies are going to be “more inclined to accept remote work as a normal thing,” Davidson said.
Another sector that’s seen a surge in demand thanks to the health crisis has been ecommerce. Most brick-and-mortar retail stores are closed. And many people now avoid going to the grocery and other stores that remain open, for fear of contracting the virus or simply from dread at having to stand in long lines. So, instead, they’ve been shopping online.
That’s not likely to change when life goes back to normal, Davidson said. If anything, shopping online for many people is going to be the new normal, he said. And while Amazon has been the poster child for the trend, other companies are likely to benefit too, particular the companies that sell their own branded products directly to consumers, he said.
“I think we’re about to see step-function [increase] in ecommerce,” Davidson said.
One surprising area that he’s bullish about is travel. That sector has been hit hard by the pandemic, as governments around the world have limited the movement of their citizens in an effort to control the spread of the disease. But Davidson thinks it’s going to bounce back strong when the economy recovers.
However, some parts of the travel sector will benefit more than others, he thinks. People are likely going to want to avoid big cities and airline travel to a certain extent. Instead, travelers are likely going to pile into their cars and get out on the road, he said.
“Drive vacations will become huge,” he said. That’s going to make vacation homes and related services for such travelers much more in demand, he said.
“We’d look at that,” he said.
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