The COVID-19 pandemic has shaken up the startup world, slowing some high-growth unicorns and promoting others onto the coveted list. In the earlier-stages of startup land, the same patterns of acceleration and braking can be found.
TechCrunch wanted to dig more deeply into the cohort of startups that are seeing acceleration, so we put together a list of investors who have put money to work in startups building remote-work tooling and sent them a raft of questions. We wanted to better understand if SaaS fatigue is real for the startups in question, where open-space still exists in the remote-work world and how the economics of the companies compare to other software shops.
And, yes, we did ask about valuations and intra-venture competition for the rounds that we keep hearing about.
Not every deal from these venture capitalists fits the remote-work mold, but they and their firms and funds are involved with enough in our view to give them good perspective about what’s going on in the space as the world continues to get into shape regarding remote work. This week’s news from Google makes it plain that tech companies are prepping for a long run of forced remote work, let alone the more hybrid remote-and-office future that seems to be the new conventional expectation.
A lasting COVID-driven remote-work boom is predicated on remote-work services not only meeting the moment, but iterating to support a world that just got pushed into a faster digital transformation than anyone expected. It’s a busy space for good reason.
Here’s who TechCrunch collected notes from this time around:
- Minn Kim, investor at Bloomberg Beta
- Elliott Robinson, growth equity partner at Bessemer Venture Partners
- Clement Cazalot, managing director of Techstars Boston
- Ryan Kuder, Techstars Anywhere
- Eamonn Carey, managing director at Techstars London, partner at The Fund
- Alexa von Tobel, founder and managing partner of Inspired Capital
As usual, we’re going to riff over some key trends and themes that stood out from the group’s collected answers, after which we’ll share their answers at length, edited for clarity and formatting.
Trends, themes
Picking through the answers we received, one thing that stood out was the simple fact that VCs do not believe that the remote-work services and tooling world is solved. In fact, the group was not shy of suggesting areas where there’s still more work to be done.
As you might expect, the issue of security came up a few times. Processes are being digitized across workplace verticals but there’s plenty of room for improvement in bringing security and compliance standards into the remote-work age.
“All the security [and] compliance while being remote is still largely untapped as companies are figuring out the answer,” said Techstars’ Cazalot, to pick one quote from a few.
Other items that popped up include front-of-office collaboration and personal remote process automation. Once basic communications are sorted, the sorts of tools and services that folks-at-a-distance need to work well both alone and and as a team will be varied.
It would be simple to presume that a growing library of apps and services would lead to software (SaaS) fatigue, but our VC group isn’t too worried about the concept.
Then there was the talk concerning economics and fundraising. TechCrunch wanted to know if remote-work startups have better or worse economics than other startups that are delivered along similar channels (SaaS, etc.). Our summary of answers it that their economics are at least as good, with some exceptions that their performance could in fact be better than other groupings of their business-model peers.
Regardless, the wave of companies hunting up new apps and services to fuel and empower their suddenly remote workforce is driving venture interest in the companies welcoming the demand. But notable is that prices, per our collected investors, are not as wild as you might think. Bessemer’s Robinson said prices were not low (“growth equity investors are paying high multiples to get a shot at the category defining [remote work-focused] app companies”), but most others offered some more tempered notes.
Reading their answers, it appears that the further an investor is from the Silicon Valley startup hub, the more reasonable prices look; that was likely true before the pandemic, mind, but that the pattern is holding up during COVID-19 implies that there is available price arbitrage available in the market that persists even into this hot niche.
That’s our first read, but there’s a lot more below.
Minn Kim, investor, Bloomberg Beta
It’s now common knowledge that the digital transformation has been accelerated by COVID-19. What portion of your active portfolio benefits from this change in pace?
Given our firm’s focus on the future of work, we’ve observed that a little over half of our portfolio companies have benefited from the digital transformation accelerated by COVID-19. These have been in areas like digital productivity, security, developer collaboration tools, network infrastructure and online education. This is also because several of our portfolio companies were built with a remote workforce in mind, including coaching platform Sounding Board and team success software Range.
Will the influx of single-purpose remote-work apps and services lead to app fatigue, and thus a return of more bundled solutions?
For those of us fortunate enough to do most of our work online, the rise of single-purpose remote-work apps reflects the limitations of the tools that we relied on in our previous “work stack.” If there is new bundling, I believe we may see it on platforms we’re newly relying on heavily, such as those offering great ways to run online sprints, remote offsites, and collaborative screen sharing.
Is there an upper limit to the number of tools that a single company may want to buy? Put another way, is SaaS fatigue real?
An upper limit for tool purchasing is more likely indication that a product is not yet hitting on the most important priority for its customer at the right time or price. SaaS fatigue is real until a solution comes along that addresses the user’s pain point in a clear, compelling and differentiated way.
As companies begin to go back to the office, do you think they are going to trend back toward their old processes and ditch some of their new remote software?
For knowledge work, I believe some behaviors will naturally default back to old processes, such as in-person water cooler conversations in a shared common space. Even when companies begin to go back to the office, I imagine some people on our teams will continue to be remote, at least for awhile. With this in mind, I foresee an ongoing reliance on tools like Pinpoint, for helping software engineers collaborate more efficiently, and Bonusly, for ongoing encouragement and recognition to team members (in-person and remote).
Are there areas inside of the world of remote tools and services that you think are under-served, places where you’d like to place a bet?
I’d love to see more founders building solutions around lightweight automations (“personal RPA”), software for better decision-making and products that use digital nudges to make unstructured collaboration more effective, such as gesture recognition or sentiment notifications in video conversations. There are also many opportunities to build useful products that use the metadata in our online interactions to help us become more effective teammates. For example, we’re investors in a company called Cultivate that analyzes a team’s digital conversations to help leaders improve and get notified when they’re sending too many emails during evening hours or sharing recognition unevenly across a team.
Does the availability of ample private capital give remote-tooling startups the flexibility to put off going up-market to the mid-market and enterprise areas?
It’s less about the flexibility of delaying moving up-market. It’s more about the freedom to experiment, iterate and get a product closer to product-market-fit with its earliest representative customer segment.
Do remote-tooling-focused startups have similar, better or worse economics than the average venture-backed SaaS startup?
This answer will vary depending on what you’re comparing. Because many of the newer remote-tooling-focused companies offer freemium business models to encourage new users, the sustainability of a company comes down to the cost to serve each new customer. We’ve seen that remote-tooling-focused startups that are laser-focused on a specific use case and narrow the pool of potential early customers are often in a better position to understand their unit economics.
How competitive are remote-work tooling venture rounds now? Are prices out of control?
It feels like the right time to build and raise for a Zoom competitor was at the beginning of 2020. Now, we’re seeing competitive rounds for companies building on top of Zoom or around workflow-specific features, such as event and community management or meeting analytics. That said, prices at the pre-seed and seed stages haven’t changed dramatically since pre-Covid-19.
Elliott Robinson, growth equity partner, Bessemer
Will the influx of single-purpose remote-work apps and services lead to app fatigue, and thus a return of more bundled solutions?
Long term, at the company-wide level, I don’t believe so. We’re only 5 months into COVID and I’m experiencing personal remote work (RW) app fatigue. But the fatigue comes from the influx of trying so many new RW apps in a short period of time, the always-on nature of the apps and the total number of new apps you and your IT org have to manage in what feels like an overnight fashion. In my opinion, we’re still too early in the cycle to see how and when The Great WFH remote tool bundling will occur. If you take what’s happening with a product like Microsoft Teams for example, it’s becoming a bundled platform for a lot of light, WFH friendly applications that go way beyond just enterprise comms.
Is there an upper limit to the number of tools that a single company may want to buy?
Of course there is an upper limit, but I only think that it’s defined by the breadth of use case that a company may have for its employees. If you’re running a business that does one thing well, then a small basket of front office-centric remote tools should get the job done. If you’re a fully integrated company that executes across the value chain, then you likely need more tools, including those for infrastructure and back-end solutions. Globally [you will need] even more. What I’m most excited about is the general digital transformation that is being catalyzed by WFH. And that trend will play out for years to come. Below is BVP’s remote market roadmap, which covers some segments and some select companies, not inclusive of every company of course.
Put another way, is SaaS fatigue real?
To be clear, and to make sure that I’m answering your question, I think the fatigue will set in where you’ll see the number of seats or site licenses decrease over time after all these new apps are deployed.
As companies begin to go back to the office, do you think they are going to trend back toward their old processes and ditch some of their new remote software?
I think that this question depends on who and what type of company you’re asking. At Bessemer, my partner Talia Goldberg leads our Remote Work roadmap and defines the Distributed work spectrum in four categories:
- On-premise: Works in an office but has work from home days or casual Fridays from home.
- Hub-and-spoke: A company has an HQ and a network of regional hubs where talent resided.
- Distributed: Companies that have teams that are totally distributed but have office presences spread over a country or region.
- Nomadic: Completely office-less companies like Sketch or Zapier. They started that way, have scaled and will never go another route.
There has been a lot written about how companies will look back at this 6-9 month experience in 2020 as one of the most productive periods in years. There are a lot of early signs that point to this being the case.
Are there areas inside of the world of remote tools and services that you think are under-served, places where you’d like to place a bet?
I love the back office infrastructure companies that have built solutions for remote-first and distributed workforces. The growth team is spending more time there than on the more shiny, front office and collaboration tools. I’m going to sound really biased here, but I love the bet that we made in papayaglobal, which is a leading global payroll platform for the new world of work, focused on global and distributed teams that don’t sit on-prem in a physical HQ. This is not only the future of work, but COVID has fundamentally redefined how even historically office-centric companies are thinking about hiring remote-first talent. We’re also seeing companies allow employees to relocate to other states and even countries, which come with tax, compensation, cost of living and contractor versus FTE nuances. Papayaglobal is well-positioned to serve this growing need/trend. I guess what I’m saying is that a lot of companies are focused on the tools that employees use, and equally, if not more excited about the tools that manage the less shiny enterprise requirements of a remote-first workforce.
Does the availability of ample private capital give remote-tooling startups the flexibility to put off going up-market to the mid-market and enterprise areas?
As a growth-stage investor, I’m always looking to see if and when a cloud company is going up market and at what level of success, unless that was never the plan in the first place. I think most every venture [and] growth investor hopes to see some traction from SMB [to] SME [to] Enterprise, especially if we’re talking about remote-tool applications. By definition you’re selling value propositions for workers, and large enterprises have the largest worker bases, and that usually ties to large ACVs.
Do remote-tooling-focused startups have similar, better or worse economics than the average venture-backed SaaS startup?
In general, the high-performing remote-tooling focused companies have high watermarks when it comes to the unit economic benchmarks of the business. The solutions are built for remote use cases and collaboration, so, many times, the services required to get them up and running are lower, and they can scale throughout an org quickly. Right now, during WFH, enterprise clients are almost forced to roll out these solutions firm-wide because all of their employees are generally stuck in the same set of remote work circumstances. Upsell dynamics has been a bit easier for these applications since COVID. It remains to be seen if this will hold long term, but land and/or expand has been favorable for these companies since March.
How competitive are remote-work tooling venture rounds now?
Incredibly competitive. I think one dynamic I’ve seen play out is that the basket of remote-work companies that are really high-performing right now are setting lofty price expectations well ahead of the raise. Many of these companies didn’t plan on raising in Q2/Q3, but with COVID tailwinds, they are choosing to raise at some often sight-unseen-level valuation multiples.
Are prices out of control?
I think it depends on your definition of out of control. The reality is that many of these companies are raising money off cycle from their natural fundraising date for two reasons: One, they are seeing once in a lifetime digital transformation and adoption of remote-work tooling solutions. And, two, so many investors have raised sizable funds during the last nine months that they are leaning into investing in these companies — one of the few segments that will likely continue to see tailwinds as COVID cases continue to rise again in the U.S. Other traditional software value props may face significant headwinds in a uncertain COVID world. Thus, growth equity investors are paying high multiples to get a shot at the category-defining RW app companies.
Clement Cazalot, managing director, Techstars Boston
Ryan Kuder, Techstars Anywhere
It’s now common knowledge that the digital transformation has been accelerated by COVID-19. What portion of your active portfolio benefits from this change in pace?
Cazalot: About a third of the companies got their revenue accelerated as a result, mostly Enterprise SaaS, fintech/Iisurtech and healthcare IT got a bump in sales/customer engagement.
Kuder: As a remote-first accelerator, we’ve had an interest in remote/future of work companies for a few years. Remarkably, 100% of our most recent Techstars Anywhere class has benefited from the change in pace. Overall though I’d agree that it’s about 30% across the portfolio. Note: Enterprise SaaS companies that were selling to the hospitality/travel/supply chain/live events industries got a lot of headwinds. The acceleration of the digital transformation is only true for white-collar type activities and wasn’t uniformly distributed.
Will the influx of single-purpose remote-work apps and services lead to app fatigue, and thus a return of more bundled solutions?
Cazalot: NO. Full stop. If anything, this acceleration of digital transformation highlighted the needs and benefits of specialized applications/niche software use cases that are hard to bundle with generic single purpose remote-work solutions.
Kuder: There is a “bundling” of applications from the large players, no doubt, but from a corporate buyer standpoint, our companies are seeing a strong appetite for vertical/single-purpose applications, world-class in their domain (security/network management; ad/marketing spend visibility; payroll and finance reporting;culture procurement remote meeting platforms; culture-building software specific tool etc.). The exception we’ve seen has been hiring and recruiting-related software, which seems to have slowed down a bit as companies have scaled back hiring-related software, which seems to have slowed down a bit as companies have scaled back hiring.
Is there an upper limit to the number of tools that a single company may want to buy? Put another way, is SaaS fatigue real?
Cazalot: Yes, but this upper limit is no different than pre-COVID, and if anything is higher.
Kuder: The fast pace switch to digital for the lager of cloud adoption is pushing companies to new security needs (work from home security), new collaboration needs (versioning and documentation of physical experiments in labs/factories now monitored remotely), higher need for efficiency for customer success…
As companies begin to go back to the office, do you think they are going to trend back toward their old processes and ditch some of their new remote software?
Cazalot: Marginally, and this might take years. CIOs/procurement are OK with buying yearly licenses of remote software for a discounted price (as an indication that this is not going away anytime soon, in the short-term) and working on virtualizing a lot of the infrastructure that they previously had with limited access.
Kuder: Additionally we’re seeing more individual teams experimenting with new software before pursuing enterprise licenses. Startups are seeing success with land and expand sales strategies as companies figure out their best paths forward.
Are there areas inside of the world of remote tools and services that you think are under-served, places where you’d like to place a bet?
Cazalot: All the security/compliance while being remote is still largely untapped as companies are figuring out the answer; tools for remote maintenance of physical facilities is a fascinating space that is growing.
Kuder: There’s also a lot of focus on the social components of work. How do colleagues get to know each other and build trust remotely? How do remote workers build their networks and meet and get to know each other when everything is online? How do you generate the serendipity and creativity that comes with being in the office together?
Does the availability of ample private capital give remote-tooling startups the flexibility to put off going up-market to the mid-market and enterprise areas?
Cazalot: Remote-tooling startups’ sales targets are not directly correlated to the capital they raise. This is the beauty of this category: you can achieve a lot, with very little. Going upmarket is facilitated by a hyper-specialization on some verticals, rather than being overfunded.
Do remote-tooling-focused startups have similar, better or worse economics than the average venture-backed SaaS startup?
Cazalot: Similar, from my own experience.
How competitive are remote-work tooling venture rounds now?
Cazalot: Although more interest is [in] the space, in Boston/New England, this hasn’t changed drastically from what I have experienced.
Kuder: Most of our portfolio is from outside the big tech hubs. There’s certainly increased interest, but this seems to currently be tempered by slower fundraising cycles in general. They kind of balance each other out. Rounds are getting done, but they are taking a bit longer.
Are prices out of control?
Cazalot: No — they are coming back to more of a real revenue-based valuation for Series A and further. There are outliers running very hot, but mostly I am seeing round prices going down/being less “out of control” of the competitive deals, and this applies to remote-work tooling too.
Kuder: No. For pre-seed and seed outside of the Bay Area, pricing seems to be about where we’d expect it.
Eamonn Carey, managing director, Techstars London + partner at The Fund
It’s now common knowledge that the digital transformation has been accelerated by COVID-19. What portion of your active portfolio benefits from this change in pace?
Probably 30 or 35%. Anyone consumer facing — particularly those doing food — have seen anything from a 2x to a 10/15x growth in monthly revenue through COVID, and as restrictions ease, that’s showing no sign of slowing down. Likewise, productivity tools, remote education and others have seen a huge increase in the volume of usage. There are some teething problems there for sure, but it’s been quite an uptick. Even the companies whose sales cycles have lengthened as a result of everything happening have been able to take advantage of lockdown to build better relationships with their clients and ultimately spend more time on the product, which will be net positive further down the line.
Is there an upper limit to the number of tools that a single company may want to buy? Put another way, is SaaS fatigue real?
Yes. I think we’ll see some M&A activity in SaaSLand and other sectors before too long — as right now, people are paying $5 per user per month for a lot of products, so some consolidation is going to have to happen — either via partnerships and bundling, or via some acquisitions.
As companies begin to go back to the office, do you think they are going to trend back toward their old processes and ditch some of their new remote software?
It depends. What we’re hearing anecdotally is that even bigger companies and corporates won’t go back to the same traditional five day a week office environment. I think there will be a hybrid model that will evolve — so the remote tools will become even more embedded.
Are there areas inside of the world of remote tools and services that you think are under-served, places where you’d like to place a bet?
If I look at the most recent investments we made out of The Fund and Techstars in London, we’re looking at workplace education, remote collaboration and remote communities. Also, if someone could solve for the serendipity of water cooler conversations, that would be great. No amount of Chatroulette clones have found the mark just yet.
Does the availability of ample private capital give remote-tooling startups the flexibility to put off going up-market to the mid-market and enterprise areas?
Yes, but the question is for how long. Depending on how things go with second waves, vaccines and more — we could be in and out of lockdown for a while, and an over-reliance on a more SME type of market could be a risky strategy when it comes to churn etc.
Do remote-tooling-focused startups have similar, better or worse economics than the average venture-backed SaaS startup?
I think it depends on the problem they’re solving and the sector they’re targeting. For many of them, it can take a little bit longer to ramp up to scale — but that’s becoming less of a problem.
How competitive are remote-work tooling venture rounds now? Are prices out of control?
I feel like prices are reasonably sensible in Europe right now. They’re definitely a lot punchier in the U.S. The other dynamic in rounds right now is pace — we’re seeing the really interesting, hot deals close in a matter of days. In some cases, not even a week — so the funds that can’t move quickly can lose out. So pricing is definitely creeping up, but the pace of deals getting done is blistering!
Alexa von Tobel, founder & managing partner, Inspired Capital
It’s now common knowledge that the digital transformation has been accelerated by COVID-19. What portion of your active portfolio benefits from this change in pace?
This digital transformation has created tailwinds for a number of new opportunities, particularly as it relates to the future of work. We’ve been talking about distributed workforces and the rise of remote for years, and now we’ve experienced the forced experiment of a fully remote world and fast-forwarded to 2030 in terms of digital adoption. This experience — and the evidence that remote can be synonymous with high productivity and output — will have lasting impact.
At Inspired Capital, we’re focused on investing in businesses with technology at their core, so our companies have greatly benefited from this accelerated digital shift and have been able to move fast. In our portfolio, we’ve seen positive impacts in companies as diverse as Rho — a small business neo-bank (physical bank branches are increasingly irrelevant during COVID), Chief — the vetted women’s network that has shifted its formerly in-person product to a completely digital offering with great success, and Almanac — a collaborative documentation tool and resource hub that enables seamless remote work.
Will the influx of single-purpose remote-work apps and services lead to app fatigue, and thus a return of more bundled solutions? Is there an upper limit to the number of tools that a single company may want to buy? Put another way, is SaaS fatigue real?
We have to remember that many companies will hit SaaS fatigue purely from a budgetary angle, because so many companies are working to save every dollar they can amidst an uncertain economy. As a result, I expect to see more remote work apps that target consumers directly — namely, individuals who don’t mind paying a small fee to make themselves more effective or efficient at work, particularly when they’re remote. Superhuman is a great example of this, with a waitlist of over 300,000 individuals who have raised their hands for a better email experience (something they traditionally get for free at work). Commanddot is another tool that we love that helps streamline scheduling. Like Superhuman, users need to pay for this service, but the productivity value is worth it for many.
As companies begin to go back to the office, do you think they are going to trend back toward their old processes and ditch some of their new remote software?
Work has fundamentally changed. We’re hearing from business leaders and startup founders alike who are committed to remote work being some part of the equation long-term, whether the motivation comes from cost-cutting or the ability to access a wider talent pool. In a survey Inspired did, we found that only 12% of employees want to return to “their old way of working.” So, remote software is here to stay. That said, for it to succeed post-COVID, builders of remote software need to consider how it integrates in physical offices. I expect that we’ll see more blurred lines between employee schedules and the consistency of their time in office. If a team is composed of people who are fully remote, or remote sometimes, what platforms can they all use 100% of the time?
Are there areas inside of the world of remote tools and services that you think are under-served, places where you’d like to place a bet?
There are so many areas I think will be interesting as we think about the future of remote work. To name a few:
- Security. Sensitive company data is now being accessed all over the place, and IT teams don’t have insight into the devices and networks employees are using for work. The lack of a secure infrastructure can lead to real risks and vulnerabilities for companies (think of Zoom’s security challenges), so I expect to see more tech and services target this. A 2019 study found that 36% of companies have dealt with a security incident from an unsecured remote worker — and that was a year ago. The increase in remote workers since then creates a clear target for any hackers with malintent.
- Asynchronous collaboration. If remote work is widely adopted, we’ll see more workers in different time zones, which opens up the question of asynchronous collaboration. Studies have shown that asynchronous work can actually improve productivity and cut down on distractions. How can technology be used to build synchronicity of progress, even when employees are working at all different hours?
- Culture. This is an area that’s often overlooked, but as a founder myself, I know how critical a strong company culture is to your success. So many companies have struggled as of late with onboarding new team members who they have never met in person. Is there a tool that enables employee bonding? Or a platform that can increase camaraderie and happiness among employees?
Does the availability of ample private capital give remote-tooling startups the flexibility to put off going up-market to the mid-market and enterprise areas?
Yes, generally speaking, I think the availability of capital is allowing companies to build niche products for niche audiences. And that strategy can work — companies like Gusto have scaled while maintaining a clear focus on small businesses. In addition to companies focusing on the lower end of the market, we’re keeping a close eye on verticalized remote-work solutions. Needs of remote workers vary by industry. For example, we are looking at edtech as teachers and schools grapple with what platform works best for them to teach remotely (assuming the current video platforms are not ideal long-term).
Do remote-tooling-focused startups have similar, better or worse economics than the average venture-backed SaaS startup?
It really depends on the business, but I think the economics are on par with most venture-backed SaaS startups. Over time, depending on how crowded this space becomes, the economics of acquisition could worsen, as with any over-crowded corner of the market.
How competitive are remote-work tooling venture rounds now? Are prices out of control?
At Inspired Capital, we’ve never been busier. Despite COVID and initial concerns across the industry that venture capital would dry up in the period of economic uncertainty, deals across the board are incredibly competitive and prices are as high as ever.
While many investors have been bullish on remote-work for awhile, overnight it’s become a given of the next decade. That’s certainly driving up prices for startups that are able to move quickly to meet the new needs of the workforce and of corporations that are working to adapt. We’re wary of other businesses that experience record COVID-related growth, but when it comes to remote-work tools, we firmly believe that these companies are here to stay. The question is, when many of these tools are so similar in their feature set, how does one of them break out and win?