How Is a Fully Remote Startup World Affecting VC Investment Behavior?

SaaS development startups that provide remote working & collaborative solutions have seen the biggest rise in this age of COVID-19.
Carolyne Njeri

Carolyne Njeri

Share on facebook
Share on twitter
Share on linkedin
Share on reddit
Share on whatsapp
Share on email

2020 has been a whirlwind for startups across the globe. Some have been catapulted into global success almost overnight, while others have fallen through the cracks, in a climate dictated by a mostly unpredictable pandemic that continues to wreak havoc the world over. SaaS development startups that provide remote working and collaborative solutions have seen the biggest rise in this age of COVID-19. This is thanks to the work-from-home protocols that were enforced in many countries to curb the spread of the disease. About 42% of employees in the US have had to transition to remote work to allow businesses to stay operational during the pandemic. Because of the alarming trend of increasing infections, tech titan Google reports that its employees may be forced to work from home until the summer of 2021.

This unique situation has given a platform for startups like Zoom (for video conferencing) and ProofHub (that allows employees to work in tandem) to thrive. As of April 2020, Zoom had amassed as many as 300 million participants per day, beating Google Meet and Microsoft Teams by a landslide. It is for this reason that venture capitalists are quickly turning their attention to products that facilitate distance working. Although equity financing forms a small percentage of financing for most businesses, it remains the main source of capital for startups. It is therefore important to analyze the trend in seeding behavior among VCs across the startup world to understand whether remote working tools are just a fad or will become a permanent fixture in business and tech.

Trends in Investment 

Source: freepik

The general rule of thumb for venture capitalists is following the buzz. If a certain sector is attracting new customers quickly and making leaps within a short time, VCs will come in droves. This is true even for this case, where there has been an increased interest in tools that facilitate working remotely. Most investors believe that the transition into digital working was already on the upswing and that COVID-19 only hastened the process. 

According to Forbes, Saas companies will be the true winners of the WFH economy due to their cloud-based infrastructure which allows users to access their services remotely rather than on work premises. There is so much potential for growth in these startups that Saastock.com compiled a list of 90+VCs and investors supporting software startups during this pandemic.

There is Still Room for Investment in Remote Working

Source: freepik

Speaking to TechCrunch, Minn Kim, an investor at Bloomberg Beta said that much is still to be desired when it comes to remote working tools. She noted that there is still a gap that needs to be filled, especially in cybersecurity. Having employees scattered across different locations throughout the world poses a threat to sensitive company data accessed on public networks. Interpol reported that there has been a sharp increase in the number of cyberattacks since more people began working from home. This is why some VCs are channeling funds into cybersecurity companies. One such startup, Expel, which deals with internet security, managed to raise $50 million in seed capital during this pandemic.

Although there has been an influx of virtual working software into the market recently, VCs are still not worried about SaaS fatigue. On the contrary, investments are burgeoning as developers seek to fill out niches left behind by their predecessors. An IDC survey carried out in April on 582 decision-makers in tech, revealed that 64% and 54% expect a rise in the development of videoconferencing and collaboration tools respectively, while an additional 55% were planning on investing more money into business networking platforms.

In the first three months of 2020, several digital workspace apps managed to secure capital in the first rounds of funding. Shared inbox company Front received $59 million, virtual reality meeting app Spatial received $22 million and Postman received $150 million, to name just a few. Later, in June, freelance marketplace Ureed.com – which facilitates remote and freelance work in the MENA region –  also managed to score a 7-figure seed fund round.

Investors are Looking for Resilience 

A key deciding factor that VCs take into consideration while evaluating the feasibility of their investment is longevity. Although quick returns are favorable, sustainability is the true mark of a worthwhile investment. With so many startups coming up to address the challenges of remote working, investors are careful to select those whose usability will span beyond COVID-19.

According to Nicholas Pappageorge, senior intelligence analyst at CB Insights, collaborative and communication startups are better positioned to weather the pandemic compared to other startups. This is because they’re not likely to be affected by changes in supply chain or social distancing. Additionally, it is predicted that remote working is here to stay. A survey carried out by PWC USA showed that 55% of business executives will continue to allow their employees to work from home even after the Coronavirus subsides, while 83% of employees said they prefer working from home. 

This is because it has proved to be cheaper, better for morale and encourages easier collaboration between employees. As such, the tools that enable digital working are going to be a mainstay in tech. This means that more businesses will continue to adopt these collaborative technologies in a bid to streamline their remote framework, so their usage will not be one-off.

Source: PWC Remote Work Survey

Where are Investors Looking to Next?

Because of the economic downturn, investors are looking for cost-effective investments that have a high ROE (Return on Equity). However, this should not dampen entrepreneurs’ morale as most investment companies still insist that they are operational and offering funding even during the pandemic.

In an interview with Computerworld, Slack Fund director Jason Spinell said that VCs are also on the lookout for new apps that encourage employee engagement to help manage a decentralized workforce. Also, apps that use low or no code are becoming favorable as they can be programmed by amateurs without the need for developers. Investors are also showing interest in SaaS tools in the healthcare industry.

Summing up

The Coronavirus pandemic has been a perfect storm for some businesses, especially those driving digital transformation and remote working, as it has allowed them to grow exponentially. For this reason, venture capitalists have had to make changes in their investment patterns to encompass more of these startups. But according to experts, the buzz around SaaS virtual working tools is not about to waiver soon, as remote working is expected to linger long after COVID-19 subsides. Therefore, we should expect to see more investment in such startups for the foreseeable future.

Interested in remote tooling platforms? Reach out to Ureed.com, the GCC’s largest freelance marketplace and a hub for remote work in the region.