Dear Startup Investor,

David Weisburd here.

Here in New York, we’re all recovering from the end of 2020’s second quarter. With the year already halfway over, investors are busy tying up loose ends on six months of data – and now, it’s time to look ahead towards the rest of the year.

But first, it is important to examine the trends that defined Q2 2020 (April through June), the first full quarter during COVID-19, to see which trends will persist and which trends may reverse. It is important to note that as investors we are not investing for one or two quarters, but rather many years into the future.

In order to maximize our returns, we need to examine what shifts in consumer (or business) preference will be short term vs. long term in nature.

Let’s get started.

Vertical #1: Commercial Office Space and Real Estate.

Few asset classes have taken a harder hit this year than commercial official space. With quarantine in effect, companies large and small closed down their offices, and many were prohibited from visiting their office spaces by state or local governments.

To make matters worse, work from home technologies such as Zoom Video Communications (up almost 400% this year) have shown businesses that you no longer have to take every meeting in person in order to be effective.

In fact, many have come to realize that Zoom calls can be even better than in person meetings as you get to avoid the commute and still have a similar personal experience.

There’s no doubt that in-person meetings are still necessary in order to close large pieces of business (although several large deals have been done in COVID without in-person meetings).

Still, it seems that commercial office space has gone from essential to non-essential for companies, with most companies discussing smaller permanent workspaces.

My verdict: Pass.

Vertical #2: Restaurants and Food Industry

The most talked-about vertical affected by COVID-19 is the food and restaurant industry. This industry has generated a grassroots campaign in cities like NYC, with the #takeoutNYC hashtag used by consumers in order to try and help keep restaurants afloat.

Despite this support, restaurants are still businesses at their core, and have to subscribe to the same law:
Profit = [Number of orders] * [Profit/order] – [Costs].

With less space open for dining, restaurants will have to evolve into the online ordering business, a feat that is difficult for many incumbent restaurants due to the high cost and complicated logistics.

However, there is one such vertical that is benefitting greatly from COVID-19: the ghost kitchen industry. Ghost kitchens are restaurants that are made exclusively for online ordering, and do not have traditional restaurant offerings such as tables, waiters or a storefront. The most famous ghost kitchen startup is CloudKitchens, which was started last year by former Uber Founder/CEO Travis Kalanick.

My verdict: Buy Ghost Kitchens, Sell Traditional Restaurants.

Vertical #3: “Tele-anything”

With many basic businesses closed, including what many would deem as essential (doctor visits, dentist visits, etc.), telemedicine – and, really, tele-anything – has experienced a significant boom.

As I mentioned earlier, Zoom Video Communications has experienced over a 400% return in less than 6 months. Anything that helps people do things via phone or computer that used to be done primarily in person will continue to boom.

The obvious reason for this is that people don’t want to contract the COVID-19 virus, and in a mature economy like the United States, consumers are willing to pay in order to reduce the risk of infection.

Like Zoom Video Communications, I hypothesize that many of the tele-services that consumers are subscribing to during the pandemic will continue to persist post-pandemic, as they are simply easier, more efficient, and oftentimes cheaper.

My verdict: Buy.

In the months and years leading up to the COVID crisis, I saw many investment opportunities that left me feeling skeptical, due to high valuations and overly optimistic thinking.

What I see today is that many high-quality startups are available at highly attractive valuations. Warren Buffett’s adage of “be fearful when others are greedy, and greedy when others are fearful” couldn’t be more relevant than when it comes to investing into startups today.

Keep in mind that during the last market downturn (the Great Recession) some of the greatest tech companies of the generation were started… including WhatsApp (acquired by Facebook for $15 billion), Uber ($58 billion market cap), Instagram (valued at $100+ billion), Pinterest ($15 billion market cap), Slack ($19 billion market cap) and many others.

On top of this, those who invested in 2008 and 2009 had the benefit of investing at a much lower valuation than those who invested before and after the Great Recession.

Whatever verticals you choose to invest into, the key is to continue investing, continue diversifying, and stay the course. In angel investing, as with most things in life, patience and perseverance are rewarded greatly in the long term.

Have a great rest of your week. I’ll be back soon with more updates.

Very best,

David Weisburd