New Series: Distilling 5 Macro Forces that Extend from COVID-19 and Shape the Road Ahead

The impact of the COVID-19 pandemic on established industry leaders and recently formed startups, alike is progressing from an initial shock-to-the-system to a modified business-as-usual. As companies shift focus away from triage and toward strategic evaluation, they must examine market positioning, risk, and opportunity against a new context.

Ongoing sectoral transformation arcs that were already in motion are now either taking place at an accelerated rate or developing along an altered course. The view from the perch we occupy where wealth, health and privacy intersect has given us pause to take stock of these plotlines alongside both the executives at corporate mainstays with whom we partner and also the founders of emerging industry players in which we invest.

Categories covered in this series, to-date:

Wealth Management

Enterprise Infrastructure

Payments

RegTech

In recent months we have hewn closely to the questions that have guided us in navigating a shifting landscape as we invest in leading founders and their companies across FinTech, InsurTech, Digital Health, and Data Security. What we have observed, as a global team, spans financial services, insurance, enterprise infrastructure, and beyond. In working with our portfolio companies and our corporate partner LPs, we are seeing the business impact of COVID-19 on these industry subsectors very directly.

The impact, grossly stated, is not simply one force that can be generalized but, rather, a composite of forces each impinging upon individual industry subsectors in various and specific ways; only together do these sum up, collectively, to the business impact of COVID-19.

This exercise is not necessarily focused on trying to highlight key answers, but rather a means to formulate the appropriate next set of questions: What specific individual forces will move the needle most on the establishment of new norms? How do we compare industry responses to a post-COVID context from sector to sector? How we can best align our efforts as venture investors with our corporate partners, our portfolio company founders, and their teams?

Our goal in examining this problem space is to distill the forces prevailing upon the subsectors we invest in so that complexities can be reduced, the right questions can take shape, and some opportunities may be clarified. One such opportunity that has already come into focus: the need to advance collaboration among sector participants who can accomplish more together than they would separately.

The impacts of COVID-19 may not be uniform, but they do pervade all quarters and the resultant challenges do not discriminate between the small players and large ones in any given subsector. Against this backdrop we see a demonstrated need for a venture model that effectively advances start-up/corporate collaboration. Such a model enables corporates to absorb innovation and shorten the time-to-market for partnerships with startup founders. This is the SixThirty model.

We have dug deeper to query, test, and refine our hypotheses around our portfolio and pipeline of startups. In doing so, we have sought to identify and isolate the drivers that transmit change through the value chain and, based on what we have observed, catalyze that collaboration. Driven by this mission, we have been getting down to work with our partners to solve for the impact that the resultant emergences and/or displacements will have on the subsectors that these corporates are operating in and that we are committed to investing in.

In undertaking this analysis, we ascertained 5 forces that we wish to focus on: Dispersal, Inertia, Digital Volume, Segmentation, and Survival.

- Dispersal: the imposition of distance among individuals, teams, etc. With less travel, more remote workers, and a greater onus on back-office network operations, what challenges and opportunities exist in plain sight? Where might there be some still obscured?

- Inertia: that propensity for resources, monetary capital, human capital, etc. halted by systemic blockages to resist moving again once stopped. Interest rates are low, the rate cut route is closed, and policymakers’ reliance on traditional tools is thus limited. How might firms find ways for capital flows (and cash flows) to persist and overcome that inertia?

- Digital Volume: this sums up to the complications wrought when online throughput increases and intended or unintended consequences result. As offline resources are more distributed, companies and individuals depend on digital solutions to bridge the gap (even if they are not prepared). How will the virtual footprint of such companies and individuals change as that volume increases and how can frameworks designed to manage that volume keep up in terms of size and scope? How will the management of these challenges evolve and who will take ownership of it?

- Segmentation: value chains are being disrupted and unbundling is lengthening chains in the short-term and whilst the division of labor is reconfigured, supply chains shift subsequently to accommodate. What consolidations could follow in the medium-term? Where might segmentation be here to stay?

- Survival: this fifth impact –rather being an externally-driven force like the other four- is internally-motivated by corporates and startups, alike. What constitutes certain markets is now changing. How might new markets be created and how might the benchmarks by which those markets are gauged remain fluid as they are redefined? How will players fare amid these shifts? What portion of their survival will rest on how they weather the storm? What portion depends on how they position for what follows?

This is not an exhaustive list; and there are also multiple levels of granularity at which we could classify or group these impacts. The following written pieces in this series will each examine one of the various subsectors that we are focused on: Wealth Management, Enterprise Infrastructure, Payments, RegTech, Insurance, Lending, Data Security, and others.

In keeping the scope manageable, we limited the forces we are using as a lens to 5. These are the 5 that rose to the top as we examined what was on the minds of our founders and our LPs as we looked to align with each on navigating the uncharted waters ahead.

These times of unprecedented change in the lives of people, startups, corporations, and investors has set in motion enduring, intertwined ramifications which can be difficult to disentangle. We believe these instances of change are important junctures to review, question, diligence, refine, and reaffirm the premise upon which we operate and collaborate. We look forward to you joining us through an exploration and analysis of what we are observing and the questions we are asking.

Photo credit: Neil Smith on Unsplash

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