Bogomil Balkansky, former vice-president at Google and is currently partner at Sequoia Capital, one of the largest VC funds in Silicon Valley.
We last spoke in June, when I asked you if coronavirus did change VC. Surprisingly for me, you said no. Is that still the case and if it is, why?- The venture environment continues to be surprisingly robust.
When the lockdown hit in March, there was an expectation that the venture market might freeze and we at Sequoia published a memo ringing the alarm bells, so to speak. But the surprise was short lived and when the stock market recovered pretty quickly, then the venture market went back to being robust. One takeaway here is that venture capital takes its cue almost exclusively from the public stock markets and while they are doing well, venture will keep doing well as well.
It’s still a very entrepreneur-friendly market. A lot of money chasing venture deals. It’s a good time to be an entrepreneur and a good time to get funded. So from that perspective the environment not only has not changed for the worst, but it has gathered steam.
It’s a good time to be an entrepreneur, but what kind of entrepreneur? What are the main trends that have emerged from the crisis?
- There are certain industries and new trends that are getting a push because of coronavirus. But the majority of venture activities is not limited to sectors which are getting tailwinds from COVID. I’d say that the majority is still with businesses that were good businesses before COVID and will continue to be good businesses also after.
When it comes to COVID specifically, we’ve seen a lot of activity around sectors that help with this new work from home reality, platforms for virtual events – imagine DIGITALK – and there is a need for such platforms to manage digital events. There is tremendous interest in digital healthcare – or remote healthcare, whatever you want to call it. These are obvious things that are fashionable and trendy. But I don’t think we’ve seen the winners yet. It’s only been a few months, which is too short of a time.
Is there a risk investors are putting all their eggs in one basket because of coronavirus?
- I don’t think so. I haven’t seen any firm really start exclusively investing in COVID-related opportunities. So I don’t see any systemic risk. I’m not sure that what we see mostly right now – trying to get physical things into virtual – are going to be the real winners. It doesn’t feel like the tech bubble of the early 2000s.
I’d like to take you back to the first question. Venture capital is locked with the stock market. Why is the stock market still flying high? Coronavirus erased a third of the American economy and an eighth of the European one.
- Good question. Boy, if I could predict the stock market, I’d probably be a much richer man than I am. I wouldn’t take it upon myself to explain the stock market, but the most reasonable explanation seems to be that this is where we’re seeing the inflation. It is no secret that the American government provided a huge stimulus to the economy and it is basically printing money and sending every American citizen free money. Whenever you see money being printed, it’s logical to start seeing inflation. And it can manifest itself in different ways. Most people expect to see inflation in the price of goods, but I think what is happening right now is an inflation in the prices of assets. All that freshly printed money is being poured not into the real economy, but in asset prices. This is my only explanation why the stock market is still booming. I think there will be a day of reckoning, I just don’t know when.
Is that something that worries you? The stock market is booming for one reason – tech companies - Facebook, Google, Amazon, Apple and so on. We’ve been talking about the wealth gap for quite a few years. Now it’s the gap between the tech sector and everybody else.
- It worries me tremendously. All these social trends that you mentioned are very worrying. They have been going for decades, but it’s only now, in the last ten years, that they manifest themselves so clearly. These are dangerous trends. I don’t know what the solution is, there are no easy solutions, but you are right that yes, if you look at the stock market, it continues doing surprisingly well, but if you look inside, it’s a story of haves and have nots. Most companies are flat or down, except tech companies. This is logical, because they are best positionеd to deal with such a crisis. It is easy for them to continue functioning. It’s logical, but it’s still worrying, because society is being divided into the digital haves and the digital have nots.
What is the main thing that you want to remain from the crisis?
- My answer is going to be somewhat surprising: honestly, I don’t think that I appreciated how much I like being in the office and being around my colleagues. Because we never had been in such a situation, I don’t think that we really understood and appreciated this. One of the long-term consequences of COVID and the lockdown is a deeper appreciation in the human connection, both in professional and personal context. There is no high-tech solution for that and our lives in the last few months have been forced to be digital to a point where I personally find it harder and harder to stare at a ZOOM screen.