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COVID-19 AND SMART BUILDINGS - UPDATES
It's been a very uncertain time across all industries, and that is no different in tech. We've talked to many startup executives, investors, and other stakeholders in the smart building space (and technology in general). We've found that most investors are encouraging their portfolio companies to extend the runway, they tend to be putting a pause on new deals, and generally see a lot of uncertainty in the near future. Most startups seem to be taking this advice to heart. Some are even working on initial Covid-19-inspired products. We're going to keep writing about what we hear and see, but here are a few quick thoughts:
- Most smart building technology does cut costs, which will be important for many real estate firms - but is it enough? And, are the first costs too high for many to adopt?
- The smart building industry is very fragmented. Do many VCs and other investors let the market decide who succeeds and who fails, only to wait until after this sorting out period to make new investments?
- What is the role of the office once things are back to normal? We've heard compelling arguments indicating that the office will become even more indispensable, and other points of view that working from home will become much more prevalent.
- All that said, now may be a good time for peer smart building vendors to consider merging together, especially if they have complimentary products or they can expand their client base and the share of wallet at many client sites. Many real estate firms have sought to reduce the total number of vendor relationships, which makes smart building technology adoption difficult (due to fragmentation). Mergers of necessity might end up delivering good outcomes in the long term.
- Hospitality, retail and restaurant buildings were not the most advanced buildings in the first place, and they are among the most impacted by Covid-19. These industries are vital to our economy, and only so much of this can flow to online retail and cloud kitchens - we're particularly interested in how this asset classes come out of this crisis, and we do think that smart building technology may be a part of the solution.
- There was a renewed focus on sustainability around the new year - we now think that this will be a focus on sustainabilty, climate and health - all included within corporate responsibility.
IMPACT ON TECH SECTOR
It's been a very uncertain time across all industries. That is no different in tech. Most deals that are closing simply were already in the pipeline. Other deals are moving slower, and while all investors are saying that they are "open for business", there's some skepticism about this. Moreover, some small and mid-size tech companies are laying off between 10 and 50 percent of their staff (and sometimes more).
OUR INSIGHTS
We've been writing a bit about Covid-19 and the impact on smart buildings. We'll continue to share our thoughts there, but here are a few particularly useful items:
OTHER RESOURCES
To better understand the current situation, here is a selection of some of the best resources we've come across:
- We came across a great article from CNBC about preparing for a recession and the impacts on tech, written in 2019. The big opportunity for startups and innovators appears to be: "Big companies will abandon speculative or underperforming business units. On the plus side, this will leave new room for start-ups to find disruptive business models that the giants are suddenly too scared to touch "
- Sequoia Capital's new post about Coronavirus and its impact on startups and VC also is a must read.
- Kara Swisher's Recode Decode podcast with Chamath Palihapitiya has a great perspective on the current economic landscape, in addition to next steps for startups. It also touches real estate, with Chamath noting that, for example, his law firm's employees have been working from home and doing more work and better work for him. His view is that the logical next step is that law firms will get rid of the office, work at home, and share that avoided cost between profit for the firm and lower fees. We're not sure about this - many workers are not going to enjoy their time at home and will seek to return to the office. He also notes that we might have 9 months until public markets hit the "psychological bottom" and startups should have 27-36 months of cash on hand. It's a great listen.
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