The current COVID-19 crisis is unprecedented, even for those of us who were around during the Japanese asset price bubble, the US savings and loan crisis, Black Monday, the Energy crisis, the dot com bust, the Gulf War, and the 2008 GFC. A virus put a virtual halt to the normal physical human activities of going to work, going to school, going out to eat, jogging, traveling, and visiting friends and family. Although most of us would like to go right back to the way things were when some normalcy returns, it is likely as with most crises that many things will change and hopefully some for the better. While we may not be able to fully predict all the resulting trends, we believe this could be another watershed moment that could accelerate lasting behavioral changes.
In this note, I address four major shifts that are likely to result from the COVID-19 crisis –
1. More pervasive work from home
2. Major real estate shifts
3. Further democratization of cloud computing
4. An acceleration of processing power needed to spur the AI revolution.
When I co-founded MizMaa Ventures in mid-2016, remote working was the dominant mode of working for me and my co-founder, Yitz Applbaum- I am in Hong Kong, he in the San Francisco Bay area. I have since discovered that my laptop, smartphone, desk-lamp, chair, and a printer cum scanner are all I need. We also use Google Drive, Gmail and Dropbox. We are a venture capital firm of 5 people, going to 6, with a portfolio of 20 companies, 2 exits to date and an advisory board of 7. The geographical spread of our people means we cover Asia, Europe and US time zones on any given day. Naturally, we are big users of teleconferencing software like Zoom, Skype, and Bluejeans. Also, there is always a need for business travel to meet with our investee companies and colleagues in Tel Aviv.
What many of us have found during this forced stay at home crisis is that we can be disciplined and devote blocks of time to many different designated activities. Indeed, I don’t see why working from home cannot be as productive as working from an office, and I would even argue the former can be more productive. I often turn on some music when tired or catch up with my teenage son back from school before the next conference call. Anyone can squeeze in an exercise routine which is a lifesaver in the world we live in today. The flexibility of being in a comfortable setting, wearing comfortable clothes and having break times when needed allows us to sharpen our focus for work.
To me, remote working will undoubtedly remain a part of work going forward. Assuming COVID-19 will be under control at some point, there will still be the seasonal flu periods every year when we are all too familiar with being sick and where productivity is hampered. What about compulsory stay-at-home periods during high flu season for all employees? What about allowing young mothers to work from home after the maternity leave period, to keep talents who would otherwise leave to take care of newborns, especially in countries where commuting can be long and daycare is less available? This can all be possible without any loss in productivity.
And the tools to support work from home are still in their infancy including products like Zoom; better means of remote education; cheaper, faster more secure connectivity; better ways for people to work together remotely; unlimited opportunity for home workouts and all means of delivery services to name just a few.
We see the evolution in retail space usage. Since 2010, with the rise of Amazon and e-commerce generally, 1.3 million retail workers have lost their jobs. In 2019 alone, almost 10,000 stores were closed. This evolution is now called the ‘US retail apocalypse’.
The rise of remote working as a trend will mean that companies big and small must rethink how much office space is actually needed, particularly in expensive central business districts. A smaller hub but bigger spoke concept could make sense for office configurations. Smaller offices overall will be an important topic among C-suites of big corporations as rent remains a big cost of doing business. Overall, real estate usage will undergo another evolution where we may very well not only need fewer movie theatres, bank branches, and shopping malls but less office space as well.
E-commerce logistics and delivery of products and services could fill a significant gap in real estate for densely populated cities. The battle is on delivery of, for example, fresh produce and the rapid move to same-day delivery will be a major differentiator among brands. Note Walmart’s share price hit an all-time high on March 18th ($122.58) as their investment in their delivery infrastructure as home deliveries have become an essential service during this period. In major cities like New York and Tel Aviv, we have seen and believe we will continue to see third party e-commerce fulfillment centers taking up space vacated by retail stores and Grade B office buildings. They serve the important function of being the amalgamation centers for items ordered online which need to be sorted and together with technology-enabled route-optimization, they provide delivery to households and offices in a speedy and efficient manner. Going forward, more hypermarkets and brands will demand technology and infrastructure to win this last-mile delivery battle in a profitable way. The real estate landscape will continue to evolve.
Remote working is made possible in a seamless manner by cloud providers such as Azure, AWS or Google, who allow workers to store data with them and share that data amongst colleagues in remote data centers. The movement to the cloud has not been frictionless. While the ‘born on the cloud’ companies such as Netflix, Airbnb and Booking.com were early adopters to this revolution, the large ‘heritage’ enterprises were only tip-toeing. Rightfully, CIO’s of these big corporations have been worried about the type of data that stays on-premise and what can be stored off-premise in the cloud. Cloud compute costs are high, generally speaking. Data recovery, privacy regulations and latency issues are also a big concern while shifting to the cloud. Just as an example, on August 31st, 2019, an AWS data center in northern Virginia experienced a power failure for two hours which led to 7.5% of the EC2 instances and EBS (Elastic Block Store) volumes becoming unavailable and unrecoverable.
As more of these concerns are being addressed via a myriad of technologies, we are now witnessing the second wave of cloud adoption, where the big enterprises are joining as well and racing to build hybrid cloud strategies.
With COVID-19 as a further catalyst, entrepreneurs will be incented to come up with cutting edge solutions that make cloud computing even more efficient, at a lower cost, with less risk of data loss, and with new cybersecurity solutions. Israeli entrepreneurs are finding solutions for today’s cloud environments; We see companies that solve performance issues, whether it is on the code level for continuous optimization, or on the orchestration layer for better usage of cloud resources.
We see companies that prevent data loss through real-time data replications across cloud environments enabling immediate disaster recovery; We see tailored cybersecurity solutions aiming to protect the new cloud environment, and new monitoring solutions to ensure compliance with privacy regulations – and the list goes on and on.
It is an exciting world where we will see wide adoption and democratization of cloud computing technology available to all at more affordable prices.
Demand in the semiconductor industry has typically been fueled by disruptive new technology and changes in habits. The increased popularity of PCs in the early 2000s boosted demand for CPUs and memory chips, the same for the global adoption of the internet, fueling the Ethernet and ASICs. While artificial intelligence will be the catalyst that will drive the next growth cycle for the semiconductor industry, it is the combination with changes in human behavior exhibited during the COVID-19 crisis that could really fuel the next revolution.
Remote work and study, telehealth, video and music streaming, to name a few, will all increase the already endless amounts of data that needs to be stored, queried and analyzed to gain actionable business insights. That exponential increase in data consumption and traffic, with the contrary understanding that Moore’s law is not here to stay, will drive the next semiconductor revolution – and it is already underway.
Unlike traditional CPUs that are great at processing highly serialized instructions, machine learning workloads tend to be highly parallelizable, much like a GPU (Graphics Processing Unit). Therefore, currently GPUs are the primary chip for AI acceleration. We are now seeing a new wave of NPUs (Neural Processing Unit) that is emerging with the mission to build highly customized chips for AI training and inference. The market for NPUs is expected to grow at the highest CAGR relative to any other chip over the next five years.
We have already witnessed most of the biggest technology companies in the world spending billions of dollars in their mission to create and acquire better state-of-the-art semiconductor companies. From Amazon acquiring Annapurna (2015, $350M), to Intel acquiring Habana Labs ($2B 2019), Google developing their own TPU, Apple acquiring Xnor.ai ($200M, 2020) and more. The AI chips market is expected to grow from $3 billion in 2017 to $40 billion in 2022, which will become one of the most fertile industries for VC investments.
As Israel is one of the global semiconductor industry leaders, it would be reasonable to assume that a significant amount of the exits and unicorns will come from the Startup Nation.
In the VC business, we are asked to see the world ahead of us and back entrepreneurs with the right vision to solve those pain points. The irony of being a VC in the phase of COVID-19 is that its timing and immense and immediate impact was simply unforeseen. While we are much humbled by this fact, we remain optimistic that such challenges present opportunities and we are here to ideate with entrepreneurs for a better and improved future.