The COVID-19 pandemic is creating a lot of turbulence worldwide. We are working with our partners to resolve some of the most complicated and challenging issues to get the economy back on its feet - with a little help from our portfolio company Vottun and an ecosystem of partners in the US and Europe. Click here for our 4 part series on a back to work approach with digital health credentials.
Navigating the Fast and Slow Winds of Change
Change is a constant in our lives.
Even without the coronavirus pandemic, technology would have changed continually throughout the 2020s - the pace might have been slower, more predictable, and given most of us an opportunity to think, react, and adapt. The going was (relatively) easy and most companies would even have timed incremental acquisitions, products, or business expansion to perfection. This would have brought more customers into their fold and led to a few quarters if not years of growth. Consolidation, fragmentation, followed by consolidation and fragmentation. The Harvard Business Review even wrote an article on the benefits of the slow innovation engine at work.
Silicon Valley on the other hand prioritizes a culture of fast change. Move fast and break things. Fail Fast. Hustle. Go Big or Go Home. These are a few mantras that everyone seemed to live by just a few months ago. These will certainly be called into action as we start to rebuild a world that has rapidly changed in front of our eyes. The rate of this change has been so rapid that for now it has caught almost everyone unaware. There are no more things to break when most business models and supply chains are broken and have failed. The older mantras no longer apply and perhaps this is where Andressen had it right in saying that “It is Time to Build.”
Technology will certainly play a large role in the rebuilding of the economy.
For now, though, leaders have reacted swiftly and pivoted to their core business in a bid to survive the crisis. A complete collapse of demand has created uncertainty that requires a steady resolve to not only stem the bleeding but also to bounce back quickly. Any noise that they may have tolerated previously is no longer welcome. In a sense, this is good for the overall health of the businesses. However, it also comes at the cost of deep cuts in the workforce and almost turning away from innovation. To thrive, executives must not stray too far from the innovation track and trends that can make them more resilient to the market forces.
And the market is moving towards a future where some of the damage inflicted by the pandemic may be permanent.
We estimate that 42% of recent pandemic-induced layoffs will result in permanent job loss. If the economic shutdown lingers for many months, or if serious pandemics become a recurring phenomenon, there will be profound, long-term consequences for the reallocation of jobs, workers, and capital across firms and locations.
- Prof. Steven J. Davis, University of Chicago Booth School of Business
The reallocation of jobs, workers, and capital has been in the making for a while now and is only getting accelerated. We got a glimpse of the decentralized world with the crazy cryptocurrency bubble in 2017. The naive optimism back then fought a tough battle with structurally embedded business models and lost. For sure, there were ideas that had no tethers to reality or were outright scams, but that’s what happens when rapid changes acquire critical mass. In the aftermath of the crypto bubble, there has been a lot of companies quietly experimenting, building, and validating business models that advance innovation. With millions of people now forced to work from remote locations in distributed teams, the idea of virtual, digital-first, organizations that (perhaps) live only on a ledger, does not seem that distant. It is no wonder then that at the peak of the crisis A16Z raised another $515M dedicated solely for crypto companies.
Amidst all the chaos, this pandemic is showing a way to step away from the past and accelerate building the systems of the future - systems that are more inclusive, more cost-effective, and provide frictionless services. Payment rails have been under pressure for a while and are now going through a renewed scrutiny. Same for traditional banking services as DeFi starts to chip away at the margins of once-lucrative business models in lending, forex trading, and derivatives etc. Much like how open-source software made software accessible and available to developers worldwide, DeFi is fractionalizing and making accessible goods and services that were once luxuries. Indeed, our experience working with media and entertainment companies is first-hand testimony to the global power of such business models. While incumbents struggle to keep their focus on their core businesses, startups and nimble enterprises are primed to usher in a new paradigm.
In our experience, the abrupt changes forced by the pandemic are helpful tailwinds accelerating disruption and how business is conducted globally. Unlike in the previous recessions and economic depressions, this time, access and availability of information make it a much more level playing field. It is unreasonable to think that people displaced by the pandemic will be beholden to larger enterprises for economic recovery. The entrepreneurs of tomorrow are already distributed, decentralized, and building digital-first assets.
What we are excited about is that this time around, decentralized technology and new business models are increasingly being realized in real-world applications - and that is a great place to embrace the winds of change.
With the near-term picture cloudy, some analysts are focusing on a longer-term trend that could be surprisingly bullish for bitcoin: the emergence of digital currencies issued by central banks. It’s not an obvious investment thesis because bitcoin was invented to be used in an electronic peer-to-peer payment system that would be free of government control and operate outside of the traditional banking system. And most central bank digital currencies, or CBDCs, would, by their very nature, be issued and controlled by governments, and in many cases distributed through banks.
CBDCs have gained momentum over the past year as countries consider whether to roll out digital versions of their currencies to keep up with Facebook’s proposed Libra and China’s forthcoming digital currency electronic payment, which is already in testing.
Proteum is a global blockchain investment and advisory firm that works with public, private and start-up companies to help them transition into the world of blockchains and decentralized applications. We help companies strategically build their ecosystem and unique capabilities so that they can own and control their future. Velocity, our innovation hub, invests in and accelerates the time to market for startups and emerging ideas.