It was one of the most tumultuous years the country and the world have ever seen. And yet, as we reported on GeekWire last week, venture capital investments in the United States broke another record in 2020, topping $ 150 billion for the first time, according to Pitchbook and the National Venture Capital Association.
In Seattle and across the Pacific Northwest, funding totals came in at $ 4.4 billion, up 15% year-over-year, according to GeekWire’s tally, derived from our running list of startup investments.
What in the heck is going on? My colleague, GeekWire co-founder John Cook, put that question to Mike Davidson, a Seattle-based tech and media veteran who was Twitter’s vice president of design from 2012 to 2016, during the recording of our most recent GeekWire podcast episode. This portion of the conversation didn’t make the final cut, but we found the analysis illuminating, so we’re presenting it here as a bonus episode.
Listen below, subscribe to GeekWire in any podcast app, and continue reading for edited highlights.
John Cook: One of the stories in the news for us this week was the venture capital numbers came out. Mike, with you having been a former entrepreneur who’s raised venture capital money, and I know you keep a close eye on what’s happening in the startup market, the numbers were outrageously big.
I think this is surprising to a lot of people, based on the fact that we’re in a pandemic, we’ve got an economic recession, we seem to be tearing each other apart. And yet, boy, the startup and innovation market and the stock market for that matter, is just hummin ‘like never before. Can you provide any sort of thoughts or analysis on why you think that is?
Mike Davidson: Yeah, venture capital loves destruction.
JC: It’s true.
Davidson: They do. VCs like to always say that they’re about improving the world. And in many cases they are, but really where they make money is where there’s destruction, where old things are starting to crumble and new things replace them. That’s where there’s money to be made. I think what we’ve seen over the last several weeks, but even over the last few years, and especially the last year with a pandemic, we’ve seen a lot of old systems that have been around too long, that are starting to crumble and be replaced by new things.
Telehealth is a perfect example of that. We have been able to do telehealth for so long, we’ve been able to do telehealth for a lot longer than we’ve been able to do telework. Telework, you need really high performing video streaming. Telehealth is like, hey, just send me an email and attach a shot of the spot you have on your skin. And I’ll tell you what it is.
JC: To that point, Mike, you know, going through our story that Taylor Soper, our managing editor at GeekWire wrote, he actually listed the top 10 startups that raised money in the fourth quarter. And number two was, guess what, Virtual primary care startup 98.6 raises $ 118 million as pandemic sparks demand for digital health tech.
Davidson: There you go.
JC: So right here in our backyard in Seattle, $ 118 million is nothing to shake a stick at. That’s a lot of funding going into that concept.
Davidson: Absolutely. And they’re doing a great job. They’re a late-stage startup. There’s much earlier-stage startups, too, that are only 5-10 people that are working on this problem. Everything all the way up to Amazon. Amazon Care, is also trying to solve some of this problem, as well. Say what you want about Amazon, they are really good at squeezing every last penny out of the supply chain. And sometimes this is bad. You don’t really like the idea of a person making handmade goods, squeezing their margin down to like a penny or whatever. But for health-related stuff. Yeah, let’s squeeze all of the money out of the health insurance industry, like the health insurance industry should not exist at all, in my in my opinion.
So if Amazon is able to help us get to a world in which we are paying reasonable amounts for health care, we are cutting out as much waste, frankly, out of the system, and politics of the system as possible, and that’s a good thing. I have a doctor friend, he’s a cardiologist. He told me they’ve wanted to do telehealth for 10 years, at least. And the answer has always been no. And then, as soon as the pandemic happened, it was like, we’re starting on Monday. Telehealth appointments start on Monday. It just proves, it was a decision that somebody didn’t want to make before. And now because of the pandemic, it’s forced us to make different decisions. And so VCs love that sort of atmosphere.
JC: I’ve heard a lot of different theories on why we’re seeing this influx of capital. But that’s a really good description on on the destruction that’s happening and why it’s creating new opportunities.
Davidson: There’s also plenty of other reasons. There’s nowhere else to put your money, for one. People that are used to investing in bonds and yielding 5% are now faced with 1% yields, and so they’re like, ‘Well, I’m not earning anything there.’ And you don’t earn anything on your cash, either. So it’s like, ‘Hey, why don’t I just throw some money in venture capital, because the returns there are obviously less reliable, but the ceiling is a lot higher, so to speak.’
JC: I know you lived, as we did, through the dot-com boom-and-bust periods. Do you worry that things are just absolutely too red hot and overinflated, that this is gonna go a different direction?
Davidson: That’s not really what I worry about. I think there will always be boom-and-bust cycles. So the only question is, how long will this remain a boom? We are already past when the cycles generally turn south. So I’m just worried about just the cyclical nature of the economy. I am worried about when it does turn down, but I think the reason it’s going to turn down is not necessarily because there’s too much money flowing into venture capital.
I think our real existential problem in this country is, we’ve got a lot of people in this country who are going to need jobs over the next, 5, 10, 20 years. People who grew up thinking that they could have a career in manufacturing or a career in an industry that has left them kind of high and dry. A lot of the sentiment that you see around middle America is due to that, is due to the fact that, hey, the opportunity for us here doesn’t seem to be as high as it is for people on the coast who are working in tech.
JC: But Mike, everybody’s leaving Silicon Valley and moving to Austin, apparently.
Davidson: I’m not gonna worry about those people. That’s actually a good thing, like all of the tech sort of like spreading out to other areas. That’s fine. I’m worried about, if I don’t want to get into tech, and I want to be able to feed my family, what can I do?
I look at things like solar panels. If we wanted to have a federally funded solar panel program, we could have solar panels on every single roof in this country in 10 years, every single one. And those panels don’t get up there by themselves. They take people climbing up on the roofs, screwing the panels in, installing them. That is exactly the sort of work that a lot of people in America are qualified to do. It’s not high-tech work. It’s good, honest work. It’s good for the environment, it’s good for the country, it’s good for everything. These are the sorts of things you can do if you’re willing to go big on federal programs. And I think that’s what we’re going to see in the next several years of the Biden administration.
Follow Mike Davidson on Twitter @MikeIndustries. You can also read and listen here to our full conversation about social media and politics. Podcast produced and edited by Curt Milton. Theme music by Daniel LK Caldwell.