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In the months (years, even) leading up to the COVID-19 crisis, I saw many investment opportunities that left me feeling skeptical. Their valuations were high. There was overly optimistic thinking surrounding their potential.
It reminded me of Warren Buffett's adage of "be fearful when others are greedy, and greedy when others are fearful."
What I see today is much better: Many high-quality startups available at highly attractive valuations. In other words, it's an excellent time to be greedy as others are fearful.
History supports the timing. During the last market downturn - the Great Recession - some of the greatest tech startups of the generation began... Uber Technologies Inc. (NYSE: UBER), valued at $5.4 million in 2010, now with a $58 billion market cap... Instagram, acquired by Facebook for $1 billion in 2012 and now valued at $100+ billion... WhatsApp, valued at $1.5 billion by 2013 and then acquired by Facebook for $19 billion just one year later... and many others.
And those who invested as early as 2008 and 2009 had the benefit of investing at a much lower valuation than those who invested before and after the Great Recession.
Before we dive in, there's one more key step. In order to maximize our returns, it's important to examine the trends that defined Q2 2020 (April through June), the first full quarter during COVID-19. We need to determine what shifts in consumer (or business) preference will be short term vs. long term in nature - which trends will persist as we adjust to a new COVID-affected life, and which may reverse.
Trend No. 1: Commercial Office Space and Real Estate
Few asset classes have taken a harder hit this year than commercial office space. With quarantine in effect, companies large and small closed down their offices, and many were prohibited from visiting their office spaces by state or local governments.
To make matters worse, work-from-home technology companies such as Zoom Video Communications Inc. (NASDAQ: ZM), which has been up almost 400% this year, have shown businesses that you no longer have to take every meeting in person in order to be effective.
In fact, many have come to realize that Zoom calls can be even better than in-person meetings as you get to avoid the commute and still have a similar personal experience.
There's no doubt that in-person meetings are still necessary in order to close large pieces of business (although several large deals have been closed during COVID-19 without in-person meetings).
Still, it seems that commercial office space has gone from essential to nonessential for companies, with most firms discussing smaller permanent workspaces moving forward.
My verdict: Pass.
Trend No. 2: Restaurants and Food Industry
The most talked-about vertical affected by COVID-19 is the food and restaurant industry. This industry has generated a grassroots campaign in cities like New York, with the #takeoutNYC hashtag used by consumers in order to try and help keep restaurants afloat.
Despite this support, restaurants are still businesses at their core, and they have to subscribe to the same law:
Profit = [Number of orders] * [Profit/order] - [Costs]
With less space open for dining, restaurants will have to evolve into the online ordering business, a feat that is difficult for many incumbent restaurants due to the high cost and complicated logistics.
However, there is one such vertical that is benefitting greatly from COVID-19: The ghost kitchen industry. Ghost kitchens are restaurants that are made exclusively for online ordering and do not have traditional restaurant offerings such as tables, waiters, or a storefront.
The most famous ghost kitchen startup is CloudKitchens, which was started last year by former Uber Founder/CEO Travis Kalanick.
My verdict: A split on this one - buy Ghost Kitchens, Sell Traditional Restaurants.
Trend No. 3: "Tele-Anything"
With many basic businesses closed, including what many would deem as essential (doctor visits, dentist visits, etc.), telemedicine - and, really, tele-anything - has experienced a significant boom.
As I mentioned earlier, Zoom Video Communications has experienced over a 400% return in less than six months. Anything that helps people do things via phone or computer that used to be done primarily in person will continue to boom.
The obvious reason for this is that people don't want to contract the COVID-19 virus, and in a mature economy like the United States, consumers are willing to pay in order to reduce the risk of infection.
Like Zoom Video Communications, I hypothesize that many of the tele-services that consumers are subscribing to during the pandemic will continue to persist post-pandemic, as they are simply easier, more efficient, and oftentimes cheaper.
My verdict: Buy.
Whatever verticals you choose to invest into, the key is to continue investing, diversifying, and staying the course. In angel investing, as with most things in life, patience and perseverance are rewarded greatly in the long term.
Catch all of David's articles for free right here, at The Startup Investor, where he joins startup expert Neil Patel each week to show you how to successfully enter the world of angel investing.