Remote Work Has Become the Norm, but Investors Still Want Their Startups to Have an Office

Ben Bergman

Ben Bergman is the newsroom's senior finance reporter. Previously he was a senior business reporter and host at KPCC, a senior producer at Gimlet Media, a producer at NPR's Morning Edition, and produced two investigative documentaries for KCET. He has been a frequent on-air contributor to business coverage on NPR and Marketplace and has written for The New York Times and Columbia Journalism Review. Ben was a 2017-2018 Knight-Bagehot Fellow in Economic and Business Journalism at Columbia Business School. In his free time, he enjoys skiing, playing poker, and cheering on The Seattle Seahawks.

Remote Work Has Become the Norm, but Investors Still Want Their Startups to Have an Office

Fresh off raising a $7 million seed round in February, Jill Wilson took the first step any founder traditionally takes when launching a new startup: She called up a real estate broker and leased an office.

"I would not have ever considered a remote workplace before," said Wilson, co-founder and CEO of mobile game maker Robin Games. "I was very squarely in the camp that you need to be in the same room to create a great creative product."


Less than a month later, the coronavirus sent Wilson and her team home, where they have been working ever since. Some employees left Los Angeles to be closer to family and live in cheaper cities like Atlanta and New Mexico. "I will never require people who moved away to come back," Wilson said.

Despite being scattered across the country instead of shoulder-to-shoulder in the office they rented on Abbot Kinney, Wilson has been surprised how productive her team has been. "I've done a shocking 180 on this," said Wilson. "I'm a convert to a distributed workforce."

Wilson says it is a big advantage to be able to recruit from a vastly bigger pool of candidates, not just those in Los Angeles or willing to move here. And she says her employees are much happier now that they don't waste time sitting in traffic commuting to Venice, California. "I think that's one of the reasons my team is so efficient, because they can literally roll out of bed and start working," she said.

Startups' early days are usually defined by young and over-caffeinated engineers huddled around monitors, not Zoom meetings and virtual happy hours. Apple, Hewlett-Packard and Google were all famously started in garages. A newer generation of startups launched in co-working spaces, but proximity has always been seen as a crucial ingredient for building a young company.

"Investors have questioned how well a business can find its footing and grow — especially in its early days — without close, personal collaboration among employees," wrote Paul Condra, a lead analyst at Pitchbook, in a research note. "Similarly, as organizations scale, the distributed model is often viewed as an impediment to that growth, which has made it harder for companies using it to raise money. For venture investors, the ability to see a company's physical offices, meet the team and witness first-hand the central hive of day-to-day activity is a key part of regular due diligence."

Nearly all office workers have been forced to work remotely since mid-March, but the transition for young startups has arguably been among the hardest. Whenever the day comes when employees feel safe enough to return, investors interviewed by dot.LA say they still prefer to back companies that have an office.

"You just can't achieve the same level of productivity if everyone remains totally remote," said Mark Suster, founding partner of Upfront Ventures. "When we return to some sort of new normal, whatever that normal is, people are still going to need to congregate in close proximity with each other."

"I'm still of the old school that I like to see a team in the same place to the extent possible. So I'm looking forward to the day when a team can be in the same place," said Eric Manlunas, founder and managing partner of Wavemaker Partners. "There's a lot of positives that come out of that."

When the UK-based startup network Founders Forum interviewed hundreds of founders recently, 63% said what they missed most about the office was spontaneous conversation and collaboration.

Investors agreed that the younger a startup, the more crucial it is for employees to be together. It also is much more important for a founding team who has not worked with each other before to be together. "You need that connective tissue in the early days," said Sanjay Reddy, co-founding partner of Unlock Venture Partners.

However, just because offices are still important does not mean that things will ever go back to the way they were before the pandemic. "I do believe the genie is out of the bottle," said Reddy. "I don't think we're going back to the office full time ever again."

Nearly half of organizations with office space say they expect to reduce their physical office footprint as a result of the coronavirus, and more than 20% expect to reduce it by more than 25%, according to S&P GLOBAL. The new normal for startups will likely include a degree of remote work and more openness to hiring employees who don't want to live in high-priced cities.

"I don't think any company is fully ready to embrace fully remote yet because so much is unknown," said Matt Hoffman, a partner and head of talent at M13. "But we see companies that were very reticent to have anyone work remotely, and now they're taking some steps to see what works well. No one should go from zero to 60 overnight."

Condra, the Pitchbook analyst who studies workplace trends, says the real test of remote work will be when it is viewed not as an accommodation, but as a benefit. He is curious to see if a venture fund will specifically target fully remote companies because they view them as a competitive advantage, but he has not seen any doing that yet. It seems that for all the reasons workers do not miss offices: traffic clogged commutes, annoying co-workers, sad desk lunches – most companies still view the benefits of offices outweighing their cost.

"Is there a tipping point where a company comes along and says, 'We can do better if we're distributed than we can do in an office'?" asked Condra. "Once that is proven, the model will become mainstream."

The list of successful fully remote startups is a short one. But Gitlab, which is valued at $2.75 billion and employs 1,200 people in 67 countries, all of whom are remote, is invariably at its top. Whether the company is a one-off, largely because of the remote-friendly nature of its business – providing software for developers – remains to be seen.

"A lot of people like going into the office to focus on work," said Hoffman. "I don't think that will ever go away."

Even Wilson is not ready to go fully remote. She is keeping Robin Games' Venice office in the hope that some of her team can eventually return there for meetings and brainstorming sessions. Even though she is allowing employees to work from anywhere indefinitely, she sees a symbolic importance to maintaining a physical headquarters with her company's logo on the front door.

"It's nice to have roots," she said. "We want to have a base for our company."

https://twitter.com/thebenbergman
ben@dot.la

Subscribe to our newsletter to catch every headline.

This Week in ‘Raises’: Measurabl Snags $93M, Selva Ventures Grabs $34M

Decerry Donato

Decerry Donato is a reporter at dot.LA. Prior to that, she was an editorial fellow at the company. Decerry received her bachelor's degree in literary journalism from the University of California, Irvine. She continues to write stories to inform the community about issues or events that take place in the L.A. area. On the weekends, she can be found hiking in the Angeles National forest or sifting through racks at your local thrift store.

Raises
Image by Joshua Letona

A local data management platform company lands fresh funding to help commercial real estate owners reduce carbon footprint, while one Los Angeles-based venture firm closes its second fund to accelerate the growth of emerging companies across health, wellness, beauty and personal care.

***

Read moreShow less

McKinsey & Company Launches InLA Accelerator To Help Underrepresented Founders Tackle Startup Challenges

Decerry Donato

Decerry Donato is a reporter at dot.LA. Prior to that, she was an editorial fellow at the company. Decerry received her bachelor's degree in literary journalism from the University of California, Irvine. She continues to write stories to inform the community about issues or events that take place in the L.A. area. On the weekends, she can be found hiking in the Angeles National forest or sifting through racks at your local thrift store.

McKinsey & Company Launches InLA Accelerator To Help Underrepresented Founders Tackle Startup Challenges
InLA

In 2022, female founders saw a 28% decline in overall U.S. funding, while Black-led startups saw a 38% decline in total capital received. In an effort to increase funding for minority-led startups, global venture firm McKinsey & Company is launching InLA, an accelerator program for underrepresented founders.

“This effort is something that the firm has been really excited about for a long time,” Engagement Manager Elkhyn Rivas Rodriguez said. “There's obviously a meaningful and growing startup community out here and just from a diversity standpoint, LA is incredibly diverse and multi-ethnic and multicultural. So we think that there will be a really great pool of potential companies to partner with.”

Read moreShow less

LA Tech ‘Moves’: CarbonCapture Taps Automotive Manufacturing Veteran

Decerry Donato

Decerry Donato is a reporter at dot.LA. Prior to that, she was an editorial fellow at the company. Decerry received her bachelor's degree in literary journalism from the University of California, Irvine. She continues to write stories to inform the community about issues or events that take place in the L.A. area. On the weekends, she can be found hiking in the Angeles National forest or sifting through racks at your local thrift store.

LA Tech ‘Moves’: CarbonCapture Taps Automotive Manufacturing Veteran
LA Tech ‘Moves’:

“Moves,” our roundup of job changes in L.A. tech, is presented by Interchange.LA, dot.LA's recruiting and career platform connecting Southern California's most exciting companies with top tech talent. Create a free Interchange.LA profile here—and if you're looking for ways to supercharge your recruiting efforts, find out more about Interchange.LA's white-glove recruiting service by emailing Sharmineh O’Farrill Lewis (sharmineh@dot.la). Please send job changes and personnel moves to moves@dot.la.

***

Read moreShow less
RELATEDEDITOR'S PICKS
LA TECH JOBS
interchangeLA
Trending