Trending Topics Live with Bogomil Balkansky: How are Silicon Valley and the US technology market currently doing

How is the current COVID-19 situation affecting Silicon Valley? How are VC and startups responding to the situation and what could Europe expect? We talked to Bogomil Balkansky to find out. 

Bogomil Balkansky, who has been living in Silicon Valley for over 20 years, is a well-known name in both the Bulgarian and American tech ecosystems. He was a part of Siebel Systems (acquired by Oracle) at the beginning of his career, then he became Senior Vice President at VMware, followed by a venture builder role at the startup, which was sold to Google for $397M. Consequently, he became a Vice President at the Internet giant, responsible for recruiting products. Over the years, the Stanford graduate has helped many Bulgarian companies set a foot in the Valley and connect to investors and clients. Since the beginning of the year, Bogomil is also a partner at Sequoia Capital, one of the oldest and most reputable VC firms in the US.

Trending Topics: How is Silicon Valley doing in times of quarantine? What has and what hasn’t changed?

Bogomil Balkansky: It’s fair to say that everything has changed, and I’d say on the grand scheme of things, Silicon Valley really has it easier than many other parts of the US and other businesses. Being so technology-centric, made the transition to a home office mode as seamless as it could possibly be. As usual, California took the lead on issuing regulations for people to stay home, and it was the first state to implement the measures. Luckily we had a less hit. So California is doing relatively better than the rest of the country. Having said that, we have to mention that this is all a change. 

For me personally conducting business in Zoom the whole day got old in two weeks, and I really yearn to see some faces.

How are startups and VCs reacting to all this?

I think the first order of business has really been to understand the situation and the implications. What we wrote in our memo, in the beginning, was nobody has ever regretted taking quick decisions in times of crisis. Our first role was to be shock absorbers. Bearing in mind that on our portfolio we have a lot of young founders and CEOs who don’t have experience with navigating crises before, we had to give emotional support. The second step was to assess their business position, the main focus was the cash position, cash burn, cash flow and how much runway they have. Of course, different companies are in vastly different situations. Some were directly impacted e.g. Airbnb, Eventbrite, etc. We also have few portfolio companies that are helping other businesses go through the crisis and they’ve experienced increasing activity. Zoom is a great example and it’s fair to say that it has recently become the new operating system of the world, not only of businesses. Another company in this category is Instashop – when people cannot go grocery shopping, they are ordering it from them. What is common is that everybody had to systematically go through their businesses, examine cash flow and try to either extend runaway for at least 24 months or plan properly for the increased demand they need to serve. 

So what about your portfolio? We are used to looking up to Silicon Valley and expect the trends to have a spill-over effect on the rest of the tech world later on. What’s going on there – has everything slow down, what about fundraising and valuations?

I think there are quite a few studies that already came out attesting to the fact that both companies and VCs expect valuations to come down. Based on our experience from previous crises this doesn’t usually happen that quickly – it takes a few quarters for the market to adjust. It’s fair to expect that there will be a decrease in valuations in the next quarters. In every situation like that there’s a flag of quality – the bar is being raised for the types of metrics the companies need to prove in order to be able to raise money. In the past few weeks, we saw quite a few announcements of strong companies that managed to raise significant rounds. An example from our portfolio is Stripe and its $600M round. 

Companies with less strong customer traction will find it challenging. 

I’d say the climate overall is sober, that would be my best characterization. There were some elements of panic in the first weeks. In Sequoia we saw an increase in inbound deals, all of our entrepreneurs basically had a moment of awakening and decided to raise money NOW, so we saw inbound deals. This settled down a little bit already. A lot of companies have implemented various measures, but I think the question on everyone’s mind is how long will the stay-home order last and what comes after this: Will there be a recession, how long will it be, will the economy be able to snap back quickly. Quite honestly, at this point there are only speculations, I don’t think anyone has a crystal ball. In any case, the most reasonable response for companies is to prepare for a recession for the next couple of quarters. 

Can you compare this crisis to any other you’ve witnessed throughout your career? 

History repeats itself but not in the same way. I’ve personally experienced two previous crises in the US. In the tech recession around the bubble burst in the early 2000s, I was personally impacted as I was working in a tech startup that closed doors 18 months after I started working there. I was unemployed for several months. This time it’s different because in 2001 and 2008 it was tough economic times, but no people’s lives were at risk. For the first time, we have a worldwide health crisis, and it will have a deep impact on the global economy. 

There are examples for companies incl. Airbnb and Uber, that were started in times of crisis. Do you think it’s a good time to start a business right now?

This is something that we at Sequoia are very couscous about. Creativity loves constraints, and I think a lot of business ideas are generated out of necessity and a lot of great companies are started during or from the tail of the crisis. There are many great examples. There are also examples like Google and PayPal that weren’t started during the recession, but managed to soldier on quite successfully. In 2008 we saw the birth of giant companies like Airbnb, Stripe and Uber. It’s reasonable to expect that as we speak, very interesting businesses are being started that will be household names in ten years from now.  We are on the lookout for interesting new opportunities. 

Has your investment strategy changed in a way and what’s your selection process now – how do you pick which founders to meet and which not to?

Our fundamental strategy hasn’t really changed. We are always looking for great teams and daring entrepreneurs, great markets, etc. One of my business professors in Standford told me ones and it stuck with me: It’s a way better to be a mediocre company in a great market than to be an excellent company in a mediocre market. We are always looking at the trends – technological, demographical, etc. – is there something that will help this company right now. This hasn’t changed. 

What is going to change, however, once we come out on the other end, is that it’s unlikely that the world will come back to what it was. The crisis will give birth or accelerate certain trends – telemedicine is one example. Also – since we are all now conducting business over conf calls, it winds the questions – will it really a necessity to get on an airplane for client meetings once we go back to the offices. We are trying to systematically look at the changes that are catalyzed or born in the crisis. 

And what about markets from a geographical perspective? The US is the market most of the European founders are aiming at?

I think the US will continue to be the most significant technology market in the foreseeable future. Obviously China is rising and this will continue. However, from the standpoint of European entrepreneurs, China is hard to crack for many cultural and other reasons. The Chinese market is giving birth to local champions, although they are not so successful in echoing global players. At the same time, we could say the EU and the US, in a way represent a single market. I do believe that for European founders the US will stay the most significant market. I’ve said that many times, but for Bulgarian founders, the change to build a successful company goes through the US. Despite the EU, the European market is still culturally fragmented, and it’s way easier to establish a business in a single market like the US. That’s why we see so many companies that have been founded in Europe, and have their R&D centers there, but establish strong commercial operations in the US at some point. This will not change. 

What will change is another trend, that hasn’t started during the recession, but is accelerated now. A lot of R&D is happening outside Silicon Valley and many companies are finding talent anywhere in the world. This whole wave of all remote and distributed companies is only gathering steam, and I do anticipate that this is one of the trends that will continue.

We’ve had this discussion before. Is this really an opportunity for smaller economies – to be the R&D center for companies who are generating value somewhere else?

Before you run, you need to crawl and walk. I hope at some point companies born in Bulgaria and Europe will be able to bring as much as the value chain to the home country. But having at least the R&D part of the value chain in a place like Bulgaria is a great first step. In Bulgaria, software development is already 5% of the GDP and it’s a significant economic factor, I think it will continue to grow and being a bright spot for the economy, it will have an important role in the long run. 

How can we better position Bulgaria and the region in the US?

Bulgaria has already made a name for itself as an offshore destination. Many companies are with a positive experience from there. When it comes to Bulgaria as a tech destination, this is 50% of our task at the Bulgaria Innovation Hub in San Francisco. The other 50% is to help Bulgarian startups get their feet on the ground here in the US. 

What is the key mindset that may help founders go through the storm?

That’s a very important question indeed. I think the first thing founders need to do is take care of themselves – healthwise, psychologically, and emotionally. If they don’t help themselves, they are in no position to help their companies. The first order of crisis is self-care. This could be a bit counterintuitive to entrepreneurs because they are typically action-oriented and externally oriented, but this now is an opportunity to step back and help themselves first.

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