What the post-coronavirus dealmaking world looks like

Tech is hyping remote work too much, says Index Ventures partner Sarah Cannon

The work-from-home economy is booming. Companies like Facebook, Twitter, and Shopify say that some employees can work at home permanently even after the pandemic passes. 

But, says Sarah Cannon, a partner at Index Ventures, much of the decentralized workforce talk will be headiness.

“I think [work from home] is getting overhyped at the moment. The reality is, we can do this for some period of time, but fundamentally, I think people like to work with other people,” she told me. “I think we will go back to 80% of what our behavior was before.”

Cannon, known for her focus on productivity and the future of work, was a board observer at Slack and invested in note-taking and organization startup Notion. She spent her last financial crisis as part of the National Economic Council, which helped coordinate recovery policy across government agencies.

That experience led to a macro mindset of investing for her. Below is our conversation, lightly edited for clarity and length.

Term Sheet will be back on Tuesday—happy Memorial Day weekend.

You worked on economic policy during the financial crisis under President Barack Obama and National Economic Council Director Larry Summers. Tell me about your time there.

I was an intern about 10 years ago during Obama’s first term. I was going to go to graduate school, but then picked a fight with Larry [Summers] and said: “We’re not doing enough for poor people in the recession.” He and I had a whole discussion about how the right thing to do was to grow the economy and how that will help individuals. And after that, Larry asked: “Who is that intern who challenged me?” 

He ended up hiring me, and I started working as a policy advisor with him on a whole series of issues. Obama at the time was quite upset that the veteran unemployment rate was higher than the civilian—which is not usually true. So I helped devise a tax credit to employers to help veterans get jobs, or the Hiring Our Heroes initiative. 

It’s interesting how it’s influenced me as an investor. I think my view tends to be very macro-oriented. In the case of Hiring Our Heroes, it was analyzing what’s going on in the labor markets, here’s the problem, why is it happening, and then what are the most influential policy levers to change that? [In investing], it’s what is the macro trend, is this a good business to be in, and who is the most original thinker?

You focus on the future of work and productivity. The coronavirus has put entire corporations online—how has the pandemic impacted your investing thesis?

My most broad framework is loneliness. Loneliness is a trend: I think people feel isolated and more people are living alone, and it’s not well addressed by [existing products]. The funny thing is, Facebook can make you feel more lonely, so I wonder if there is not a version that makes us feel belonging. 

So the thing I am most interested in right now is the future of communication for consumers. I was fortunate to be a board observer at Slack and thought a lot about it from the enterprise side of things. But on the consumer side, everyone said there was not going to be a new platform until AR or VR, so there’s been fewer consumer investments and opportunities. 

I think there is an opportunity now for a platform that is audio, video, messaging, maybe some combination of the three at once. I think there are a lot of new ways of communication—but I don’t think communication has been replicated in a way that’s natural. I’m in Notion right now, [you and I] are on Zoom, I’m sure my partners are Slacking me right now, and people are texting—it’s just a really broken consumer and enterprise experience and it’s not naturally how we want to communicate. 

I do think Discord is the closest thing to it—or WeChat. WeChat is a consolidated platform where I can chat with you, I can talk to my founders, and I can send payments.

What do you think of Clubhouse which has gained a lot of traction with the tech community?

I’m very intrigued by it. But if my thesis is [the communication winner] is not only audio, then I wouldn’t want to invest in an audio-only platform. I’m in thesis formation about it.

Workplace productivity is all the hype right now, in this work-from-home economy.

I think [work from home] is getting overhyped at the moment. The reality is, we can do this for some period of time, but fundamentally, I think people like to work with other people. I think we will go back to 80% of what our behavior was before—so If I went to four board meetings a year for my Berlin-based portfolio company, Pitch, I’ll go to about three because fundamentally my relationship with my team matters that I am there. 

We’ll see—but I think there will be a consolidation of a few tools. I was like, I think it is going to be Zoom, and Slack, and Notion, and I think it may be Airtable. Talk about the Balkanization of  productivity tools—you could spend days interviewing the founders of productivity companies, and they all sound the same. So at the end of this, there are going to be a few that we choose to use. 

So I think we’ll see more consolidation, and we’ll see market leaders being revealed.

Do you expect more startups to turn to M&A, rather than IPOs?

Across all sectors, I’m not sure you’re going to see a lot more people going public except for maybe people who need to go public. And for those that can’t, I think we’ll definitely see more consolidation because this oversupply of capital has created tons of similar companies. We’re always like: Wait, we just saw six of you.

In the future of work—it’s interesting. The natural acquirers would be Microsoft, Adobe, Atlassian, Salesforce, and Google. But because private companies have been so attractive recently, their valuations have been very high and are expensive acquisition targets. I think you’ll see a lot of activity at the seed or Series A—but again, they’re expensive. I wouldn’t be surprised if Microsoft, Adobe, Atlassian, Salesforce, and Google are more active, but the prices are unattractive. 

Last year there was a lot of attention around direct listings. Slack, where you are a board observer, was the second company to take that route. Do you think direct listings will be less in vogue during the coronavirus?

It was very bold of Spotify and Slack to pursue that path and I absolutely think founders should have alternatives. But times of uncertainty, I think there is less experimentation—especially in a time when there is so much market volatility. The SEC has been actively looking at ways for [direct listings] to raise primary as well. But if I were in my economic seat right now, I would say it’s not a priority.

Lucinda Shen
Twitter: @shenlucinda
Email: lucinda.shen@fortune.com