[Jjinbit] "No Investment in Remote-First Companies"... Startup Industry Clash [OfficeShift] (30)

Startup Industry Sees Evaluations After Experiments Triggered by COVID
Higher Remote Work Ratio Than Large Corporations... Benefits Like Office Cost Savings
"Everyone Fully Switching to Remote? That's a Mistake," Altman's Remark

Editor's Note[Jjinbit] is short for 'Jung Hyunjin's Business Trend' and 'Real Business Trend,' a segment that showcases trends in the changing nature of work. The segment within Jjinbit called 'Office Shift' closely examines changes in offices triggered by the COVID-19 pandemic and aims to lay the groundwork for exploring answers to new work styles through experiments we have experienced together. It will be delivered to you every Saturday and Sunday morning. After 40 installments, it will also be available as a book.

"I do not invest in remote-first companies."

Keith Rabois, a U.S. venture capitalist and former vice president of PayPal and LinkedIn, explained his investment principle this way during a podcast appearance last April. This was not the first time he mentioned it. In May last year, he tweeted that he planned to fund IRL (in real life) startups, emphasizing that "ambitious people want to work IRL." This investment principle was formed after observing companies practicing remote work during the COVID-19 period.

Immediate rebuttals followed. Jeremy Stoppelman, CEO of Yelp, a leading U.S. restaurant search and review application founded in 2004 and listed in 2012, tagged Rabois's tweet and pointed out, "That's like funding a startup running Windows 95." He emphasized, "The traditional office work system has ended, and now is the time to fully embrace remote work." In June of that year, he changed Yelp's work system to remote-first.

Currently, nearly 5,000 Yelp employees worldwide work based on remote setups. For employees who want to come to the office, Yelp has set up offices in various locations, but due to very low usage rates, the spaces have been reduced. Just last year, Yelp closed three offices in the U.S.?New York, Chicago, and Washington?and will close offices in Phoenix, U.S., and Hamburg, Germany, early next month. Now, only one office remains in the U.S. The cost savings from this amount to up to $28 million (approximately 36 billion KRW) annually.

Is remote (work-from-home) work truly the right choice? This unresolved question after COVID-19 has led to divided opinions even among startups, the icons of innovation. The clash between Rabois and CEO Stoppelman is a representative example of the remote work debate currently unfolding in the industry. Although some startups practiced remote work based on technology even before COVID-19, after extensive experimentation during the pandemic, founders, employees, and venture capitalists (VCs) investing in startups have expressed a wide range of evaluations.

Will the experiment of remote work, which began with COVID-19, change the startup ecosystem by determining investment decisions based on work systems?

◆ Startups with High Remote Work Ratios... If They Grow

The proportion of startups and small businesses adopting remote work is significantly higher compared to large corporations. According to FlexIndex, a company evaluating workplace flexibility, a survey of over 3,800 global companies in Q2 this year showed that among companies with fewer than 500 employees, 63% allowed employees to fully choose their work location flexibly. In contrast, only 13% of companies with over 50,000 employees offered this. Larger companies tend to adopt hybrid work combining office attendance and remote work.

Looking at founding periods, companies established more recently tend to offer more flexible work locations. FlexIndex's Q1 data shows that companies founded after 2000 provided workplace flexibility at rates between 71% and 88%, while those founded between 1980 and 2000 were in the 50% range. This means there is a 20-30 percentage point gap in the proportion of companies saying "it doesn't matter where you work" depending on the founding period.

The startup industry has led the remote work trend. Since startups are new ventures with innovative technologies or ideas, they are relatively open to adopting remote work compared to large corporations. They are more interested in new technologies, have fewer employees than large companies, and have flexible and agile work cultures, making it easier to implement new work systems.

Working remotely also offers a comparative advantage in securing global talent. For startups that need "one person to do the work of a hundred," simply being able to attract creative talent through remote work provides tremendous competitiveness. The high proportion of employees in their 20s and 30s who value work-life balance (WLB) is another factor encouraging adoption.

Above all, what tempts startups into remote work is office rent. The cost-saving effect is a strong incentive to accept remote work. Startups, which generally have less capital, are naturally more sensitive to costs than large corporations. Considering that most startup support programs include office support, it is easy to understand how important reducing office costs is for startups.

Nick Bloom, a Stanford University professor who has analyzed remote work trends for nearly 20 years, said, "Younger companies have more work-from-home (WFH) cases. Many startups are fully remote," evaluating that startups are "the key players raising the proportion of WFH companies." He also predicted, "Current startups will grow into future large companies that spread this WFH adoption trend along with economic growth."

Considering that big tech companies started as startups and now exert enormous influence on the global economy, the culture of remote work actively adopted and experienced by startups could also change the future global economy.

◆ "Remote Work Won't Become the Default"... "Ultimately, Numbers Matter"

In this context, how do statements from investors such as well-capitalized VCs affect startup founders? Since investors like Rabois say they will examine work systems when investing, evaluations within the industry inevitably influence the startup ecosystem. Investors are those who prioritize a company's productivity and efficiency?in short, the "numbers."

Recently, two famous Silicon Valley figures made notable remarks about remote work. Paul Graham, founder of Y Combinator (YC), a globally recognized accelerator and venture investor, and Sam Altman, who succeeded Graham as YC CEO and currently serves as CEO of OpenAI, the developer of the generative AI ChatGPT, are individuals who have observed and evaluated technological changes faster and more closely than anyone else.

On the 11th (local time), Graham tweeted, "I talked with several founders trying to change their minds about remote work and bring employees back to the office," sharing his views.

"I doubt we can fully return to pre-COVID-19 work styles, but I think a significant part will return. Why did all these smart people make the foolish decision to change the work system they had adopted? I think if the company's face-to-face work system was healthy from the start, partial WFH initially worked. Also, this partially solved the persistent problem of talent acquisition. Remote-first companies will not become the default."

Sam Altman, CEO of OpenAI [Photo by Reuters]

Altman also made similar remarks last month at an event hosted by a fintech company.

"One of the worst mistakes the tech industry made for a long time was thinking everyone could switch to fully remote work forever. They thought there would be no productivity loss. Now, the experiment is over, and the technology is not yet sufficient for people to work fully remote forever?especially startups."

These remarks seem to declare the defeat of remote work. However, both added that remote-first companies, which existed even before COVID-19, will continue to exist. Graham said, "Remote-first systems work in some businesses. Some jobs, like customer-facing services, can be done remotely." Altman said, "It works in some cases. Some of our outstanding employees work remotely, and we will always support that."

They believed remote work will not disappear but acknowledged that business or job characteristics impose some limits on universal application.

The situation is no different in Korea. A representative from a Korean accelerator company explained, "We don't say we prefer face-to-face work over remote work. It doesn't affect investment decisions." However, he added, "When talking with invested companies, if their numbers (sales, net profit, etc.) drop or they face internal difficulties, they sometimes say that coming to the office rather than working from home seems to improve productivity." Still, he said, "We don't say anything about companies that maintain good productivity even with remote work. Ultimately, numbers matter."