VCs want to fund in-office startups over remote companies

Remote work has taken over startup culture in the last two years. But some investors now say they specifically want to fund “IRL startups.”

Not all have been as brash as Elon Musk, who told Tesla employees last week that remote work was “no longer acceptable” (and later said he’d be laying off 10% of his salaried workforce). But Musk’s jeer that employees who don’t like the policy should “pretend to work somewhere else” seems to have tapped into a brewing disillusionment with remote work on the part of some vocal VCs.

“[Tech workers] aren’t storming the beaches of Normandy nor climbing out of coal mines,” Lux Capital co-founder Josh Wolfe told me in a Twitter DM last week. “They’re asked to suffer the inconvenience of showing up into fancy modern offices to be with their teammates.”

Wolfe, whose firm invests in companies developing emerging technologies, said that top talent should expect flexibility when it comes to time off, parental leave and “family or health needs,” but “will also show up and build camaraderie” rather than working remotely indefinitely.

“There’s been a wave of entitlement attitude slowly crashing ashore,” Wolfe said. “There is a reason people talk about fair-weather, fickle or checked-out colleagues as ‘phoning it in’ — long before Zoom.”

Tech workers have reason to feel entitled. Most are still enjoying a candidate’s job market that has put pressure on companies to offer flexible work. But more high-profile VCs showing interest in IRL companies could give startups one more reason to work face to face.

Why some VCs prefer IRL

Some investors are going so far as to announce their interest in investing in companies with an in-office culture. Founders Fund partner Keith Rabois tweeted last month that he was “looking to fund IRL startups.” When I followed up with him later, Rabois told me in a DM that he is “only investing in startups that are primarily IRL.” Apparently, startups with remote-first cultures need not apply.

Wolfe tweeted last week that Musk’s in-office requirement was “another example where I strongly agree with @elonmusk.” Wolfe cited that a recession will require in-person communication to show “commitment + companionship + compassion.”

Wolfe hasn’t yet been deterred from investing in a company because of its remote-first culture, he told me, but he reiterated that “tougher teams together will outcompete” others in a down market.

A SaaS investor from a leading VC firm — speaking on the condition of anonymity because they aren’t authorized to speak to the press — admitted a “strong preference” for founders who promote an in-office culture. In-office cultures can move a company through its early stages faster, and early-stage ideating is “very, very hard” to do remotely, that investor has found.

But, that investor said, once a startup has customers and starts to build out an executive team, things tend to get more flexible by necessity, with some startups allowing hybrid schedules and opening up additional offices in other cities. That stage typically comes when the startup has matured to the point where it makes decisions without needing to involve the whole team in real time.

“If things are more defined, I do think in general, founders and employees can be incredibly productive remote-first. There’s huge, huge benefits,” the SaaS investor said. But when companies are still ideating, “hopping in a room to have a conversation makes a big difference, as opposed to timing a Zoom. Grabbing that extra five minutes between meetings makes a big difference.”

Recruiting is already a huge challenge, and many companies simply can’t afford to limit their options by imposing an in-office policy. (For this reason, recruiters have a strong preference for flexible work policies because they make the widest possible pool of candidates available, the SaaS investor said.)

When I posed this to Rabois, though, he wasn’t swayed.

“LOL. I wouldn’t hire any of those people,” Rabois said. “The ambitious people want to work IRL.”

Who really wants to work IRL?

One IRL startup, the compensation-benchmarking software maker Pave, has so far only hired in San Francisco and New York, where it has offices.

“We’re very much in the minority” when it comes to being office-centric, Pave’s founder and CEO, Matt Schulman, told me last month. “It’s a huge selling point when we recruit candidates, actually.”

Companies that start remotely seem to have particular challenges transitioning to the office, Schulman said, because some employees won’t want to go to IRL.

By contrast, Pave has found success with an in-office culture because it’s “so explicit and proactive” in communicating it to candidates from the beginning, Schulman said. That can be a selling point when candidates visit the office and “walk in and hear the laughter, hear the [sales] gong ringing,” according to Schulman.

And during COVID-19 spikes, when Pave would temporarily go remote, Schulman said employees felt isolated, morale dropped and “velocity on the product road map slowed down.”

“It just wasn’t as vibrant of a company culture because our thesis is all geared around camaraderie and in-person collaboration and creativity,” Schulman said. “When you removed the office, the ability to be in person, it made it really tough.”

Is IRL-only old-school thinking?

Rabois’ tweet attracted criticism from Yelp co-founder and CEO Jeremy Stoppelman, who posted that wanting to fund in-person startups was “equivalent to ‘looking to fund startups running Windows95.’”

“Time to live in the future and fully embrace remote [work],” Stoppelman tweeted. “Open source communities have built amazing and complex things entirely remote for decades.”

“Not a single $10b company was built this way,” Rabois fired back. But not all VCs feel so strongly oppositional toward remote work; remote-first startups will find “plenty of other investors” willing to bet on them, he said.

The SaaS investor I spoke with agreed. Most VCs are “completely indifferent” to whether a startup is working remotely or in person, they said.

As the market turns, some VCs are even recommending remote-first as a cost-cutting measure. In a blog post on Monday, Kat Steinmetz, a principal and talent adviser at Initialized Capital, suggested that companies “make everything virtual for now” — including subletting their office if they can’t get out of the lease — in order to save money.

When Initialized surveyed its own portfolio companies six months ago, it found that the share of fully distributed startups in its portfolio had more than doubled during the pandemic, with 42% saying they would be all remote. Of the Initialized-backed startups with offices, only around 15% said they’d expect employees to come in four or five days a week.

Remote work still dominates — but things could shift

Ultimately, founders drive culture, whether it’s office-based, remote-first or somewhere in between. Most aren’t dogmatic about their strategy here. The SaaS investor estimated that around 80% of founders are open to changing their remote or in-office strategy based on where the market goes and what allows them to execute.

“They basically want remote-first so that they have better recruiting options and satisfy some employee needs, mostly driven by the FAANG companies,” that investor said. “If everyone suddenly said, ‘You know what? This remote-first thing sucks. Everyone’s going in person,’ they’ll gravitate that way.”