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Protocol Index: Startups better watch out for sharks


Good morning, and welcome to Protocol Index, your daily pop-up report about the financial movements that matter to tech during the COVID-19 crisis. Want Index in your inbox each morning? Subscribe here.

Today: Conditions look great for sharks to start sniffing at startups, banks take a look at what's happening to IT spending, and some advice for venture backed companies looking to apply for the paycheck protection program.

What Matters Today

  • Around 5 p.m. PDT: Samsung will report its earnings guidance for the last quarter. Memory chip sales are expected to have risen from WFH-demand, but weak smartphone sales mean analysts expect its profit to remain the same as a year ago.
  • Coming up this week: Tomorrow, euro area ministers will (virtually) meet to discuss a stimulus package; on Wednesday, the Fed will release meeting minutes from its interest rate decision; Thursday is expected to bring more terrible unemployment data; and Friday sees the release of inflation numbers.

Layoff Watch

Today's News

As of 4 a.m. PDT: Nasdaq Futures: 3.76% | Euro 600: 2.96% | Nikkei: 4.24% | Hang Seng: 2.21%





A great time for sharks to come out to play

We've talked a lot about how this crash will affect startup fundraising, with a bunch of research and forecasts saying that it's not looking good. But what are things actually like on the ground? Spoiler: also not good.

Graham Gintz, a fundraising associate at Techstars' Social Impact program in Atlanta and founder of Knightley, told me that he's seeing angel investors fall into two camps.

  • "One side is completely business as usual," he said.
  • "The other side is: 'I had all my angel money tied up in the market and there's no way that I'm taking a loss to go place high risk bets.' So I think a large number of angels have benched themselves, some for a month, some for the rest of the year."

For those that are willing to fund, Gintz said the market's shifted in their favor.

  • "I think definitely investor-led terms is going to be the trend, and the number of companies that have really great leverage right now is really, really small," Gintz said.
  • That might bring out the worst in people. "I think it's gonna be really interesting to see across the industry as a whole how sharky investors want to get, because there's a lot of really good companies that are going to need capital — or die."

It's not all gloom though. Gintz said things might recover quicker than expected:

  • "California seems to be doing pretty okay [with the virus] … And because half the money in VC is coming from California, I think that [funding] may actually resume more quickly than one might expect."
  • For now, investors are branching out. Gintz said he'd spoken to one "well known fund" in New York, that typically only invests in the north-east because its thesis is "very relationship driven." Now, though, it's looking to expand to other regions: "It's effectively the same whether you're in the Lower East Side or down here in Atlanta."

Mostly, the mood seems to be one of figuring out how to survive.

  • "I've heard through other founders and other investors of board meetings where basically, the investors were like: 'Any acquisition offer you've ever gotten? Reach out,'" Gintz said.

Do you work at a startup trying to raise, or a fund figuring out what to do? Let me know what you're seeing:


  • "Video game publishers have fared relatively well amid a downturn for the broader markets." — Piper Sandler says its group of video game stocks has increased 1.6% this year, compared to an 18% drop in the Nasdaq. SuperData research suggests there's been an uptick in gaming demand.
  • "For startups that have seen drastic reductions in revenues, two months of payroll may not be able to provide the runway needed … the loans may simply prolong the inevitable when they will need to go back to investors to raise more capital." — PitchBook VC Analyst Kyle Stanford doesn't think loans can solve every problem.
  • "I urge everyone who is running a venture backed company with a lot of money in the bank and limited COVID-19 impact to think twice about applying for PPP." — Union Square Ventures' Albert Wenger thinks startups should let the money go to mom-and-pop businesses instead. Bedrock founder Geoff Lewis, meanwhile, thinks many startups might find themselves ineligible.
  • "The large U.S. technology companies, such as Alphabet and Facebook, are currently demonstrating that they can play a positive role … which could possibly lead to incremental leniency in the ongoing FTC and DOJ antitrust and privacy investigations." — Goldman Sachs, citing a recent call with Andrew Lipman, a partner at law firm Morgan Lewis.
  • "In this kind of environment, we have halted proactive investment. We also will not be providing needless support to our portfolio companies." — An anonymous SoftBank executive, speaking to the Financial Times.

Everyone's Talking About

What's happening to IT budgets

Towards the end of last week, banks spent a lot of time talking to people about IT spending budgets. Here's what they had to say.

Deutsche Bank:

  • "Across all of our checks ... we'd estimate that 80%+ have already begun to cut and/or begin evaluating what projects will be deferred."
  • "One sign that this pending IT spending downturn is worse than normal is the number of customers citing plans to negotiate price discounts (of perhaps 10%) from their technology vendors by accelerating contract renewals (and in return perhaps adding another year to deals)."
  • "Hardware refresh cycles are getting extended and … back-office (ERP, HR, Financials) IT projects are getting put on hold." Oracle, SAP, and Workday are being hit hard, Deutsche said.

Morgan Stanley:

  • Citing its flash survey in late March, the bank found "52% [of respondents] had cut IT budgets, by an average of 2.6% – with Professional Services hit hardest (down 4.8%), followed by Software (down 3.6%), then Hardware (down 2.8%)."
  • "Collaboration Software, VPN/Remote Access and Desktop Virtualization see positive spending impacts."


  • "We believe that enterprise hardware spend is falling … conversely, cloud demand (and the stress on cloud infrastructure) appears to only be increasing."
  • "We believe cloud adoption was already weighing considerably on spend for on-premise architecture before COVID-19 and that recent shifts may only accelerate enterprise's move towards the cloud."


  • "Anecdotally, many customers have begun re-evaluating 2020 IT and advertising budgets."
  • The bank looked at IT companies' performance in past recessions to spot some trends. "IT spending during the prior two recessionary periods, 2001 and 2007-2009, was more affected than other areas of the global economy," it wrote.
  • "The 2007-09 data suggest the back office suppliers (i.e., ERP/Financials and IT-centric companies) held up best during periods of economic distress." Human capital management software suppliers, however, didn't do great.

Closing Bell

Quibi's splashy entrance into a world in turmoil

Two things happened on September 15, 2008. One: The artist Damien Hirst sold over $200 million worth of art in the most expensive single-artist auction ever. Two: Lehman Brothers collapsed. Looking back, the two were obviously linked, and there was a certain poetry in such an obvious signifier of the boom's peak coming on the same day as the start of the bust.

Flash forward 12 years, and I have this pet theory that Quibi — which launched yesterday — is tech's version of the Damien Hirst auction. Here we are, with an app that's raised $1.8 billion based almost entirely on its founders' names which is getting reviews that are … middling at best? I think we could look back on this as another high-water mark of decadence and questionable decisions that marked the end of an era. Hirst's art is nicer to look at, though.

Thoughts/feedback/tips? Email me — — or anonymously contact Protocol. And subscribe to get Index in your inbox each morning. Thanks for reading, see you tomorrow.