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Protocol Index: Acquiring companies in lockdown times

Protocol Index

Good morning! This Tuesday, Sinch's CEO explains what it's like to spend $370 million on acquisitions during lockdown, the outlook for smaller tech hubs, and Jeffrey Katzenberg wants to blame COVID for Quibi's bad shows. Want Index in your inbox each morning? Subscribe here.

What Matters Today

  • 5:30 a.m. PDT: U.S. inflation data for April is expected to show a 0.8% month-on-month decline in prices. Pay particular attention to plunging electricity prices, which may give cloud providers a boost.
  • 11 p.m. PDT: Sony's earnings will show if it's seen any pandemic-linked uptick in its gaming division. The company may offer some insight into its PlayStation Now subscription offering — Microsoft recently revealed it had 10 million subscribers for its service, with Sony thought to be lagging behind. Sony's image sensor business will also offer insights into the smartphone and automotive markets.

Layoff Watch

  • Bay Area hiring has dropped 25% since February, according to Joint Venture Silicon Valley's Institute for Regional Studies. That's worse than the national decline of 21% but better than Seattle, NYC and LA.


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Today's News

As of 4:40 a.m. PDT: Nasdaq Futures: 0.33% | Euro 600: 0.41% | Nikkei: -0.12% | Hang Seng: -1.45%



  • Tesla reopened its Fremont factory against Alameda County rules. Elon Musk said that "if anyone is arrested, I ask that it only be me."
  • FTC Chairman Joseph Simons suggested the agency is investigating Zoom in response to privacy complaints.
  • The Lightning Network doesn't seem to be doing very well, with less bitcoin on it than is on the Ethereum blockchain.
  • Tencent Music missed revenue estimates. ARPU for its social entertainment services fell 13% year-on-year, seemingly due to fewer users paying for virtual goods in the company's livestream and karaoke apps.
  • Nintendo is reportedly facing component shortages for its Switch console, due to lockdowns in Malaysia and the Philippines.



Spending $370 million in a pandemic

I've talked a lot here about the coming tide of M&A — but for some companies, that's already a reality. Cloud communications service Sinch has spent around $370 million in recent weeks, snapping up natural language startup ChatLayer, messaging provider Wavy, and most recently SAP's Digital Interconnect business (known as SDI). Turns out doing an acquisition right now is … tricky.

  • "I have actually not met one single person at SDI," Sinch CEO Oscar Werner recently told me. SAP started the tender process earlier this year, and there was only one physical meeting between SAP and SDI's teams, which Werner didn't make.
  • So how do you build a relationship with the hundreds of new people joining your company? "There's no magic," Werner said. "It's only trying to be human, and trying to be present." He thinks there are some advantages, too: All the time he would have spent traveling can now be used for one-on-one calls to get to know his new team.

Werner said these acquisitions weren't COVID-motivated, with all of them in progress before the economy began to melt down.

  • But Sinch does see an opportunity. "We think it's actually a pretty good time to be diversifying our customer base and increasing profits," Werner said. "We're increasing our own EBITDA and diversifying our profit pool," increasing Sinch's financial stability at a time like this.
  • "There may be opportunities coming up which are COVID-19 driven," Werner added. "On the technology and go-to-market side where smaller companies which are kind of pre-profit stage, where we would acquire a technology component — I can imagine a couple of such companies being financially distressed going forward."
  • "It's not something that we have seen so far, but it's not inconceivable," he said.


  • "The quality of candidates who are approaching us about senior positions in management and technical leadership has increased." — Synamedia's Yael Fainaro's experience indicates that in Israel, more senior tech workers may be most affected by the coronavirus crisis.
  • "If we're able to work with clients and help them get through this rough patch, customers will come back … there are going to be very good opportunities once this is over." — David Arana, CEO of Mexican fintech Konfío, thinks its recent funding round offers a chance to build customer loyalty.
  • "I don't expect an immediate price jump … I suspect we will see a [price] rise in about six months." — Tim Draper said the bitcoin halvening won't have an immediate effect on price.

Everyone's Thinking About

What's next for smaller tech hubs?

A world in which we all work from home should be good for nontraditional tech cities. Tech Twitter, for one, has been prophesying a new future where employees abandon their much-too-expensive San Francisco apartments, building a new life for themselves elsewhere. The reality, though, is more complicated.

  • Protocol's Issie Lapowsky and Lauren Hepler have a great story today about what's happening to smaller tech hubs.
  • "For the most part, the big tech hubs will remain dominant, in part because their main industry will be even more dominant," said the Brookings Institution's Mark Muro. If the wider economy starts to suffer in less tech-focused cities, tech could be hit by the repercussions.

I've also heard speculation that investors might stick to what they know. Risk-averse investors might prioritize repeat founders, and entrepreneurs in their networks that they know personally — both of which could hurt smaller hubs.

  • Ben Franklin Technology Partners' Margaret Bradley told Protocol that it wouldn't take much hesitation from investors for there to be a big impact on Philadelphia's tech scene.

But there is some hope. While cities like New York and Boston are still dealing with a serious case of the pandemic, other regions are bouncing back faster.

  • "If you are somebody trying to figure out where to put a company, and you're looking at a map of the country, or of the world, Montana looks really good right now," said Grant Kier, CEO of the Missoula Economic Partnership.
  • And people might still leave the Valley. "We may well see more people trying to move into the heartland," Muro said. "I think we shouldn't discount that we don't know where things are heading."

The full story is fascinating; check it out on Protocol.

Closing Bell

Quibi's COVID scapegoat

"I attribute everything that has gone wrong to coronavirus. Everything." That's how Quibi founder Jeffrey Katzenberg explained the app's dismal start to The New York Times. Downloads are "not close to what we wanted," he said, with the company claiming it has 1.3 million active users. The problem, Katzenberg thinks, is that we don't have many short breaks in COVID-times. That's one problem, sure, but I'm not convinced it's the main problem. As journalist Peter Suderman tweeted, "The real problem is all of the shows suck." COVID has just provided a convenient excuse to explain away that much more damning issue. As Warren Buffett famously said: "You only find out who is swimming naked when the tide goes out."

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

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