Protocol Index: Get ready for the down rounds

Protocol Index


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 to receive this by email? Sign up here.

Today: we take a close look at what the downturn means for fundraising, all eyes are on South Korea, and Microsoft's cloud growth isn't quite as impressive as it claimed.

What Matters Today

  • 7 a.m. PDT: The Conference Board publishes its U.S. consumer confidence index for March, and new data from the U.K. suggests it won't be pretty. If confidence is particularly weak, especially toward the labor market, expect that to trickle through to lower consumer spending — including for tech.
  • 11:30 a.m. PDT: President Trump is expected to call network service providers. Will he ask them to make changes to keep America online?
  • 5 p.m. PDT: South Korean trade figures will give a sense of how its exports fared in March. Keep a close eye on semiconductors, wireless communication devices, and display numbers, which will help reveal the state of the smartphone market.

Layoff Watch

Today's News

As of 4.15 a.m. PDT: Nasdaq Futures: 0.05% | Euro 600: 0.61% | Nikkei: -0.88% | Hang Seng: +1.85%




Everyone's Thinking About

VCs are getting shy

Everyone knows that this market crash is going to affect startups' fundraising, and we're starting to get our first indications of just how much it will hurt. Be warned: It's bad.

  • The U.K.'s SeedLegals, which runs a platform that handles the paperwork for funding deals, said yesterday that the number of VCs participating in early-stage rounds dropped 28% in March.
  • "The sad reality of it is some companies are just less investible today than they were a few weeks ago," SeedLegals founder Anthony Rose told Business Insider.

A PitchBook report being published today corroborates that: The company said it expects "a decline in total venture transaction volume over the next few quarters."

  • If startups do manage to raise, it's now more likely that they'll do so on worse terms — with investors insisting on liquidation preferences and dividend rights.
  • And expect down rounds: PitchBook notes that in 2009, 35% of deals were down rounds, up from 18% in 2008.
  • Particularly at risk: Early-stage companies that have raised debt. "Revenue hits taken by startups with existing debt may substantially affect their ability to pay down their loan, and existing facilities could make it difficult to raise equity funding during a crisis," PitchBook writes, pointing out that investors will likely be reluctant to give money to pay down debt.
    • Relatedly: Silicon Valley Bank said some borrowers with under $10 million in loans can defer principal payments for six months.
  • Geography could affect things, too. "Smaller, emerging areas could feel [pain] much more than Silicon Valley," writes PitchBook, because investors may be reticent to invest without in-person meetings.

Still, it's not quite all bad news. PitchBook thinks enterprise-focused companies will withstand the crash better. And investment activity won't go away completely.

  • That's because "it's become a common belief that companies formed during a recession end up being some of the most successful" — and nobody wants to miss out on investing in the next WhatsApp.


  • "We have many issues with our supply chain and transportation of materials but have been able to work through them up to this point. Demand remains uncertain." — A computer and electronic product manufacturer, surveyed by the Dallas Fed.
  • "The earliest IPO window, as things stand, is in September, if not 2021." — Berenberg's Fabian De Smet, on the poor prospects for European IPOs.
  • "Founder financial literacy [is] about to level up in a big way." — OATV's Bryce Roberts encouraged founders to learn how loans work. Fast.
  • "Technology has outperformed more than any other sector six months after a major bottom, looking back at the 22 cycle lows since 1932." — Oppenheimer, in a research note Monday highlighting tech's recovery potential.
  • "We estimate that the U.S. economy will contract 33% annualized in Q2, more than three times the largest contraction in the post-war period." — Deutsche Bank's Justin Weidner, explaining the forecasts from a new economic model.
  • "Varo will prove to be quite counter-cyclical." — Varo Money CEO Colin Walsh, speaking to me about the neobank's prospects.

Closing Bell

Investing debates go digital

Sure, you could produce a data-heavy research note to rebut a Peloton short seller. Or you could just hire the "Peloton girl" on Cameo to present your investment thesis. That's what Typical VC did, and the video has 75,000 views already. I'm pretty sure that's got to be a record for a research note, and it only cost $55 to hire her.

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.

Recent Issues