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Protocol Index: Investing outside the Valley

Protocol Index

Good morning! This Wednesday, why some investors like companies outside of tech hubs, Arm and Arm China disagree about who's in charge, and Microsoft's AI journalist has a predictable problem. Want Index in your inbox each morning? Subscribe here.

What Matters Today

  • 11:30 a.m. PDT: The Fed will announce its latest interest rate decision, with no change expected. Investors are more interested in the Fed's economic forecasts after the March release was canceled due to uncertainty. Deutsche Bank economists expect the Fed to forecast rates holding steady through 2022: Any indication that the Fed will raise rates before then could worry tech companies, which have benefited from record-low borrowing costs.

Layoff Watch

  • SoftBank's Vision Fund is reportedly laying off as many as 80 people, 15% of its staff. That's up from the 10% cut previously expected.

Today's News

As of 5:03 a.m. PDT: Nasdaq Futures: 0.80% | Euro 600: -0.01% | Nikkei: 0.15% | Hang Seng: -0.03%




  • LG Chem is selling its LCD polarizer unit to Ningbo Shanshan for $1.1 billion.
  • Trustly, a Swedish payments startup, has raised "significant" new funding, reportedly valuing the company at more than $1 billion. The company was acquired by Nordic Capital in 2018 for a reported $790 million.
  • Snowflake has reportedly filed for an IPO at a $15 to $20 billion valuation, significantly up from its $12.4 billion valuation in February.
  • WeDoctor, the Tencent-backed telehealth company, reportedly plans to file for its IPO by October, with a target valuation of $5.5 billion.
  • Airbnb is reportedly having internal discussions about a 2020 IPO.
  • Cloudera is reportedly considering a sale, with one analyst marking IBM as a likely buyer.
  • IFlix, the Malaysian streaming platform, is reportedly in talks to sell.


Investors want to invest outside the Valley

Yesterday, we talked about how some tech talent seems to be leaving Silicon Valley for cheaper, more spacious locales. In the years to come, that talent dispersion could have big ramifications for the geography of tech entrepreneurship.

  • "The second wave will be an increase in company formation and entrepreneurialism in a broad range of regions," Elsewhere Partners' Chris Pacitti recently told me. "When we reflect back 10 or 15 years from now, I think that'll be the biggest benefit" of this remote-work shift.
  • Some investors, including Elsewhere, have been focused outside the Valley for some time now. Pacitti said he's found that companies outside of major tech hubs tend to be "more financially minded," providing attractive investment opportunities.

Such companies "present low risk, medium-high reward profiles" to investors, Pacitti says — and as investors recalibrate their risk-reward profiles amid economic turmoil, they might gravitate toward companies outside major tech hubs.

  • Pacitti sees a path here less for the "grow-at-all-costs" model, but more for stable, steady growth — the kind that attracts private equity investment.

In the immediate future, Pacitti sees a different phenomenon happening.

  • "We're going to go through a sort of bifurcation," he said. There's so much capital on the sidelines that well-performing companies are going to be inundated with investor interest (the performance of recent IPOs is testament to that).
  • But "there's a cohort of companies that are going to have a much more challenging time to access capital," Pacitti thinks. Those in more challenged sectors, he said, will "have to calibrate their expenses."


  • "The increased demand levels that we are experiencing are here to stay … we do not view our first-quarter results as a one-off event."— Chewy CEO Sumit Singh is feeling bullish about his new customers.
  • "We are downgrading [Micron] to neutral (from outperform) as we believe: 1) the stock is fully valued, and 2) our industry checks suggest that forward demand/pricing conditions in the memory market are now more likely to deteriorate." — Wedbush's Matt Bryson isn't feeling good about the storage maker.
  • "It almost turns into a hostage situation." — Matt Majesky shut down his restaurant after Grubhub commissions took his business into the red.
  • "The second quarter will remain difficult. Projects were not cancelled, though. We expect a recovery in the second half." — Temenos CEO Max Chuard said things will get better for the banking software company.
  • "The current geopolitical situation and the pandemic are prompting suppliers to diversify production bases from China." — Taiwan Institute of Economic Research's Chiu Shih-fang explained why Huawei is struggling to get suppliers to move production to China.
  • "The UK's leadership in 5G will be lost if mobile operators are forced to spend time and money replacing existing equipment." — Vodafone U.K. CTO Scott Petty thinks Huawei restrictions could backfire.
  • "Sacrificing international students is killing the goose that lays the golden egg … it will eventually destroy the future competitiveness of America." — Lisa Li, a U.S.-educated Chinese engineer, notes that Chinese students often work for U.S. companies.

Closing Bell

AI editors aren't there just yet

In a previous life, I started a company that used AI to write articles. It quickly became clear that wouldn't work, so I ditched the company and started writing articles myself. It's good to know that I'm not the only one who's had struggles here: Microsoft, which recently said it would lay off a bunch of journalists because an AI algorithm can do their jobs, is under fire for picking an image of the wrong mixed-race singer to illustrate an article about the band Little Mix. The algorithm then started covering its own mistake, forcing the remaining human staff to intervene. If only Microsoft had asked me for help — I'd have told them not to bother using AI in the first place.

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.

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