Protocol Index: Should the government bail out startups?

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 Index in your inbox each morning? Subscribe here.

Today: Uber channels Instacart, startups want stimulus, and SoftBank suddenly loves oversight.

What Matters Today

  • 6:45 a.m. PDT: U.S. PMI data for March is released from Markit. ISM's release, out a few minutes later at 7 a.m. PDT, includes sector breakdowns and should give us an idea of how tech manufacturers fared last month.
  • Later: Car manufacturers will start reporting last quarter's sales. All eyes are on Tesla: analysts expect it delivered 77,400 cars, up from 63,000 in the same period last year. In a note Monday, Wedbush Securities said that, amid COVID-19, "hitting the 500k+ unit delivery threshold for 2020 is a virtual impossibility."

Layoff Watch

Today's News

As of 3.55 a.m. PDT: Nasdaq Futures: -2.83% | Euro 600: -3.06% | Nikkei: -4.5% | Hang Seng: -2.19%




Diving Deeper

VCs want help. Will Trump give it?

On Tuesday there was a big development in the startup stimulus saga: Nancy Pelosi and Ro Khanna asked the Trump administration to ensure that VC-backed startups were included in the coronavirus bailout package.

  • A quick recap: The CARES Act offers loans (which can later turn into grants) to businesses with fewer than 500 employees, but it includes an "affiliate" clause.
  • That clause means that companies with venture funding are required to count all of the employees of any other startups that the VC has invested in — making many startups ineligible for the loans.
  • In an interview with Protocol's Issie Lapowsky last week, Khanna called the clause "absurd." Now he and Pelosi are fighting back. They've asked the administration to "exercise appropriate discretion under the law," rather than rejecting startups' applications.

Here's the thing, though: Who exactly is the CARES Act supposed to help?

  • Many VCs have bucket loads of cash to tide their startups over through the turbulence. Shouldn't they use that cash, and just tolerate the lower returns that'll result?
  • Or does the government have to step in because VCs won't do that, leaving their portfolio companies with no choice but to lay off workers? If so, then is the government really helping workers, or LPs?

A better solution might be the one some are proposing in the U.K.: convertible loan notes issued by the government. That gives startups the cash they desperately need, but allows the government to benefit from any potential upside.

It's a politically sensitive issue, and there's no easy solution. But until an answer does materialize, many startups won't know how they'll get through this crisis.

Join us: Issie will host a Virtual Meetup with Khanna tomorrow at noon PDT/3 p.m EDT. They'll discuss this issue and much more — sign up here to watch live.


  • "The technology (5G, cloud, gaming) and consumption sectors may outperform." — CMC Markets' Margaret Yang, on where to invest this quarter.
  • "Assume it will be very difficult to raise financing in the next three months, and possibly longer." — A group of VCs warned Indian startups that "valuation multiples will be reset."
  • "This is not the time to be brave." — Soren Thorup Sorensen, the Lego family's fund manager, is worried about volatility.
  • "I expect in the next couple of years we're going to have the worst bear market in my lifetime." — Jim Rogers is worried about debt.
  • "I think this passes quickly, we are all back to work soon, and the death rate is a fraction of the 'millions will die!' panic." — Jason Calacanis has ... thoughts.
  • "We expect another record print in jobless claims on Thursday, rising from 3.28 million to 4.45 million for the week ending March 28." — Morgan Stanley this morning, citing a new model.

Closing Bell

SoftBank's got a plan

Did you know that SoftBank had an investment planning department? Hahaha no, got you: April Fool's, of course it didn't. But it does now! Former Goldman Sachs banker Taiichi Hoshino, who is reportedly in line to replace Masayoshi Son, is heading up the new division, which will reportedly be focused on increasing oversight. Which, I think we can all agree, is probably needed.

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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