An illustration of a classroom with a chalkboard that reads "Bubbles 101"
Illustration: iStock/Getty Images Plus; Protocol

The only bad bubble is the one you don’t learn from

Protocol Pipeline

Hello, and welcome to Pipeline. My name is Biz Carson, and a fun fact about me is I think root beer tastes like bubble gum. This week in the startup world: lessons from burst bubbles, Jason Calacanis’ crypto warning and five questions with Two Sigma Ventures’ Colin Beirne.

Been there, burst that

When Beezer Clarkson came out of grad school in 2000, tech was the hottest thing going — reminiscent of the exuberance she saw last year. Everyone in her business school class had pivoted hard from banking to work in venture and tech. Startups were debating adding a slide or a ping-pong table to the office. “Fast forward a year later, it's summer of 2001, I would say down to a person, maybe except for the one person who was working at Google, everybody else was laid off,” Clarkson said.

Is 2022 a replay of 2001? It may feel like the end of times akin to the dot-com bust for a lot of people right now, but that doesn’t mean history is doomed to repeat itself.

What’s going on in 2022 isn’t quite like past bubbles bursting. This week, I hosted a panel with Clarkson, who is now with Sapphire Ventures; Redpoint’s Geoff Yang and Menlo’s Matt Murphy. All three have been through bubbles before and can say what’s the same and what’s different.

  • In ’99 and 2000, there was a real feeling of a gold rush among tech startups, largely driven by the internet. Consumer businesses popped up with unproven models, and telecom companies raced to build out fiber. The bellwether moment for Murphy came when Cisco reported soft earnings in 2000, and it spiraled from there into a buyers’ strike that lasted years. “I don’t think there’s any innovative startup that can survive without customers coming in for two years, because what happens is innovation gets stale, people get complacent and optimism dies. It was just a miserable time to be in the business,” Yang said.
  • In 2008, tech was a bit more shielded from the blast that nearly annihilated Wall Street and Detroit, and it was also a shorter downturn. There was also more experience from VCs and founders who knew to hunker down and manage through it instead of just shutting down, Clarkson said. “Maybe your fund’s raise was smaller, maybe it took an extra 12 months, but we didn't see the same things that we saw in 2000 by any stretch.”

The big question: Is this 2000 or 2008? Or something else entirely?

  • So far, the capital crisis feels closer to 2000-2001, but there’s not the full-on demand crisis like what was faced then. “Things are getting a little harder, but it's not like 80% of the portfolio suddenly reporting they're gonna miss by 50%,” Murphy said. Structurally, he believes both venture and the underlying businesses are different and stronger than the dot-com times, but it’s also hard to predict how deep a recession might go. “That card has yet to be turned over,” he said. “But if I had to bet, I’d say it’s more like 2008 duration-wise.”
  • The harder thing for startups today to swallow is the valuation reset, which is real and is happening. People have to get comfortable with the idea that what you were valued at last summer isn’t what you’re going to be valued at going forward, Yang said. “It's not like the high-water mark is where your manifest destiny is,” he said. “The high-water mark was exactly that — it was a high-water mark. You never know when you're in it, but once you're out of it, you know that that was the high-water mark.”
  • The huge amount of funding venture capitalists have raised in the first half of the year also isn’t necessarily indicative of what it will be like going forward, particularly because a lot of those are large, established firms, Clarkson said. On the street, it feels like funding is starting to slow down, and it may be longer between fundraises than previously seen. “Budgets are pretty overstuffed,” Clarkson said. “I haven't talked to an LP that invests in venture that hasn't said they're over-allocated.”

The most important thing right now is adapting to the vibe shift. Many folks are still in shock, doubting that the market has changed.

  • VCs, LPs and founders are still sorting through what lessons from the last two years were anomalies that need to be unlearned and what were valid, lasting shifts.
  • Even though experience helps, you can’t just retreat to those modes either, Menlo’s Murphy said. If you adopted a 2001-like stance on the market, you’d think there was nothing to invest in and every portfolio company was bad, he said. If you adopted a 2008 mindset, you might think this is pretty short and will be over in a year. If your only experience is the COVID pullback that lasted a month before the market snapped right back, you’d expect a quick rebound. “And it’s definitely not that,” Murphy said.

The upside of a downturn is that the experience of learning from it does help. It may not feel like it in the moment, whether it’s a venture portfolio being marked down 60% or entire grad school cohorts getting laid off, but just as companies will emerge stronger, people will, too. As Clarkson found out firsthand, starting your career at the cusp of a hard reset gives you both a glimpse of the ups and a lesson on building in the downs.

“If you want to be in this business for a long time, either as an operator or as an investor, you need to work on both sides of the equation,” she said.

Catch our full conversation here.


“This is going to blow up in the faces of the venture community.” Jason Calacanis issued a stark warning to fellow VCs this week that the fallout from the crypto plunge is going to be ugly (maybe even criminal) once regulators start looking. “I think the majority of these tokens that are being sold are either pre-launch companies, which would value them at $3 to $10 million, or they’re frauds, or they're run by incompetents, or they’re frauds run by incompetents. It's some combination of those three buckets,” he said. The venture capital community has played a role in all of it. In other words, “it’s a complete, utter grift.”

RIP Google Reader. For a nostalgic trip through tech products past, I liked this thread of tech products people still mourn. Personally, I’m still working through my grief from Modsy shutting down a few weeks ago. Bizarrely, some people mourned products like Blogger and Foursquare that are still with us (albeit not in their original forms).

Oh, to be a fly on the wall at this dinner. The former Twitter heads of product (of which there are many at this point) all met up for a “conclave,” as Kevin Weil put it. If only I had truly overheard that conversation.

Tweet of the week: “‘[B]uilding in Web3’ is the SF equivalent of being an ‘aspiring model’ in LA.” A close runner-up goes to “He’s a 10 but he’s starting an AI-for-drug-discovery startup with no biology background.”


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Inside track

Few startups have had to deal with the spectacle of hypergrowth in public like Clubhouse. After two years, former Clubhouse head of community Anu Atluru reflected on 25 lessons she’s learned from that time, like how a great UX is more important than a great UI and your friends are a false-positive if they say they like a product at its earliest days.

Should you stay in academia or launch a company? It’s not an uncommon question for scientists, so NFX’s Omri Amirav-Drory (a two-time scientist-founder) laid out the questions scientist-founders should ask themselves before making the decision.

It can easily become a morale problem at a startup when someone feels like they’re under-leveled at their job or a co-worker is over-leveled. Startup adviser Molly Graham shared a leveling matrix as a starting point for companies as a sequel to Graham’s startup compensation guide.

The “pandemic darlings” saw a huge boom in business in 2020 and 2021, but that doesn’t mean their growth was all created equal. Bessemer’s Janelle Teng broke down the three archetypes of pandemic tech darlings now that they’re all facing a reckoning.

You won’t feel the markdowns as deeply if you’re conservative with marking up in the first place. In a detailed blog post, USV’s Fred Wilson shared the firm’s approach to writing down companies and when they do it. Q1 was a down quarter, and Q2 is likely the same, but it’s not as bad as the Nasdaq’s decline. “That is because we maintained a conservative bias throughout the last few years and resisted the efforts of some to get us to behave differently. And that feels good and right to me,” he wrote.

Need to know

A16z announces it’s now “in the cloud.” The firm isn’t abandoning Sand Hill Road or San Francisco, but adding more offices in NY, Miami and Santa Monica. “Specifically, the firm is now virtual, but can materialize physically on command,” Ben Horowitz said.

Early stage funding took a hit. Last quarter’s 22% dip was the second-largest year-over-year decline in series A and B funding since 2010, excepting the plunge in Q2 2020 after the pandemic.

FTX wants to raise more to buy more. After an investment and acquisition spree, FTX is now on the market itself to bring in more funds.

A founder was accused of living large, but not paying employees. Goldman Sachs-backed Slync is in trouble after its CEO was accused of jet-setting around the world and sponsoring golf tournaments while the logistics startup couldn’t make payroll, according to a Forbes investigation. Now an ex-employee is suing for alleged wrongful termination after he claimed he was fired for raising concerns.

A company actually went public! Given how dead the markets have been, FaZe Clan’s SPAC merger going through is a rarity in 2022.

Moves: Instacart’s co-founder Apoorva Mehta said he’s stepping down as chairman and going to leave the company board when it goes public. Amazon’s Jay Carney is making the move to Airbnb.

From Protocol: The new spam filter? A mandatory donation to charity. Investors are using Gated to cut down on unwanted emails by making people pay (literally) for inbox access.

Also on Protocol: Freemium isn’t typical in the cybersecurity world, but building developer-first security tools has investors excited about more opportunities like Snyk.

Also, also on Protocol: The Coinbase insider trading case is bad, and the implications for the SEC calling some of the tokens securities are even worse. Here’s how the insider trading case is really a trojan horse for regulation.

Your weekend reading: I’ve often been envious that Twitter’s co-founder Biz Stone got @biz on Twitter and not me (obviously, there was never going to be any competition). But this story has me rethinking if I’d ever even want it. An over-the-top obsession with novel handles on Twitter and Instagram has turned into a horrendous harassment campaign, with a band of “Handle Heroes” trying to fight back.

Five questions for … Two Sigma Ventures’ Colin Beirne

Irish-born Colin Beirne has been with Two Sigma since 2005. He helped build its venture investing arm, in 2012 launching Two Sigma Ventures, where he is now a partner. Based in Brooklyn, Beirne likes to invest in companies using data and advanced computing, and current interests include human-computer interfaces, retail tech and data-driven health care.

What is the biggest issue that your partners are thinking or talking about at your partner meeting?

We’re discussing and debating how deep and how long we expect this bear market to be, as that impacts many things: willingness of companies and consumers to make spending decisions; availability of senior talent in the hiring market; acquirers’ receptivity to buying companies; when the IPO window will reopen; and ultimately, what valuations we should pay for companies.

What’s one myth about bear markets that you think a lot of founders right now believe to be true?

That it will reverse relatively quickly.

If you could meet anyone in this world today, who would you meet?

Not one person, just a type of person. I want to meet the brilliant entrepreneur, from anywhere in the world, who grew up finding creative hacks for dealing with hardship and struggle, who sees all the technology tools available to her today, and understands that the geographic walls that may have once held her back have somewhat fallen away, and she’s ready to build a company to change the world. Then it would be awesome if she and I went to lunch with Lewis Hamilton, the world’s greatest Formula 1 driver.

What problem do you want to see a startup solve?

Disinformation and misinformation on the internet. With the explosion of information sources has come an erosion of trust. Forty years ago, everyone trusted Walter Cronkite’s version of the news. Now there’s no agreed-upon source of truth, and it’s causing so much strife. I’d love to see more people try to tackle this.

If you could go back and put a check into one deal in venture history, what would it have been and why?

I think it would have to be Google. It was a great investment, so LPs would be happy (especially if they held the stock). But also it changed the way information flows and is accessible around the world, mostly for good. The advertising model is far from perfect, but the company continues to try to make the world better across many dimensions.


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