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If you think startups are overvalued, there are new ways to short them

Protocol Pipeline

Hello, and welcome to Pipeline. My name is Biz Carson, and I’m kind of shocked it's August already? I already sent one email asking for a meeting by the end of July.

This week in the startup world: a who’s who list of who got a subpoena from Twitter, a second round of layoffs and how to short a startup.

Yes, you can short a startup

Shorting companies is a common practice in the public markets, but for startups? Not so much. There are some providers looking to change that, though — and they’re finding plenty of interest in the short side of the market these days.

This week, my colleague Tomio Geron revisited an old story he did on the firms trying to build a way to effectively short or go long on a startup using synthetics, a once-popular way to trade that’s made a bit of a comeback. “The startup market has gotten larger with more companies at higher valuations, which gives more opportunities to short — the higher the valuation, (see Klarna, Stripe, etc.) the more downside and more opportunity to short or hedge,” Tomio told me.

The synthetic derivatives markets let firms otherwise shut out of deals go long (or short) on startups, said Natalie Hwang, founder at Apeira Capital, which invests long and short in companies.

  • The providers work by using synthetics instead of real stock changing hands. It’s complicated, risky and involves a lot of collateral, so it’s really only sophisticated institutions making the play, said Javier Avalos, CEO of the private-market derivatives marketplace Caplight.
  • Traditionally, investors like sovereign wealth funds, family offices and PE would take the long side of startup deals that they couldn’t normally get into, and hedge funds would often take the short side.
  • The SEC has shut down other startup-synthetic attempts before, but Caplight thinks it's found a way around it by focusing on options instead of swaps and working with sophisticated institutional investors that typically manage more than $100 million in assets.

The interest has strongly shifted to the short side recently, synthetics providers told Tomio.

  • Selling interest increased to 80% of open-order interest at Caplight, while the buy side has dropped to 20%, Avalos said. It was previously fairly even or a 60/40 split. “We basically saw the demand side of the Caplight marketplace go away for the past few months,” he said.
  • Some venture firms are using Avalos’ marketplace as a way to hedge, taking some money off the table without having to sell a portion of their stake.
  • Apeira Capital’s Hwang has seen the swing as an opportunity to “capture negative value” — to play defense or capture upside in the volatility.

Things will change once the IPO window opens again, but until then, investors are busy playing with synthetic options. Like any market, there’s good and bad that comes with it, but for those who like taking on even more risk in the private markets, there are certainly options to do so.

Will we see more VCs do it? “I think the more-large hedge fund and other public market funds that got into VC seem to be most well-positioned to do this and wouldn't be surprised to see them jump in,” Tomio said. “More traditional VCs are probably skeptical. But some of those (see Sequoia) have been crossing into public evergreen funds so if more of them are employing public market trading strategies, why not this too?”

I’d go long on the idea that we’ll see more.

Read Tomio’s full story here.


All-In on subpoenas. The Besties of the All-In podcast and other tech VCs like Steve Jurvetson, Joe Lonsdale and Marc Andreessen were swept up in the Twitter-Elon Musk legal drama. Ironically, Twitter has asked for things like David Sacks’ tweets on the deal. Sacks has so far responded to the news with a middle finger MAD magazine cover and a choice clip from “Wolf of Wall Street,” so we know where his feelings stand.

It’s time to build, Marc Andreessen says — unless it’s anywhere near his property. The Atlantic found a public comment from Andreessen and his wife, Laura Arrillaga-Andreessen, that objected to new multifamily zoning policies in Atherton. While most of the comments were lengthy letters (some including names of other VCs like Aydin Senkut), the Andreessens’ missive stood out for its EXCESSIVE use of caps and its objection to the multifamily overlay zoning projects that “will MASSIVELY decrease our home values, the quality of life of ourselves and our neighbors and IMMENSELY increase the noise pollution and traffic.”

“It’s like a wall of silence.” VCs are apparently OOO in August in droves, and I’m not the only one receiving OOO replies. It’s become enough of a running thing that VCs like NEA’s Ann Bordetsky have updated their Twitter names to show that they’re in fact working this August. Don’t despair: Everyone will return by YC Demo Day in early September, as they always do.

The not gonna fight club. Unsurprisingly, Jason Calacanis did back out of the boxing match I featured last week, despite $100,000 in commitments. The real loser here, though, is whatever charity this was going to benefit.


Chip shortage could undermine national security: The global shortage of semiconductors has impeded the production of everything from pickup trucks to PlayStations. But there are graver implications than a scarcity of consumer goods. If the U.S. does not ensure continued domestic access to leading-edge semiconductor manufacturing, experts say our national security could suffer.

Read more from Micron

Inside track

Content policy and moderation is hard, but doing it at scale is even harder. Former TikTok policy manager Marika Tedroff wrote about some of the challenges using examples of navigating nudity policies. For more, Platformer’s Casey Newton went deeper with a Q&A(partially paywalled).

VCs have largely gone on vacation, but what happens if you need to raise now? For founders who will have to raise before the year’s end, Canvas Ventures’ Paul Hsiao has a few tips on how to set yourself up for a successful raise, including starting with an internal term sheet and being sure to shift your mindset going into it.

Don’t conflate customers and trials — or say that your exit plan is to be acquired by a BigCo for a few hundred million. Here’s what else you shouldn’t say in a pitch, according to SaaStr’s Jason Lemkin.

Need to know

Y Combinator shrank its batch size by 40%. Its summer cohort features nearly 250 companies — a size that some argue is still too big for the accelerator, a perennial complaint.

Carried interest lives to see another day. After another near-death experience last week for the tax loophole, Arizona Sen. Kyrsten Sinema got Democratic leaders to remove the carried interest tax provision from the climate agreement. Thus ends a weeklong annual panic over it.

A16z gets into managing founder wealth. It’s hired a new CIO and could be getting into the business of helping its partners and startup execs manage their money.

July was terrible for VC. Crunchbase reports that venture funding faced a 34% drop from June’s numbers, and is down 56% from where it was last July.

Clubhouse pivots. It's going from a Clubhouse to Houses — and it sounds a lot closer to Discord. Also pivoting this week is Stonks, the startup demo day platform, which is similarly taking its network private.

Bolt bolted. The scooter startup co-founded by Usain Bolt and with ties to Shervin Pishevar is apparently ghosting cities and stopped service, according to TechCrunch.

Companies are on their second round of layoffs. Both Robinhood and On Deck let go of more of their staff this week. And that’s after others like Netflix, Hopin, Mural and Gemini had to cut twice. Benchmark’s Bill Gurley cautioned founders to use it as an example of what not to do: “5-10% RIFs are ‘all of the pain, & none of the gain.’ And are FREQUENTLY followed by 20-30% RIFs later. If you are going to do it, try [to] do it only once.”

TikTok rival Triller promised to pay Black creators, but now it’s effectively ghosted many, leaving them in debt and feeling ripped off.

Moves: Spark co-founder Bijan Sabet was nominated ambassador to the Czech Republic. A16z’s Chris Dixon swapped in for Katie Haun on OpenSea’s board. Binance co-founder Yi He is taking over its venture capital arm.

From Protocol: Investing in climate isn’t just a hot thing for U.S. VCs. Protocol’s new climate reporter, Michelle Ma, sat down with World Fund’s Danijel Višević on the state of European climate tech investments.

Also on Protocol: Don’t think of Airtable as a productivity tool akin to or Asana. Instead, Airtable CEO Howie Liu wants his startup to be a fundamental platform like Salesforce and ServiceNow.

Your weekend reading: Can you sell shares in yourself, or even list yourself on a stock exchange? An unconventional pair of brothers, Daniil and David Liberman (who are also successful entrepreneurs with an exit to Snap), are finding venture capitalists willing to invest in them, and all in the name of reducing inequality. There are a lot of mind-blowing lines in the story, including some weird ones about how the brothers still share a single king-size bed and have only been apart for roughly 20 days in their lives.


Chip shortage could undermine national security: To ensure American security, prosperity and technological leadership, industry leaders say the U.S. must encourage domestic manufacturing of chips in order to reduce our reliance on East Asia producers for crucial electronics components.

Read more from Micron

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