August 13, 2022
'Pivot' shouldn’t be a dirty word
Hello, and welcome to Pipeline. My name is Biz Carson, and next week I’ll be on vacation. Protocol’s Veronica Irwin and Nat Rubio-Licht will be bringing you the highlights from LA Tech Week. If you’re going, be sure to say hi to them and send event invites and scuttlebutt their way.
This week in the startup world: SoftBank’s annus horribilis, BeReal’s reality and a pivot months in the making.
Pivot your perception of pivots
Ali Moiz could tell from the very first event his demo-day site Stonks hosted that something was off. He wanted to build a startup that would help investors from anywhere invest in great startup deals, not just those lucky enough to make it into YC’s hallowed halls. The catchy tagline for Stonks: “like Twitch + AngelList + SharkTank had a 👶.”
But even on that first day, a founder pulled him aside and confessed they didn’t actually like pitching in public. Moiz got an uneasy gut feeling. “So as many founders do when faced with an intractable problem, I shoved it under the rug,” Moiz wrote.
Ten months later, with more founder complaints mounting, that problem under the rug was too big for Moiz to ignore. It was time for a pivot.
Stonks faced a realization many startups do: You have to change strategies, or die.
- For Moiz, this wasn't just “wishy-washy feelings” that Stonks needed to change direction, he told me. Founders complained of getting spammed by service firms and ghosted by investors. So far, $100 million has been wired to startups that made use of Stonks — a milestone Moiz is proud of — but it’s far short of the $800 million investors indicated to founders via Stonks that they would provide.
- Last week, Moiz announced Stonks was switching strategies and taking its demo days private, roping off its network only to vetted investors. “It was tough to make a change that seems at odds with our mission, but those are the realities on the ground,” Moiz said. “You can either accept reality, and the data, and what the community is telling us, or we can go out of business.”
Stonks isn’t the only startup switching strategies right now. A changing macro environment, which brings more discipline to the process of exploring product-market fit, could be to blame.
- Clubhouse found itself in a similar situation when it let everyone onto the audio chat network. “We tried to limit signups by requiring an existing member to invite you, but that perversely made people want to join more and flooded the hallway with less relevant rooms. "Whoops," co-founder Paul Davison tweeted. He realized Clubhouse had gotten too big: At a certain point, larger social circles always splinter into smaller ones. “A single community just doesn’t work beyond a certain size,” he conceded. Clubhouse’s pivot is moving to smaller, private communities called “Houses.”
- Pivoting in a bear market is even harder, but many companies need to in order to put themselves in a position that’s “undeniably fundable.” More startups are launching SaaS offerings to try to capture recurring revenue, but it doesn’t always work. Interior design startup Modsy tried switching to a software service for designers, but that never made it out of beta — the company shut down last month.
The secret to most startups is that they will have to change directions at one point or another. “The myth about pivots is that they are an exception: something undesirable that happens because a startup went seriously awry, and which you should strive to avoid,” Greylock’s Reid Hoffman once wrote. “In reality, pivots are an integral part of the entrepreneurial process.”
- Many of the most famous companies had a pivot along the way, big or small. YouTube started as an online dating site with the idea people would upload videos to introduce themselves, but dropped the idea a few days later in favor of its “Broadcast Yourself” vision. Nextdoor was originally Fanbase, a site for sports fans to talk about their teams, before it moved to center around local neighborhoods. Hoffman wrote that PayPal shifted business strategy five times before it landed on charging eBay sellers to accept payments.
“When we were turning out big profits, I became somewhat delirious, and looking back at myself now, I am quite embarrassed and remorseful,” said SoftBank’s Masa Son in a massive mea culpa. SoftBank lost $23.4 billion in a record-setting (for the wrong reasons) quarter. Now the firm is going to trim head count across the board and “there are no sacred areas,” Masa said. After all, no amount of flying unicorns can save this chart.
That time Kanye came to a16z … Partner Chris Lyons shared an interesting piece of tech and music history this week when he posted the attendee list for a meeting eight years ago with Kanye West to talk about the release of the first Yeezy shoe. Kanye was there along with fashion designer Virgil Abloh, but also on the list were folks like Coinbase co-founder Fred Ehrsam, Oculus’ then-CEO Brendan Iribe and a16z co-founder Ben Horowitz.
“We plan to run over the child on Saturday.” This week’s weird Twitter drama started when Tesla superfan Omar Qazi (known as Whole Mars) asked if someone’s kid could run in front of a car in self-driving mode to help prove a point. Hopefully the Lilo & Stitch-wearing mannequin will be the only victim of whatever Twitter charade this has devolved into.
“We are currently in the midst of the largest rightward shift in Silicon Valley politics that I have seen in my 20 years here,”tweeted former Dropbox CTO Aditya Agarwal. “Some of this is on the surface, a lot is below it.”
SPONSORED CONTENT FROM CISCO
How cybercrime is going small time: Cybercrime is often thought of on a relatively large scale. Massive breaches lead to painful financial losses, bankrupting companies and causing untold embarrassment, splashed across the front pages of news websites worldwide.
Companies don’t need to be as afraid of hit pieces, because if they’re really that outlandishly bad, then it “becomes so self-beclowning that it pushes rational observers to your side,” says Substack’s Lulu Cheng Meservey. She published her ways to hit back on hit pieces and what she calls the “horseshoe theory” of media coverage.
Meet the “Centaurs.” Bessemer is using the term to describe cloud companies with more than $100 million ARR. This year, there’s 47 centaurs from the Forbes’ Cloud 100 list, including names like Airtable, Carta and Databricks.
Becoming a parent can be a wake-up call. Add building a business into the mix, and it’s even harder. Sarah Peck has interviewed over 200 working startup parents and found business advice that doesn’t take parenting into account is mostly useless, along with a few other common themes.
Mark Johnson was warned that writing this post about the demise of Descartes Labs would mean he’d never raise from VCs again. The end of his company, which had over $17 million in revenue and multiple government contracts but was still sold in a fire sale, is a cautionary tale worth reading — and something Johnson hopes will serve as a launching-off point to build a founder’s bill of rights.
Need to know
The great founder resignation continues. I hate the term “boy boss,” but there are a lot of founders and CEOs who are leaving their companies right now, as The New York Times pointed out. This week, Mailchimp’s Ben Chestnut and Marqeta’s Jason Gardner were the latest to announce they were stepping down.
The U.K. government funded a bunch of zombie companies. The British Future Fund was supposed to be the lifeline to help startups through the pandemic, but now many are “dormant,” according to the FT.
VC-friendly deal terms are back. Companies like Tonal have agreed to more structured deals as downside protections are back in favor.
Deals are getting pulled last-minute, too. Venture-backed low-alcohol aperitif startup Haus had signed a term sheet with Corona’s parent company, Constellation Brands, only to have it reneged upon. The startup is now shutting down.
Africa’s biggest startup wants to IPO — but allegations of financial mishandling and government actions against the company are thwarting fintech Flutterwave’s plans.
Moves: SoftBank’s former global communications chief Andrew Kovacs has joined Upstart, reuniting with fellow ex-Googler Dave Girouard. Serena Williams is evolving from tennis and into venture capital. I’ll let her tell you why in her own words.
From Protocol: BeReal is all about close connections, but so were Facebook and Snapchat in the early days, too. Can the app hold onto its success while keeping true to its vision? It’s hard to know when the CEO is telling VCs not to publicly talk about the company.
Your weekend reading: We wanted flying cars, and all we got was a bitter lawsuit fought between two companies trying to make eVTOL aircrafts a thing. One one side is Wisk Aero, which is tied to Larry Page’s Kittyhawk and Boeing. On the other side is Archer Aviation, which is linked to United. Building a flying car is hard enough, but Wisk’s desire to sue Archer out of existence could threaten them both.
SPONSORED CONTENT FROM CISCO
How cybercrime is going small time: People have been swindled since before man created monetary systems. These aren’t new crimes; just new ways to commit them. But as cybercrime increasingly goes small-time, those on the front lines will need new and more effective ways to fight it.
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