April 2, 2022
Illustration: Christopher T. Fong/Protocol
Hello and welcome to Pipeline! This week: Instacart’s effort to turn bad into good, Justin Kan’s new venture, and how to raise a first fund.
It’s not often that you see companies brag about being worth less. And it’s not exactly what you’d think of as a morale booster. But that’s more or less what Instacart intended when it told employees it had lowered its valuation. The grocery delivery company said it was dropping the company’s 409A valuation — an internal measure — from $39 billion to $24 billion, and adjusting its grants of restricted stock units accordingly.
This seemingly small accounting change is actually pretty significant in the startup world, and points to how private equity compensation at highly valued startups is looking more and more like what employees get at public companies.
Don’t call it a down round. Employees may worry if a 409A price drops, but it doesn’t necessarily affect their equity the way raising new money at a lower valuation would.
Instacart’s trying to get ahead of a falling market. Since it can’t do anything about its 409A price, and its IPO seems to be delayed, it’s doing the next best thing.
New employees like a lower price. It’s a big recruiting tool in a wildy competitive job market.
Seed valuations haven’t changed much despite the recent macro uncertainty, according to Semil Shah: “Perhaps obvious in retrospect: With Q1 ending, from my vantage point @ pre/seed, I saw *zero* change to investment climate & market from January 1 to today. In fact, the quality of tech founders starting new things feels like it's improving upon itself.”
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How to start your own VC fund as an outsider, according to Henri Pierre-Jacques, including long deal memos, heavy due diligence, large partnerships and a massive intern program.
Raising a first fund is an “incredibly hard & opaque process,” according to 22 fund managers, as told to Spacecadet’s Wiz.
Fred Wilson has advice on winning VC deals, including some counterintuitive suggestions.
Web3 vs. Web 2.0 dilution. Many public companies issue shares and thereby inflate their share count, but Web3 companies do as well, Tomasz Tunguz notes in an interesting comparison. Tokens, he notes, can also pay for services, so they have more potential uses than equity.Moves: Kyle Lui jumped from DCM to Bling Capital, becoming the second GP along with Ben Ling.
When a new job goes wrong. Stacy Chang left her gig as chief of staff at Founders Fund to become a GP at Arrowside Capital, but that offer disappeared. Now there’s a $10 million lawsuit.
Mary Meeker’s Bond Capital raised $2.5 billion. So much for the late-stage slowdown?
Y Combinator held its winter Demo Day, with 414 companies from 42 countries and about 50% outside the U.S. While B2B had the largest proportion of companies, fintech had 24%, a good portion of which were Web3- or crypto-based.
On Protocol: Justin Kan, the former Y Combinator partner and co-founder of Twitch, is back with an NFT gaming marketplace, Fractal.Your weekend reading: After 25 years, Brewster Kahle and the Internet Archive are still working to democratize knowledge.
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