Protocol Pipeline
The inside story of the venture capital and startup world by Biz Carson.

The latest hot IPO trend isn’t a SPAC

For some startups going public, giving is better than receiving.

Hello and welcome to Pipeline. This week: the Loom-Zoom-room standard, Berkshire Hathaway's big investment and how Theranos founder Elizabeth Holmes is apparently the new #girlboss influencer.

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Overheard

  • "'Will you take crypto?' is the new 'Will you take Venmo?'" Weekend Fund's Ryan Hoover said two potential LPs asked if they could invest in his fund with crypto.
  • Bill Gurley has a new App Store commission in mind. "I think it was a bad decision back then and hard to recover from," Gurley told CNBC. "I think they'd probably be best off just picking something like 10[%] and taking it down for everybody."
  • Are you fintech or techfin? The order matters. It's a rarely talked-about distinction between companies creating new financial services with technology — fintech — versus companies applying technology to existing systems — techfin — Now CEO Lara Hodgson told me. She just raised $9.5 million for her fintech company Now, which she started with Stacey Abrams (yes, that Stacey Abrams).
  • Loom-Zoom-room is the new gym-tan-laundry for VCs. Jason Calacanis said LZR is the new standard for deal-making: Founders start with a Loom recording followed by a Zoom video pitch before signing the deal in person.
  • The tech Twitter account to follow: @TechEmails. They're publishing emails unearthed in litigation, giving an inside look into moments like Steve Jobs irately calling Sergey Brin over Google poaching Apple employees.
  • Elizabeth Holmes = #girlboss? Apparently Theranos swag is becoming a cult favorite with teens wearing "Elizabeth Holmes is my #girlboss" tees and buying lab coats from the company. Perhaps it's time to add a Theranos early investor mug to your collection.

Biz on Biz

Why top VCs are convincing their companies to give away equity

SPACs may have been the hottest IPO trend in the last year, but now a bunch of investors are hoping to make another aspect of going public just as cool: corporate philanthropy.

The blockbuster IPOs of companies like Coinbase and UiPath came with a pledge to set aside shares of the company for charity. This week, over 40 investors, including folks like Benchmark's Peter Fenton and SV Angel's Ron Conway, joined Pledge 1% as boardroom allies to help their portfolio companies follow the same path.

  • UiPath's CEO Daniel Dines heard about Pledge 1% during a Forbes event when he was talking to other CEOs who had gone through the process, like those from PagerDuty and Atlassian. The company had already engaged in some philanthropic activities through a nascent foundation, but when UiPath went public, it set aside nearly 3 million shares to be reserved for philanthropy as part of its new pledge.
  • "When you look at the long list of amazing companies that are part of Pledge 1%, Salesforce included, this isn't a new unproven approach to charity," said UiPath CMO Bobby Patrick. "It's actually quite well-proven, and in our view, this is what every up-and-coming tech company should be doing as a normal course of business."

Companies need support to become effective in their philanthropy, said Amy Lesnick, CEO of Pledge 1%.

  • "We really see a time that's not so far away when setting aside equity for your philanthropy is really just as common as setting it aside for your employees. It's just what people do," she said. "To make that happen you need standards, you need an ecosystem of support and you need to make it easy."
  • Recruiting VCs to evangelize corporate giving is just the start. UiPath board member and CapitalG partner Laela Sturdy had often fielded questions from founders about how they should be giving, but it wasn't until UiPath that she realized Pledge 1% had a playbook ready to go. "I've brought it up proactively with so many founders I work with and they're just relieved," she said.

It's just one way the tech industry is trying to use its power and newfound wealth for good.

  • When Airbnb went public, hundreds of Airbnb employees signed a pledge to donate proceeds of the IPO to charity. "So much of the conversation around tech company IPOs focuses on how the newfound wealth will be used for consumption," Janet Frishberg, a recruiter for Airbnb from 2013 to 2019, told me at the time. "I was wondering if we could change that conversation and have at least part of the focus be on how we can give these newfound resources to help others and help our local communities and also help the world."
  • Investors are playing other roles too. Bloomberg Beta's Roy Bahat also helps run a program through Stanford that's meant to educate early startup employees on how to manage their wealth in an impactful way.

It's not only good for the world, but it's also just good for business, said Accel's Rich Wong, who sits on UiPath's board.

  • The tech industry used to see itself as a niche upstart, but that's changed. Companies who have seen this tremendous growth have a responsibility to give back, he said. "We have an obligation as a community to our communities," Wong told me.
  • There's also a competitive advantage when it comes to hiring: "In the battle for the best talents, they want to work for a company that has a mission and has a heart, that's not just about value maximization," Wong said.
  • UiPath agrees: "Not only is this at the heart of how our founder thinks, but our employees and our new employees coming to work for us, they want to work for a company that gives back," Patrick said. "They care about the environment and social responsibility, and investors now care about corporate governance and ESG."

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Inside Track

  • Higher interest rates would take a few years to trickle into startupland, but they would ultimately cool the market. Redpoint's Tomasz Tunguz breaks down "the figures that will move the venture capital market in the next five years."
  • Venture capital is going niche with new GPs and new funds being more specialized than the "veteran" generalist firms, according to PitchBook's analysis of 15 years of VC manager style drift.
  • VC is going global: Half of USV's new deal activity is outside of the U.S. and very little is in western Europe, writes Fred Wilson.
  • Ali Partovi is changing how the coding interview is done for Neo by letting students choose how they want to be screened.
  • If Marc Andreessen says it's time to build, why aren't we building a better virtual world too, asks Ross Douthat.

Need to Know

  • Sequoia considers changes to avoid higher taxes. Bloomberg reported that the firm is trying to avoid Biden's proposed tax-rate hike by changing how it distributes shares.
  • Berkshire Hathaway makes another tech bet. It invested $500 million in Brazil's Nubank as part of a $750 million round.
  • Klarna is now worth $45.6 billion. It's just months after the "buy now, pay later" startup was worth $31 billion.
  • SoftBank's Opportunity Fund has invested $50 million already. That's half of the $100 million it set aside to invest in underrepresented founders, and it could be eyeing a second fund.
  • Top VCs are funding their own competition. Ten fund leaders teamed up for Screendoor, an over $50 million capital pool to back 15 underrepresented emerging fund managers."The investors in the fund aren't investing out of charity, they expect industry-beating returns here," Homebrew's Satya Patel told Forbes.
  • Founders are still in control. Even with a SPAC boom, the Information reported that founders are the ones staying in control of the companies by arranging special voting shares.
  • Bitcoin conference becomes COVID hotspot. After worshipping at the altar of bitcoin (as the NYT put it), many of the cryptodisciples ended up contracting COVID-19.
  • The real value-add VC: Blume Ventures organized a COVID vaccine drive for its portfolio companies amid the outbreak in India. Vinod Khosla also announced he was going to sponsor 10-bed ICUs across 100 rural communities in India to help ease the strain on hospitals, and is asking for support.
  • On Protocol: She's Uber's biggest nightmare. AB 5's godmother has more in store.
  • Your weekend reading: 2019 was the only year since 2000 where the number of entrepreneurs in the U.S. declined. Forbes has a detailed look on why the U.S. is losing immigrant entrepreneurs to other nations.

Five Questions With...

Union Square Ventures's Rebecca Kaden

Rebecca Kaden is a managing partner at Union Square Ventures. A former journalist, she worked at Maveron before joining USV in 2017. Her recent investments include ecommerce photo- and video-management service Soona, trucking startup SmartHop and education startup Sora.

What's a secret obsession of yours that most people don't know about?

Russian literature, particularly Vladimir Nabokov. I think "Pale Fire" is the perfect novel and a love letter (of the weirdest kind) to why language and stories matter. Though it's not so secret anymore — a couple years ago we had a USV team offsite where we each gave two-minute presentations on a topic of our choice and I poured my heart out about Pale Fire (though my partner Andy Weissman's presentation on why you can learn everything you need to know about VC through song lyrics was the undeniable winner of the day). (Editor's note: For the curious, you can find Weissman's presentation on song lyrics here.)

What problem do you want to see a startup solve?

There is a significant access-to-credit crisis going on in the U.S. that, despite lots of really interesting financial services innovation, remains uncracked. The inputs used to build credit and the outputs for what it is used for have remained the same while consumer behavior has changed quickly. We need new ways to unlock credit or a new model to build financial access on top of. I'm excited to talk to entrepreneurs thinking about and building around this.

What product or service are you totally, even irrationally, loyal to?

Sticky notes. Physical sticky notes, desktop sticky notes, iOS Notes app. I've tried every organizational and note-taking app and platform I've heard about and I always quickly return to the sticky note. It's just the tried and true system that seems to work for me.

What has been the biggest change in venture capital in the last year?

The switch to primarily remote work has increased the pace of the business tremendously. Historically, investment processes required a fair amount of logistics. You coordinated times to meet, ideally several, and in between people were traveling to board meetings and managing schedules. With nearly all logistics removed, the touchpoints involved with an investment could happen in a much more condensed time, dramatically speeding up the overall pace. Like most things, I think there are elements of this that should stick and are positive — particularly around efficiency for founders while they balance raising capital with running a business — and parts that will likely need to continue to evolve and find new, longer-term normals. It remains important to keep pace with the market but also to build trust and relationships with the teams coming into the USV portfolio. We're high-conviction, low-velocity investors so we have been working to balance our process with the overall pacing.

What was your first job and what's a skill you still use from it?

I spent a summer interning at Fortune magazine helping Pattie Sellers organize and draft bios for the Most Powerful Women Conference while I was in high school. It showed me that women are absolutely incredible and that concise and compelling writing is a forever skill, no matter the job.

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