A unicorn piggie bank with stacks of coins.
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Startup risk gets riskier

Protocol Pipeline

Hello and welcome to Pipeline. My name is Biz Carson, and I spent the early part of this week meeting my colleagues in real life for the first time since we launched two years ago. It was magical. This week in interesting news outside of Elon Musk buying Twitter: The new word for Web3, magical metrics and what’s getting lost in all this talk about lower valuations.

We don’t talk about employees, no, no, no!

In the last few weeks, every conversation I’ve had with a VC or startup CEO has had a similar refrain: Has the music stopped, or is it just slowing? Most VCs seem to agree there is a pullback happening, and some deals just aren’t getting done. Calling the bubble “burst,” however, has been shown to be a bad practice.

There’s plenty of signs that times have changed, starting at the top in the public market and then trickling down into startups.

  • As part of disastrous earning weeks, Robinhood cut 9% of its staff and Netflix laid off writers from its Tudum site. Other companies are trying to quickly dole out stock grants to help employees who are already underwater after joining in the peak of the pandemic.
  • VCs have been ringing their own alarms, telling founders to wrap up their funding as quickly as they can and accept whatever price they need to to make it happen. “Highly recommend getting close to break even if you can, typically by cutting costs, raising prices, and getting laser focused on what’s essential,” Jason Calacanis tweeted. “This will take you out of the ‘probably gonna die’ bucket and put you into the ‘they’re gonna make it’ pile, as VCs sort harder.”

But there’s one thing missing in the startup valuation conversation: employees. Despite often bearing the brunt of it (just see the examples above), employees are often the ones with the least visibility into how a business is performing and the fewest number of protections if things do go south.

  • For some startup employees, this pullback is the first time they’re having to think about what happens if it all goes belly up. “The idea of their startup going to zero or shutting down was not exactly on their radar,” Compound CEO Jordan Gonen told me. As co-founder of a tech-centric wealth manager, he’s found that many startup employees don’t understand the implications of exercising their options, especially in the bull market of the last few years.
  • But in the aftermath of Fast’s implosion and with some firms effectively leaving portfolio companies for dead, a startup going to zero overnight is suddenly much less of a hypothetical for many tech workers, and having equity underwater is increasingly more likely.

“People are definitely cautious,” Gonen said, noting that he’s heard it more from later-stage companies than those in seed stage. “The reason they're so cautious is because a lot of companies are talking to their teams and saying, ‘Hey, you know this next round is going to be difficult, right? And it's not guaranteed to kind of go up and to the right forever.’”

  • The biggest behavioral shift that Gonen’s seen so far is tech employees pausing and thinking through their decisions instead of just exercising their options immediately. “They're choosing to wait more because they want more information and they want to understand kind of how their company will fare in a market that values companies potentially differently,” he said.
  • Those employees with short exercise windows could be in the most trouble, especially if layoffs hit and they have to make a decision in a quick turnaround window. “If the startup you’re working for is valued at more than $100mil and the exercise window on your options is 90 days, you should pencil in that your equity will be worth nothing at this point,” Nikita Bier warned.

CEOs may be paid to hear the music and know when it’s stopped — (thank you to the VC who recently introduced me to this great “Margin Call” clip about it) — but employees should also be part of the conversation and learn how to control some of the risk themselves.


Think Oregon Trail, but for startups. For a fun Saturday morning diversion, check out Engine’s new startup simulator that forces you to navigate tricky policy decisions and funding rounds to get a unicorn rating. My startup ran out of cash before my series B the first time I tried, but I ended up with a four-unicorn massive acquisition my second go at it. I guess that’s why VCs like to back experienced founders.

“The new old normal.” Investors are back to meeting entrepreneurs in person and competing over who’s throwing the best parties. Although in this new old normal, the parties are off-the-record during Miami tech week instead of at SXSW.

Profitability*. Startups have come up with all kinds of zany financial metrics, but Jokr’s CEO came up with something worse than WeWork’s community adjusted EBITDA when he said that the delivery company is “fully gross profit positive on a group level for our local business across all of our countries after 12 months of operations.”

What to say if you’re tired of saying Web3? Try this week’s fancy buzzword: “The Ownership Economy.”


The speed at which security has been built up over the last 12 months has been a derivative benefit of what we’ve seen during the pandemic. Privacy, compliance and security are three legs of the same stool. What we’re seeing increasingly is that intersection continuing to happen. RingCentral has invested in all those elements.

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Inside track

Cram-downs could make a comeback in this environment, but instead of saving the company at all costs, founders should know they have options, says Steve Blank. “You think of the offer of cram-down funding as a lifeline, but they’ve handed you a noose,” he wrote this week.

There have been three eras of startup pricing, says Redpoint’s Tomasz Tunguz, but it’s not clear which era is today’s market.

What’s the difference between good and great growth rates? Lenny Rachitsky asked investors to share what they care about and what they’re looking for from startups, and it all comes down to velocity. “The great irony is that once you start having numbers, investors start to really care what those numbers are,” said CRV’s Caitlin Bolnick Rellas.

And while we’re on metrics, a16z’s Olivia Moore says there’s another “magic metric” that consumer startup marketplaces need to consider: the gross merchandise value (GMV) retention.

Need to know

SoftBank tightens its purse strings. Bloomberg reported that “stricter investment criteria” means it’s not re-upping some of its investments, leaving companies like camera-maker Light reportedly exploring a sale or closure.

Bolt was sued by its top customer, but it’s also a fight over discounted shares and a $500 million stake, Insider reported.

In the reverse, Katerra sued its ex-CEO and board directors. You know it’s bad when the CFO says she’s too afraid to read an audit report.

Mega-seed rounds are mega popular. Already 90 startups have raised a $10+ million seed round, according to Crunchbase data. That’s more than all of the megarounds raised in 2020, and it’s on pace to break 2021’s record.

VCs aren’t facing the same funding troubles. AngelList, Ansa Capital, Dragonfly Capital, January Ventures, Slow Ventures and USV are just a handful of the names that announced new funds this week.

The next tech company to get its own TV show: Airbnb. “Enjoy Your Stay” will be about Airbnb’s crisis team and will “show both the victims’ and the crisis team employees’ stories.” I don’t get the feeling that Airbnb will enjoy it all that much.

From Protocol: There used to be novelty to things you could subscribe to — whoever thought subscription toilet paper would be a thing! — but now everything is a subscription. Protocol spent the week digging into the ins and outs of subscription business models, from how it costs money to save money in the cloud to how states are cracking down on auto-renewing ones.

Your weekend reading: Peter Thiel is no stranger to placing bets, but now he’s applying that venture approach to politics as he seeds “The New Right.”


At RingCentral, we’re focused on making hybrid work simpler for organizations so they can best set up, run and manage their business. We’re asking ourselves what's the benefit that we can derive, or that we can enable, that is better than the best-in-class in the industry?

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