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Protocol Pipeline
The inside story of the venture capital and startup world by Biz Carson.
Photo: Charlotte Coneybeer/Unsplash

Too fast, too funded: Inside the new deal frenzy

A roller coaster loop with the words TURBO above it.

Hello and welcome to Pipeline. This week: Price diligence is out the window, networking is back and inside the deal frenzy.


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Overheard

  • "Biggest change in the venture landscape now: There are no VC funds with pricing discipline. All of us have caved," tweeted Founders Fund's Keith Rabois.
  • "Toxic money": WeWork's CEO Adam Neumann almost walked away from taking SoftBank's money after it allegedly questioned if Neumann would be giving anything to the Israeli military (SoftBank denies ever saying this), according to a passage in the upcoming WeWork book by Eliot Brown and Maureen Farrell. He was talked into it, but what an alternate history the company (and SoftBank) might've had if he had walked from the deal.
  • Networking is back. I returned to the VC social scene after 16 months for my first happy hour. It turns out technology still hasn't solved the awkwardness of a networking event, but it was also great reconnecting with folks in person whom I hadn't seen in awhile. And in a truly appropriate sign of the times, the party was Miami-themed on a roof deck in July in the chilly fog of San Francisco. Nothing quite like shivering in Patagonia next to a VC-branded coconut.
  • What's in a VC's hierarchy of needs? Shirtless Twitter selfie was surprisingly left off VCBrags' list, but a pseudophilosophy YouTube channel still made the pyramid.

Biz on Biz

2 fast 2 funded

There's a lot of out-of-control things about this funding market right now (see Rabois' tweet on price diligence above) but one thing that's nearly universal when I talk to entrepreneurs and venture capitalists is just how fast things are moving.

A lot of the finger-pointing is specifically in the direction of Tiger Global, the New York hedge fund that's rewritten the rules of the game much like SoftBank did a few years ago.

  • The firm has emerged this year's funding jockey, setting a blistering deal pace, as I wrote about this week for Protocol. It has invested in over 120 startups already this year, according to an analysis by PitchBook, and shows no signs of slowing down having just closed a $6.7 billion fund and rumored to be raising a $10 billion fund.
  • The speed has certainly irked a lot of funds. When Nylas CEO Gleb Polyakov told some of the VC firms interested in investing in his hot API developer startup that Tiger had handed in a term sheet, they scoffed and walked away from the deal, not wanting to compete. "If you don't follow the process, they get very upset and very insulted, which seems a little silly," he told me.

VCs are having some commitment issues as a result. They want to move fast, but they still want to make sure they're investing in the right entrepreneurs.

  • It's challenging for investors who feel like they're going on a few Zoom speed dates before being asked to commit to a 10-year marriage when they join the board, one Series A investor explained to me. And it goes both ways: Founders who haven't taken the time to do due diligence on their investors have run into problems down the road.
  • Tiger Global doesn't have the issue since it acts more like a money manager than a company builder. It is a "proudly passive" investor that doesn't like to take board seats, with rare exceptions like Polyakov's company Nylas.

It's not just VCs who are struggling to keep up with the pace of deals: Tech journalists are too. One of the much-talked about things this week was what happened to classic funding news stories after a startup CEO pitched the idea for a publication that just focuses on funding news.

  • The craziness of this environment has absolutely trickled down into reporters' inboxes. As a result, the bar is moving higher when it comes to covering funding rounds. A startup disclosing its valuation is nearly table stakes for a company to be covered, wrote TechCrunch's Alex Wilhelm in his post on what companies need to include. (Astute Pipeline readers may have noticed that I don't do a deal round-up section, and that's because I found the space already well covered by Axios' Dan Primack and Connie Loizos' StrictlyVC newsletters.)
  • "In today's market, funding coverage isn't something you can take for granted. It requires patience, a thoughtful approach and a little creativity," wrote Menlo Ventures' head of marketing Tiffany Spencer. Her advice on giving reporters a longer lead time is spot on.

There's no sign that the madness will die down soon, as funds are arming themselves with more and more capital.

  • SoftBank is tripling down on its Vision Fund 2 and growing it to a $30 billion fund. It's already made 90 investments from VF2, and Tiger Global and SoftBank took the No. 1 and 2 slots when it came to dollars invested in the first half of 2021.

The real winners in this will be the founders, who value speed more than the VCs do. It'll be up to the venture industry (and the journalists who cover it) to keep up.

A MESSAGE FROM TRELLO

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Inside Track

  • "It doesn't matter how smart you are or how much money you have. If you are working on the wrong tasks — your company will fail," tweeted Y Combinator's Michael Seibel as part of his advice on how startups have to focus to win.
  • When Glow's Amira Valliani went out to raise her seed round, she "learned that most of the stories on Tech Twitter are bullshit." For those who don't have VCs throwing cash in their faces, she built a guide on how to raise a seed round.
  • The next billion-dollar enterprise company will be born outside the U.S., suggests GGV's Glenn Solomon: "Developers don't care if great open source code or APIs got their start in Boston, Bangalore or Buenos Aires, they just want to use the best platforms available."
  • It's easy to stand out as an investor by simply responding to investor updates or checking in with founders. After a year of angel investing, Loom co-founder Shahed Khan shares the seven things he learned about venture capital.

Need to Know

  • ByteDance called off its IPO. It's delaying its offering as Chinese companies face mounting regulatory pressure from Beijing.
  • The SPAC crackdown is starting. SPACs may be known for their magic mouth skills, but the SEC has finally done something about it. The SEC fined Momentus $8 million as it was going through the SPAC process, alleging that the company lied about the success of their rocket tests presumably to mislead investors.
  • That's not stopping some major SPAC deals. Aurora announced it was merging with Reid Hoffman's SPAC at a $13 billion valuation. Scribd is also reportedly eyeing a SPAC.
  • Making moves: Nasir Qadree raised one of the largest solo VC funds at over $62 million.
  • On Protocol: Square bought Crew, a messaging app for frontline workers.
  • Also on Protocol: Inside the privacy war raging within the World Wide Web Consortium, where some of the most powerful tech companies in the world are wrangling over the future of user data in plain sight.
  • Release radar: For developers, meet Warp. Even I got excited about the idea of having two cursors.
  • Your weekend reading: Kağan Sümer went out to raise funds for his grocery startup in Europe. Then he heard the drug-use rumors. The Information has the story inside the "gorilla warfare" between European startups.

A MESSAGE FROM TRELLO

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