October 1, 2022
Photo: Erik McGregor/LightRocket via Getty Images
Hello, and welcome to Pipeline. I’m Biz Carson, and welcome to October. It’s officially spooky season.
This week in the startup world: VCs rethink the office, inside the Twitter deal-making, and Cloudflare tries to woo startups.
In the pre-pandemic times, Contrary’s network of venture scouts, founders, and top technologists reflected the magnetic pull Silicon Valley had on the tech industry. About 80% were based in the Bay Area, with a smattering living elsewhere. Today, when Contrary asked where people in its network were living, the split had changed with 40% in the Bay Area and another 40% living in or planning to move to New York.
It’s totally bifurcated now, said Contrary’s founder Eric Tarczynski. “That was a big wake-up call for us. Before the pandemic, New York wasn’t even really on the road map,” Tarczynski said. “A huge cross-section of engineers are now in New York.”
Sand Hill Road is losing its shine as more VCs rethink where they’re located. That’s not to say the Bay Area is over (I’d argue far from it). But cities like New York are still “having their moment” and continue to grow in share of venture deals over the Bay Area.
There’s another strategy change afoot. More venture firms are experimenting with building community spaces instead of more offices for their partners to work out of.
“This makes it seem like I’m desperate. Please stop,” Elon Musk texted angel investor Jason Calacanis over his promotion of an SPV to buy Twitter shares. Court filings filled with Elon Musk’s texts this week showed the fascinating network of relationships and power brokers that surround Musk in this deal — and the things that they’re angling for. Steve Jurvetson suggested Emil Michael for the job of CEO, but Musk shot it down in favor of someone with actual software experience. Larry Ellison and Reid Hoffman both signed off to invest billions via text. Calacanis had the most interesting relationship with Musk, sending off ideas about charging people, forcing employees back to the office, and even throwing his name in the ring for CEO. Musk asked if he wanted to be an adviser, and Calacanis replied “Board member, advisor, whatever.” “[Y]ou have my sword.” That tone changed later on when Musk appeared miffed at Calacanis after Morgan Stanley and Musk employee Jared Birchall were “very upset” with the way Calacanis was running the deal and that he was taking advantage of his friendship with Musk. “Only ever want to support you,” Calacanis replied in the texts.
“Some of the business practices don’t rise to the level of ethics that we’re all used to in private equity with your investors and your customers and your community, and that has been a bit disappointing,” said Thoma Bravo co-founder Orlando Bravo in a rebuke of the crypto industry. After buying shares in FTX and a handful of other crypto companies, the private equity billionaire told the FT that he’s backing off investing in the crypto market for now despite remaining long-term bullish on the sector.“When my friend asks if I want to invest, of course I’m going to kick in $10,000 — it’s a way to stay connected, an excuse to get updates,” an anonymous startup founder told Bloomberg. It’s a sign of the times that startup founders are comparing angel investing to Instagram, but just with a cost to “follow” their friends' work.
Valuations have become less hype-driven and more realistic; the amount of time spent on due diligence has increased substantially; and every founder needs to directly, clearly, and concisely answer the question, “Does this project have any real-world utility, and does it create economic value?”
Impersonating someone’s identity on a fake Facebook profile is pretty run-of-the-mill these days. But pretending to be someone else entirely in job interviews? It happened to developer Connor Tumbleson when he uncovered that someone was paying people to impersonate him in job interviews to land contract work.
Chief technical officers have technical in the name, but actually being highly technical isn’t a given. Former Dropbox CTO Aditya Agarwal argues that CTOs should actually be engineers and not just managerial types.
M&A is much more likely to be on a startup’s roadmap in a market like this one, but founders need to begin the conversations early and think broadly about who potential acquirers could be, says Canvas’ Mike Ghaffary, who is expecting an uptick in deals beginning in Q1 of 2023.If software is eating the world, “did we overeat on software?” Lumos CEO Andrej Safundzic asks the question (ironically on a16z’s blog Future) about whether there is officially too much startup out there or if there’s an appetite for more.
Cathie Wood gets into the venture market. The new Ark Venture Fund is making a play for individual investors through the Titan platform, and is going to be a mix of mostly private and some public holdings.
Hope isn’t entirely lost for the IPO market. Andreessen Horowitz-backed TripActions has reportedly confidentially filed to go public at a $12 billion valuation, up from its last round around $7 billion.
VCs earmarked $1.25 billion for startups built on Cloudflare. Taking aim at AWS and Google, Cloudflare is trying to lure developers to build on its tech by promising to connect them with VCs like IVP, Lightspeed, and Bessemer who agreed to support it.
California companies will have to start publishing their pay ranges on job postings. In a push towards pay transparency, CA Gov. Gavin Newsom signed a bill that will require companies with more than 15 employees to disclose their pay ranges.
Moves: MoviePass’ former CEOs are facing fraud charges by the SEC. Interpol is looking for Terraform Labs founder Do Kwon, who says that he’s not on the run.
From Protocol: Figma thinks its future will be brighter with Adobe, and it could one day involve video or 3D objects too, its CPO Yuhki Yamashita told Protocol.
Also from Protocol: RPA giant UiPath had a rocky few years. Rob Enslin wants to turn it around.Your weekend reading: Crypto enthusiasts moved to Puerto Rico en masse for its tax laws, but Hurricane Fiona has made the tension grow between the island and the crypto class.
The VC correction is proving once again that valuations are not an indicator of success. While money continues to flow, the crypto winter and VC slowdown have forced even the most committed Web3 venture capitalists (and their investors) to proceed with more caution.
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