May 21, 2022
Photo: Mark Basarab via Unsplash
Hello, and welcome to Pipeline. My name is Biz Carson, and I’m currently watching old seasons of “Survivor” (finally made it to season 26!). This week: why some VCs are secretly relieved right now, dirty term sheets are back, and why you should never get a portfolio company tattooed on your arm.
Let me let you in on a dirty secret: A lot of investors are secretly relieved this correction is happening.
Despite the doomsday tweets and the blaring red of the stock market, investors I’ve spoken with this week have also breathed a sigh of relief at the correction and a hopeful return to lower prices and a slower investing pace. “I’m even going to plan a summer vacation,” one person giddily told me, anticipating the return of the VC Summer™ .
That’s not to say that there isn’t a lot of pain right now in all parts of the ecosystem. VCs are not flippantly dismissing the human toll of laid-off workers and stressed-out founders, and they are spending a lot of time right now counseling companies and talking them through how to cut costs or do layoffs.
But even as the times are hard, there’s also a healthy recognition among many in the venture community that the “new normal” that emerged in the “Loom, Zoom, room” era wasn't actually normal at all. A correction wasn’t just inevitable. It’s welcome.
Things really are slowing down, and some VCs are relishing the chance to run a longer deal process compared to the breakneck pace of 2020 and 2021.
Reading the pitch-deck tea leaves, investors are showing they’re both reading less and caring more about different things — yes, even at the early stage.
There’s also widespread relief about prices coming down. Many investors had been balking at prices but paying anyway.
Investors may be glad to hop off the treadmill of the last few years, but there’s been little introspection so far on who kept punching up the speed button. Y Combinator, for example, took some heat publicly after it published its take on the downturn. “YC’s batten down the hatches email has 10 bullet points on handling the downturn. But no word apologizing for advising founders to overvalue their companies in what was an insane previous market,” Danielle Strachman said. While the a16z folks were maligning how startups came up with absurd ways to spend money, its founder was drinking an $842 bottle of whiskey (spotted by eagle-eyed reporter Eric Newcomer). Then the firm released a hype video to announce its new gaming fund.
Perhaps some correction introspection on what was not normal about the “new normal” could be a good thing for the next set of VC advice essays.
The “dirty term sheet” is back, according to Benchmark’s Bill Gurley. In a tweet thread, he warned operators from taking bad terms just to keep up valuation appearances. “Taking a terms-laden deal is like starting the clock on a time bomb.”
That’s if you even get one. “I’ve seen more term sheets pulled in the last month than in the last decade,” tweeted First Round’s Josh Kopelman. Take it as a warning that it could happen to you.
2021 VC language vs. 2022 VC language. FirstMark’s Matt Turck wins tweet of the week for his hilarious translation of last year’s “Blitzscale! Burn!” VC chants to this year’s “We believe in financial discipline” language.
The worst tattoo ever? Crypto investor Mike Novogratz embodied the phrase “Lunatic” when he got a wolf-themed tattoo in support of the luna cryptocurrency. Now after luna’s collapse, he says that it “will be a constant reminder that venture investing requires humility.” At least he didn’t name a child after the project, which luna’s controversial creator Do Kwon did.
There are a lot of other lists out there, but they’re all missing something: most of the planet. Rest of World 100 highlights tech players around the world. They might not all be household names in the West, but together, their efforts impact more people than anyone in Silicon Valley.
It was boom times again — at least when it came to VC advice. Here’s a compilation of how venture capital firms are (publicly) advising founders, LPs and other VCs:
Tiger Global slashed its tech-stock stakes. The firm has entirely unloaded its positions in Bumble, Airbnb, Affirm, PayPal and DiDi, and cut back on companies like Intuit, Zoom, Robinhood and Peloton.
Klarna could see its valuation cut by a third. The WSJ reported that the “buy now, pay later” fintech startup could see its $46 billion valuation sliced to the “low $30 billion range” as it allegedly tries to raise more capital.
Cerebral fired its CEO, a move Kyle Robertson claimed was illegal. The mental health startup is facing regulatory scrutiny, too.
The FTC plans to crack down on ed tech companies. The FTC is eyeing education companies that “force parents and schools to surrender their children’s privacy.”
From Protocol: SaaS valuations cratered in early 2022. But these startups thrived.
Also on Protocol: Bobbie, a venture-backed baby formula startup, is caught in the center of a supply chain crisis.Your weekend reading: “A crime beyond belief” captured in a story beyond belief. You’ll want to read the hard-to-believe-it’s-true crime story that starts with a Harvard-trained lawyer robbing homes in Silicon Valley and goes from there.
Kleiner Perkins veteran Ted Schlein is fully focused on cybersecurity with his new firm, Ballistic Ventures. As general partner, he’ll be working with other industry legends like Barmak Meftah, Jake Seid, Derek Smith, Roger Thornton and Mandiant founder Kevin Mandia to invest the $300 million they raised for its cybersecurity-focused debut fund.
What’s been the biggest shift from working at a large firm like Kleiner to starting a specialized fund?
My time at Kleiner Perkins has been fantastic and the team there is doing great. At Ballistic, since we are all cybersecurity geeks, we can start every conversation halfway through. There is a deep understanding of the subject matter by everyone on the team. Plus all resources are focused in one market segment.
What product or service are you totally, even irrationally, loyal to?
I guess on a consistent basis, it would be the Spelling Bee app in the New York Times. It drives me crazy if I can’t find the “pangram” and become a genius on a daily basis.
What is the biggest issue that your partners are talking about at your partner meetings?
Mostly we argued over the names of the conference rooms in the new office. After that, we spend a lot of time talking about what will matter. What I mean is there is very little interest within this group to do incremental projects; it is a team that wants to make a difference, so we spend quite a bit of time discussing what types of ventures will make the world a safer place.
You work closely with the intelligence community. What do you think is the biggest misconception startups have about working with the government?
A startup needs to understand that selling to a commercial customer is completely different than selling to a government customer. Sales cycles are longer, acquisition process is completely different and complicated. This is a place to hire a specialist with this expertise.
What was your first job, and what’s a skill you still use from it?
I arrested shoplifters at Macy’s. So I guess I’d say I have spent my entire career trying to stop bad guys, whether in the physical world or digital world.
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