Politics

'Kick in the teeth': Startups pivoting again after warning on SBA loans

If businesses already applied for a loan through the PPP but believe they don't fit the bill anymore, they have until May 7 to return the money.

Steven Mnuchin

Steven Mnuchin's Treasury Department released stricter guidance for businesses seeking emergency loans.

Photo: Yuri Gripas/Abaca Press/Bloomberg via Getty Images

Venture capital-backed startups are once again recalibrating their stances in applying for coronavirus stimulus loans after the Treasury Department sent out new guidance.

The guidance, released late Thursday, places stark parameters around how startups should assess whether they need loans from the Small Business Administration, putting the onus on individual companies and their lawyers to take a hard look at whether they could obtain money from investors rather than the government.

"It's important that startups show evidence that they did a thorough, good-faith evaluation of their access to other sources of liquidity before they apply," said Trevor Loy, an investor at FlyWheel VC. "Even if the answer is no, you need to show evidence that you asked the question and got the answer."

The Treasury Department also clarified that businesses must prove they need the money because of struggles related to COVID-19. And there's a warning: If you already applied for a loan through the PPP but feel like you don't fit the bill anymore, you have until May 7 to return the money.

Ed Zimmerman, a lawyer who specializes in venture capital and startups at Lowenstein Sandler LLP, called the new guidance a "kick in the teeth."

"We've previously begged @USTreasury @SBAgov for more guidance on what the certification of need means & Treasury has now given us RETROACTIVE GUIDANCE," Zimmerman tweeted. "The Goal Posts Have MOVED after the game was played!"

Cooley, a law firm that has been advising VC-backed firms on government aid, responded to the guidance with urgent advice: "To the extent that applicants did not specifically consider alternate sources of liquidity in connection with their initial application, it is clear from the FAQs that they should."

The new guidance could result in a slew of VC-backed startups retracting applications or even returning the money. One industry source told Protocol that it's not entirely clear what the guidance means in practice, but noted that many venture capital firms don't have money set aside to help out existing companies.

"A lot of times, when a venture fund raises money, it's not all for existing companies — it's for money in the future," the source said. "You can look at this and ask, 'Wow, your venture firm has a lot of money, why can't you get that?' But … that money may only be for growth milestones, that money may only be available for new companies. … All those factors can mean that the funds may not be available to the company to sustain ongoing operations."

The PPP ran out of money last week, but it is expected to begin accepting applications again on Monday after receiving a $310 billion infusion from Congress. President Trump signed a relief package freeing up $484 billion in additional funding, part of trillions in spending designed to rescue the battered economy.

"Consequences of new guidance seem clear," tweeted Mark Suster, the managing partner at Upfront Ventures. "If you believe you have other sources of capital not detrimental to your business, you should not accept PPP loan. … I believe founders should consider re-discussing with board calls to discuss whether the board still agrees [to] accepting PPP."

Fintech

Circle’s CEO: This is not the time to ‘go crazy’

Jeremy Allaire is leading the stablecoin powerhouse in a time of heightened regulation.

“It’s a complex environment. So every CEO and every board has to be a little bit cautious, because there’s a lot of uncertainty,” Circle CEO Jeremy Allaire told Protocol at Converge22.

Photo: Circle

Sitting solo on a San Francisco stage, Circle CEO Jeremy Allaire asked tennis superstar Serena Williams what it’s like to face “unrelenting skepticism.”

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Benjamin Pimentel

Benjamin Pimentel ( @benpimentel) covers crypto and fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at bpimentel@protocol.com or via Google Voice at (925) 307-9342.

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Great products are built on strong patents

Experts say robust intellectual property protection is essential to ensure the long-term R&D required to innovate and maintain America's technology leadership.

Every great tech product that you rely on each day, from the smartphone in your pocket to your music streaming service and navigational system in the car, shares one important thing: part of its innovative design is protected by intellectual property (IP) laws.

From 5G to artificial intelligence, IP protection offers a powerful incentive for researchers to create ground-breaking products, and governmental leaders say its protection is an essential part of maintaining US technology leadership. To quote Secretary of Commerce Gina Raimondo: "intellectual property protection is vital for American innovation and entrepreneurship.”

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James Daly
James Daly has a deep knowledge of creating brand voice identity, including understanding various audiences and targeting messaging accordingly. He enjoys commissioning, editing, writing, and business development, particularly in launching new ventures and building passionate audiences. Daly has led teams large and small to multiple awards and quantifiable success through a strategy built on teamwork, passion, fact-checking, intelligence, analytics, and audience growth while meeting budget goals and production deadlines in fast-paced environments. Daly is the Editorial Director of 2030 Media and a contributor at Wired.
Enterprise

Is Salesforce still a growth company? Investors are skeptical

Salesforce is betting that customer data platform Genie and new Slack features can push the company to $50 billion in revenue by 2026. But investors are skeptical about the company’s ability to deliver.

Photo: Marlena Sloss/Bloomberg via Getty Images

Salesforce has long been enterprise tech’s golden child. The company said everything customers wanted to hear and did everything investors wanted to see: It produced robust, consistent growth from groundbreaking products combined with an aggressive M&A strategy and a cherished culture, all operating under the helm of a bombastic, but respected, CEO and team of well-coiffed executives.

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Joe Williams

Joe Williams is a writer-at-large at Protocol. He previously covered enterprise software for Protocol, Bloomberg and Business Insider. Joe can be reached at JoeWilliams@Protocol.com. To share information confidentially, he can also be contacted on a non-work device via Signal (+1-309-265-6120) or JPW53189@protonmail.com.

Policy

The US and EU are splitting on tech policy. That’s putting the web at risk.

A conversation with Cédric O, the former French minister of state for digital.

“With the difficulty of the U.S. in finding political agreement or political basis to legislate more, we are facing a risk of decoupling in the long term between the EU and the U.S.”

Photo: David Paul Morris/Bloomberg via Getty Images

Cédric O, France’s former minister of state for digital, has been an advocate of Europe’s approach to tech and at the forefront of the continent’s relations with U.S. giants. Protocol caught up with O last week at a conference in New York focusing on social media’s negative effects on society and the possibilities of blockchain-based protocols for alternative networks.

O said watching the U.S. lag in tech policy — even as some states pass their own measures and federal bills gain momentum — has made him worry about the EU and U.S. decoupling. While not as drastic as a disentangling of economic fortunes between the West and China, such a divergence, as O describes it, could still make it functionally impossible for companies to serve users on both sides of the Atlantic with the same product.

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Ben Brody

Ben Brody (@ BenBrodyDC) is a senior reporter at Protocol focusing on how Congress, courts and agencies affect the online world we live in. He formerly covered tech policy and lobbying (including antitrust, Section 230 and privacy) at Bloomberg News, where he previously reported on the influence industry, government ethics and the 2016 presidential election. Before that, Ben covered business news at CNNMoney and AdAge, and all manner of stories in and around New York. He still loves appearing on the New York news radio he grew up with.

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Photo: Courtesy of Contrary

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.

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Biz Carson

Biz Carson ( @bizcarson) is a San Francisco-based reporter at Protocol, covering Silicon Valley with a focus on startups and venture capital. Previously, she reported for Forbes and was co-editor of Forbes Next Billion-Dollar Startups list. Before that, she worked for Business Insider, Gigaom, and Wired and started her career as a newspaper designer for Gannett.

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