Companies across the U.S. are scrambling for coronavirus aid. Battered airlines are pressing for no-strings-attached bailouts. Meanwhile, Silicon Valley, a place founded on an ethos of big risk and big reward, has emerged as a wellspring of dissent. A growing roster of prominent tech leaders have slammed the handouts for helping shareholders, and warping incentives, at the expense of taxpayers and workers.
In at least one case, a CEO is speaking out even as his company seeks stimulus cash.
"The vast majority of the stimulus is going to support asset prices for the top 1%, and the stimulus for the working class is relatively tiny," Chris Hulls, CEO of family tracking and networking app Life360, told Protocol. He spoke after taking aim at the federal bailouts in an expletive-laced tweetstorm.
Some other Silicon Valley players have similarly criticized the shape of coronavirus aid, which is intended to keep capital flowing, protect industries and save jobs in hopes of warding off greater collapses. Social Capital CEO and Golden State Warriors owner Chamath Palihapitiya went viral after he told a CNBC interviewer that the billionaires and hedge funds backing poorly performing companies "deserve to get wiped out" by the pandemic.
"Just to be clear, who are we talking about? We're talking about a hedge fund that serves a bunch of billionaire family offices?" he said in the interview, which once posted to Twitter racked up more than 50,000 likes and 18,000 retweets. "Who cares? Let them get wiped out. Who cares? They don't get to summer in the Hamptons? Who cares?"
Bill Gurley, Benchmark general partner and early Uber backer, joined the fray as well: "I invest in equity as a living, and I beg you — wipe the equity," Gurley tweeted. He argued, "If you believe in business & capitalism, then there are zero circumstances where the government should bail out equity holders."
Mark Cuban, the dot-com billionaire, "Shark Tank" star and Dallas Mavericks owner, called on the Trump administration to demand an equity stake in any company that receives a bailout and impose strict conditions, including no stock buybacks.
"If I gave a company money, I would want equity, preferential [shares], warrants, whatever we negotiate," Cuban, who is considering a late presidential run as an independent, told Protocol. "If they don't like my deal they can go elsewhere. The same should apply for taxpayer money." He made similar arguments in a series of recent television interviews.
In Hulls' case, his public criticism comes as Life360 is expected to qualify for the $350 billion Paycheck Protection Program, which provides forgivable loans to businesses with fewer than 500 employees. Hull admits his company, though hurt by coronavirus, is hardly the neediest applicant. It went into the crisis with a half-billion-dollar valuation and a healthy reserve of cash in the bank.
"It's set up these perverse incentives," Hulls said, "where companies that don't really need the money will be getting it. It's this weird situation where if you don't apply, you're doing something bad for shareholders from a fiduciary perspective. Saving the economy is not the same as saving millionaires and billionaires."
To be sure, the tech industry is more than a handful of outspoken execs and investors. When the $2 trillion coronavirus stimulus bill was unveiled, one of the first things that many in the industry keyed in on was a provision that would have made many VC-backed startups ineligible for small-business loans designed to fund payroll.
They pushed to get the Trump administration to grant an exception. In Washington, industry lobbyists continue to fight hard to make sure tech companies have access to a robust bite of the stimulus pie.
At the same time, many in Silicon Valley are still benefiting from provisions of the 2008 bailout, especially the qualified small-business stock exclusion, which allows investors in startups to avoid taxes on the first $10 million in capital gains or 10 times the initial investment, if they hold the stock for five years. Originally conceived as a temporary break to encourage investment in new businesses to jumpstart the economy, the tax break is today a boon worth millions to venture funds and other big tech investors.
The current government relief package, passed by Congress in March, is part of a historic effort to stave off one of the deepest and most sudden economic downturns the U.S. has ever seen. Stimulus is widely viewed as necessary as shelter-in-place orders force people to stop traveling, businesses to shutter and unemployment figures to explode.
But where that cash goes is hotly contested. Many of the companies and industries receiving government bailouts, such as the airline industry — set to receive a $50 billion bailout, including $25 billion in direct cash grants — are struggling to weather the crisis in part because they spent much of their excess cash in recent years on stock buybacks to prop up their share price and enrich executives.
While criticism of the bailouts has come from many quarters, large investors and CEOs have been largely silent or supportive. And so the growing roster of tech leaders who have emerged as critics is all the more noteworthy.
"Is it fair that: I win = I keep my money. I lose = you give me yours?" Hulls wrote in his 10-tweet thread over the weekend.
"I think some entrepreneurs recognize that there is a bigger picture than any one company and are willing to share their opinions and most importantly have candid conversations in hopes of making everyone more aware of the challenges involved," Cuban, who made his first billions off the sale of Broadcast.com to Yahoo, told Protocol.
Another explanation for this tech strain of bailout skepticism: the idea of intervening with poorly performing companies doesn't jibe with a culture that thrives on taking big-risk bets on long-shot startups. Who in Silicon Valley hasn't founded, invested in or worked for a company that failed? For much of the tech world, it's how the game is played. Why should it be any different in other parts of the economy?
"It's the startup ethos," said Semil Shah, the founder of Haystack, the Menlo Park-based venture fund. "You take a risk starting a company, and it could be the opportunity cost of having a great job and a steady income. It could be the social risk of being seen as a failure and time away from family and loved ones. Or it could be financial risk: You work on something for three or four years, it doesn't work, and you get a crappy financial outcome. There are no bailouts for that."
Palihapitiya and Hulls both landed in tech after starting off on Wall Street — which tech lore holds, rightly or not, as the greedy antithesis to Silicon Valley's do-good ethos. Tech leaders' willingness to speak out against the sort of bailouts that have been associated with Wall Street ever since the 2008 financial crisis is part of what sets the Valley apart from Wall Street, Hulls said.
Describing his first job at Goldman Sachs, Hulls said the attitude was "get rich and get laid." Palihapitiya once said of his stint trading derivatives that "people in banking and finance are smart enough to be greedy but not really smart enough to be useful."
"These people are just kind of stupid," he said.
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There are also more practical reasons why Silicon Valley might be more inclined to question the wisdom of government bailouts. If those handouts wind up propping up startups that would otherwise fail, it could undermine the ecosystem that has underpinned tech's decades-long run. That ecosystem depends on a rigorous process of natural selection to determine which new ideas and young companies thrive and which fail, and to channel talent and capital to where it can have the biggest impact.
"The reality is that the failure rate of startups is part of what makes the ecosystem work: the recycling of capital and talent, the communication of important information around what markets are viable, and what are not," Matt Clifford, CEO of Entrepreneur First, told Protocol in a recent interview. "If the failure rate within, say, a two-year period of seed-funded startups went from 75% to 30%, because there's tons of government money flowing in, it's going to massively distort the market. It's going to keep good people working on bad things for longer, and it's going to make it much, much harder for people with good ideas to succeed."
It might also come down to just a little bit of guilt felt by an industry that has subsumed a staggering share of the world's economy in an astoundingly brief window of time, and whose contributions to society are increasingly coming under scrutiny.
"There's some level of guilt about doing well when others are suffering," Hulls said. "If you win a game on a level playing field, that's one thing, but if you win in a rigged system, that doesn't feel as good."