Protocol Index: VC funding begins to slide


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Today: venture investment is slowing, WeWork's having an all-hands, and if you go on TV you should tell the truth.

What Matters Today

  • 5:30 a.m. PDT: The IMF will release its World Economic Outlook, the first update since January. Expect it to be bleak.
  • 8:05 a.m. PDT: St. Louis Fed President James Bullard speaks; he recently suggested the unemployment rate could hit 30%. Chicago Fed President Charles Evans follows at 9:30 a.m. PDT.
  • Also: WeWork CEO Sandeep Mathrani and executive chairman Marcelo Claure are expected to address employees in an all-hands meeting. Watch out for leaks.

Layoff Watch

Today's News

As of 4:15 a.m. PDT: Nasdaq Futures: 1.26% | Euro 600: 0.59% | Nikkei: 3.13% | Hang Seng: 0.56%



  • YouTube ad rates have reportedly dropped almost 50% since the start of February.
  • Airbnb has reportedly paused plans on a TV production studio and a private jet rental business.
  • GrubHub, DoorDash, Postmates and Uber Eats have been sued by customers alleging that they force restaurants to charge the same menu prices for delivery and eat-in, despite delivery's higher fees.
  • Only 15% of restaurants think they can stay in business if the crisis lasts six months.
  • The G20's Financial Stability Board laid out recommendations for regulating stablecoins such as Libra.
  • Advanced economies could shrink 35% on an annualized basis this quarter, according to Goldman Sachs.

Diving Deeper

VC funding was down last quarter (but only a little)

PitchBook and NVCA's quarterly Venture Monitor report is out this morning, and it confirms that U.S. VC funding began to slip as the coronavirus crisis took hold.

  • 2,298 deals were closed last quarter, compared to 3,162 in Q1 2019; with a total value of $34.2 billion vs. last year's $35 billion. The small dip is likely because many deals were already in progress before markets started their meltdown.
  • Exits were markedly down. $19.3 billion worth of exits took place last quarter (with the majority of that coming from acquisitions), 53% lower than Q1 2019's $52.4 billion. This is the first quarter since 2016 where acquisitions have made up the majority of capital exited.

Despite the slowdown, valuations remain high.

  • The median pre-money angel valuation was $7.5 million, compared to a $7 million average over all of 2019, but seed valuations dipped slightly from $8 million to $7.8 million.
  • Early stage valuations hit an all-time high, with a median of $29.4 million. Early stage deal sizes also set a record, with a median of $6.7 million invested. That was driven by a surge in investments exceeding $10 million, which now comprise almost 40% of all early-stage deals.
  • And VC fundraising held steady: Funds raised $21 billion last quarter, compared with $50.9 billion in all of 2019. That money is increasingly concentrated in bigger funds, though.

The data tells a story of a slowing market, but it's not too dramatic. We'll see the full impact of coronavirus in this quarter's data. Meanwhile, new data from China might give a sense of what's to come:

  • VC investment in China's tech sectorfell 31% last quarter from a year earlier, according to
  • But other data suggests a recovery might come quickly. The Asian Venture Capital Journal found that Chinese startup investment increased sixfold between February and March, rebounding from $410 million to $2.5 billion. A similar bounce back in the U.S. could assuage many fears.


  • "As a result of the increasing restrictions on our ability to conduct business, we would like to inform you that we will be reducing our monthly rent obligations effective immediately." — An email Tesla reportedly sent to its landlords.
  • "I'd say we're at 60% speed while we work on a lot of internal stuff, but valuations are dropping by 30% - 50%." — Alpha Bridge's Jake Chapman says valuations are falling more than activity.
  • "This has been a terrible episode for everyone, but it will provide opportunities for those who keep their eyes open." — Naspers CEO Bob van Dijk told the Financial Times that he's looking for acquisition opportunities.
  • "While esports is more mainstream than it ever has been, it's still a big niche at this point for many of our clients." — Horizon Media's Adam Schwartz on why esports isn't seeing a huge surge in ad revenue.
  • "This is completely shameless of the tech companies — even by their low standards." — Tax Justice Network's Alex Cobham, on lobbyists' attempts to delay the U.K.'s digital services tax.

Everyone's Thinking About

SoftBank's very big loss

SoftBank told investors yesterday that it expects a $13 billion operating loss from the last fiscal year, its worst ever performance. No surprise: One particular aspect of SoftBank's business is to blame — the Vision Fund.

  • SoftBank said the fund lost almost $17 billion, with further losses attributed to its stakes in WeWork and OneWeb.
  • Everyone knew things were bad, but it's pretty sobering to see just how bad. The Wall Street Journal reports that the fund is "likely down since its launch three years ago," which is probably not what investors like Saudi Arabia want to hear.

Now, it's too early to write off the fund entirely: It could bounce back! But for now at least, those investors will be very wary of giving SoftBank any more cash, removing what has been a huge source of startup capital.

  • Nontraditional investors like sovereign wealth funds can get particularly flighty in a crisis. PitchBook reports that nontraditional deal participation dropped almost 30% between 2008 and 2009, compared to a 5% drop in overall VC deal count.

So what does that mean for the startup ecosystem?

  • First, less capital means lower valuations, particularly at the later stage where the Vision Fund invested.
  • Second, companies that were relying on the Vision Fund to stay private might no longer be able to. They'll be forced to go public in a pretty unpleasant environment.
  • The upshot? SoftBank's woes make down rounds an awful lot more likely.

Closing Bell

Be careful what you say on TV

If you run a telehealth software company, you might think that now is a great time to go on Fox & Friends to talk up how amazing your tech is and how, I don't know, you have made next-day coronavirus tests. But as the FT's Kadhim Shubber pointed out, you'd be wrong! Because the SEC is always watching, and it will question the "accuracy and adequacy of information in the marketplace." And then it will suspend your stock for a week and a half. Oops.

Thoughts/feedback/tips? Email me — — oranonymously contact Protocol. And subscribe to get Index in your inbox each morning. Thanks for reading, see you tomorrow.

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