November 27, 2022

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Venture capital will soon be full of ghosts • Eureka News Now

5 min read

Welcome to Startups Weekly, a nuanced take on this week’s startup news and trends from senior reporter and equity co-host Natasha Mascarenhas. To get this in your inbox, subscribe here.

“There are more dry powders than ever before.”

“There has never been a better time to start a startup.”

“Discipline is the new standard.” (OK, OK, I made that last one up, but somehow you didn’t believe it?).

The tech industry loves generalizations — and don’t worry, I enjoy my fair share too — but as the downturn continues, it’s becoming increasingly important to reflect on the structural changes that may be emerging in the venture capital landscape. Venture firms, unlike unicorns, often don’t have hundreds of employees to cut. Instead, venture firms cut costs in a quieter way.

At Eureka News Now Disrupt last week, General Catalyst’s Niko Bonatos said venture firms must go through natural selection cycles and that it will be the “survival of the fittest.”

“It’s a very painful activity for anyone who has been through something like this,” Bonatsos said onstage with Coatue’s Caryn Marooney. Talking about how hundreds of new VC firms will either decide to merge with each other to “build a more enduring franchise,” he said some would leave the VC profession and others would lose senior partners to retirement and have to figure out what the Future is what their companies will look like.

Tracking human resources activities in venture land provides some examples. For example, Initialized Capital co-founder Garry Tan is leaving the firm to join Y Combinator as President. Tan’s exit rocks the company he co-founded. He held the fort after the company’s other co-founder, Alexis Ohanian of Reddit, resigned in 2020.

Another team that has had its fair share of internal changes during the pandemic is Backstage Capital. The firm cut most of its staff four months ago, affecting nine of the 12-strong team. The dismissal comes nearly three months after Backstage Capital narrowed its investment strategy to only participate in subsequent rounds of existing portfolios. This downsizing further underscores that the venture capital firm is struggling to grow, both externally due to a lack of dry powder and internally.

Marooney, a general practitioner at Coatue, says companies “have to earn the right” to survive. “There was the way you made some investments and made money. It’s like, no, you have to earn the right and not everyone is going to earn that right… and I think that’s healthy,” the investor said.

I’ll end with a term we’ve danced the whole intro around, namely “silent cessation”. Bloomberg beta investor Roy E. Bahat posted a thread describing how veteran venture capitalists are silently switching to “simple mode”,” aka becoming a less active, minimally viable player on the team. Maybe her name helps the company close new funds with LPs, and maybe her calendar doesn’t need to be filled with a ton of introductory calls, just annual investor meetings.

When we combine silent cessation with natural selection cycles and the difficulty of tracking how active a venture capitalist is, we experience a confusing, fragmented landscape. No one has any incentive to say they are not carrying on as usual, creating a landscape of extremes.

Sure, there are natural career cycles, but I imagine in a remote world where a partner at a VC firm has been watered down to mean many, many things, it’s becoming increasingly difficult to keep track of who did what and how often does. Today, there are the investors who are ghosting out there based on sheer deal flow, and there are the investors who are ghosting themselves. Ha.

Just something to note. In the rest of this newsletter, we talk about Clubhouse, the latest tech layoffs, and why AV tech can’t be bailed out with $1 billion in capital.

If you like this newsletter, would you do me a quick favor? Forward it to a friend, share it on Twitter and follow my personal blog for more content.

Clubhouse and the Vogel app

One of my favorite interviews Eureka News Now Disrupt was last week with Clubhouse CEO and co-founder Paul Davison. We hopped onto the TC+ stage to talk about competition and of course what happens when the beginning of your business is dominated by hype and celebrity.

That’s why it’s important: Davison spoke about its competition, namely Twitter Spaces, and how Clubhouse sees its long-term differentiation. As you’ll read in the article, he’s bullish on a more private take on social audio – a space he believes can only be won by an app dedicated solely to the medium, rather than dedicated to a series to devote to various services.

The tide is turning on Tech’s layoffs. Kind of.

According to data tracker, over 780 companies have laid off some of their staff this year. The downsizing will affect at least 92,558 known people. The actual number is likely higher given the delays in reporting.

Here’s why it’s important: The same data source suggests the tide is shifting somewhat in terms of the pace of tech layoffs. Almost 70% of those laid off this year lost their jobs in May, June, July and August.

Since the sad summer, layoffs have declined. There were half as many layoffs in September as in August, and new layoffs slowed in October while the number of employees increased slightly from August. Read more about how the tide is changing in my latest article for Eureka News Now.

Argo AI says goodbye

Transport editor and one of my favorites, Kirsten Korosec, brought major news this week: Argo AI, backed by Ford and Volkswagen, is shutting down. The autonomous vehicle startup raised $1 billion after launching in 2017.

Here’s why it’s important about Korosec: The commercialization of AV technology has always been a capital-intensive game, which means the barrier to entry is more like a brick wall than a speed bump. The tide has turned in the last two years towards driver assistance systems and the monetization of passenger cars that exist today.

By the way, subscribe to Korosec’s newsletter, The Station, a weekly bulletin all about transportation. It’s her turn too Twitter.

Photo credit: Argo AI

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Same time, same website, next week?


Venture capital will soon be full of ghosts • Eureka News Now

Image credit: Bryce Durbin/Eureka News Now

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