(Editor's note: Would you like to receive this free weekly summary of theinformationsuperhighway news that startups can use by email? Subscribe here.)
Multiple liquidation preferences, full-ratchet anti-dilution clauses, and pay-to-play provisions are some of the words founders of startups who have weathered the downturn in recent decades are still following. So far, however, investors in this downturn seem to have spared the brutal conditions that arise when money has all the leverage.
Why? It's easier to make a company fail by saying no to funding * than to keep it together with terms that ordinary shareholders cannot possibly inspire – or so you can read between the lines of investors, founders, and tech lawyers, Connie Loizos spoke for theinformationsuperhighway this week.
Overall, investors seem to fear losing their long-term reputation and missing out on the next big company, as has been the case in the startup world for many years. At least so far again.
As lawyer Mike Sullivan, partner and head of the group in Orrick's San Francisco office, notes, just not enough business is being closed to draw comprehensive conclusions. "I haven't seen investors try to take advantage of companies because of the crisis," says Sullivan, "but I don't have a lot of data points. I think it's too early to say whether we'll see the conditions we saw in the nuclear winters of 2001 and 2002 ”after the dotcom boom ended.
Your mileage can of course vary. A New York lawyer said that the harshest conditions recently came from growth companies on the east coast, which had increasingly focused on the numbers anyway.
* Speaking of no, a new report from tech law firm Fenwick & West describes a sharp drop in Silicon Valley funding in March that we all knew was happening. Further analysis by Alex Wilhelm about extra crunch.
An early focus could now favor smaller investors
Many venture companies that started small a decade or two later became later as their portfolios grew with the booming markets. Now they have much to do later. The result is that founders may be more successful in attracting committed early-stage investors than in multi-tier foundations. Learn more about the dynamics as described by Aileen Lee from Cowboy Ventures to Jordan Crook in our first (and very popular, thanks for participating in all) live video call in a series we call Extra Crunch Live:
But I think the multi-tier companies that have an early stage fund and a growth fund, for example, are in a different zone. They often have many portfolio companies with very high burn rates and lots of money, so they have a different triage level with these portfolio companies. In some cases, because the market has been so hot in the past 10 years, they also had a shopping list of companies they could have invested in, and maybe those companies are taking an additional $ 50 million or $ 100 million right now. Many of the multi-tier companies will focus on putting a little more money into Stripe or Airbnb, or the companies they'd like to be exposed to.
She further notes that many investors are now ready to invest in general, and she now spends 50% of her time talking to new companies (compared to almost all portfolio work a few weeks ago).
The boom in spontaneous social apps
The clubhouse has received the most attention in some technology circles lately, but it's part of a much bigger trend that Josh Constine has followed for theinformationsuperhighway. The "spontaneous" apps, which make it easy to speak to everyone else in quarantine, could also remove existing obstacles to communication in the future. This is how he defines the concept:
What the quarantine has shown is that spontaneity is a big deal that you'll miss when you separate everyone. In your office, this may be that you happen to be chatting to a colleague with a water cooler or commenting out loud on something you found online. At a party, you might be chatting with a group of people because you know one of them or are listening to something interesting. This is missing while we are stuck at home because we happened to stigmatize a friend who, despite lack of urgency, differs from asynchronous text.
The big question is whether people stay spontaneous when things normalize and we can all go back to our old routines. Given the long-term trends towards remote work and more private, personalized communication, I agree with Josh that we are looking at a real part of the future.
Oh also, do you want to hear more about Clubhouse? Don't miss last Monday's Equity Monday.
What fintech investors see in the pandemic
In our latest weekly investor surveys for extra crunch, we asked top fintech investors how they deal with the pandemic and what trends they have in the long term. Here is Matt Harris from Bain Capital Ventures, what a fintech startup needs to survive (and be successful) now:
The survival of fintech startups until 2020 depends less on the phase than on the two dimensions I mentioned earlier – vulnerability to cash balances, combustion and income durability, and direct impact of COVID-19 on their topline. Regardless of the phase, startups face both operational and fundraising challenges. Many of the companies that survive will do so for the good luck of their business model or fundraising timing, while others will have to actively change the way they work in today's world. In general, we've seen the greatest strength in B2B companies with recurring revenue models, especially in companies that help companies automate and move analog processes online.
All about theinformationsuperhighway
Extra Crunch Live: Meet Mark Cuban on April 30th at 11 a.m.ET / 8 a.m.PT for a Q&A.
Extra Crunch Live: Navigate the pandemic with a just lens
Throw us your best 60 second pitch at Pitchers and Pitches on May 13th
Introduction of the Digital Startup Alley package for Disrupt SF
In the course of the week
Y Combinator officially changes its next accelerator class to a completely removed format
The pandemic will force sport to redefine the fan experience
How to understand the corona virus chaos
What is contact tracking?
Can employers prescribe COVID 19 tests?
An IPO? In this economy?
Dear Sophie, how can we support our colleagues with a migration background with layoffs?
The changing face of labor law during a global pandemic
6 investment trends that could result from the COVID 19 pandemic
Will China's Corona Virus Trends Shape the Future for American VCs?
Hello and welcome back to Equity, theinformationsuperhighway's venture capital podcast, where we unpack the numbers behind the headlines.
This week we had a choice of all sorts of news, but when we put the show together as a group, Danny put all the funding rounds together. When Alex and Natasha jumped on the show, we had a lot of good news to report. We avoid COVID-19 news, but the pandemic is only part of the larger story we'd like to tell. Corona virus will always be part of our interviews for the foreseeable future. However, the conversation cannot start and end there.
So what was up to date? Three things: early-stage accelerator news, rounds of funding, of course, and some dismissal news worth mentioning as they may go beyond the unfortunate hosts.