If I received a note from an investor stating, “although somber, this data is not meant to alarm you,” well, I might be alarmed.
But that quote from Reach Capital represents a slew of memos sent in recent days by venture firms to portfolio companies offering advice and asking questions about how founders are positioned for a downturn.
Natasha Mascarenhas obtained emails from Y Combinator, Lightspeed, Reach and January Ventures that contained standard suggestions for conserving runway and rethinking valuations in “an extremely capital constrained environment.”
In short: save your money, and if you plan to ask for more, expect less generous terms.
My time in tech has spanned a couple of recessions, so a lot of this feels familiar. If history is a guide, the entrepreneurial class will bounce back — I’m more concerned about the fortunes of mid- and entry-level startup workers whose personal runway might consist of a few months’ rent.
Unicorns and decacorns have already let go of thousands of employees in the last few months, and the layoffs are just beginning. Ignore those Memorial Day sales; winter is coming.
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If you work in a startup, here’s some frank advice: Your managers are not giving you the full picture of your company’s financial situation because being less than transparent helps them maintain productivity and reduce attrition.
And if/when the layoffs come, they’ll be awkward and poorly handled, because your boss has probably never fired anyone before.
Tech workers in highly specialized, non-fungible roles are usually the ones who turn out the lights on the last day. Everyone else? Save your paychecks, rethink your summer vacation plans, and find ways to support friends and colleagues in this time of uncertainty.
Thanks very much for reading,
Senior Editor, TC+
IP and cybersecurity disputes are top legal concerns for tech companies
Litigation can be a drain on resources at the best of times, so it’s understandable that tech companies are shoring up their legal defenses with recession looming on the horizon.
In its annual litigation trends survey, law firm Norton Rose Fulbright found that patent and IP disputes were top legal concerns for technology managers, “followed by cybersecurity and data protection issues.”
Cisco’s latest results indicate a reckoning may soon be at hand
Is networking leader Cisco in the doldrums?
Ron Miller and Alex Wilhelm pored over the company’s recently released quarterly results and found that year-over-year revenue was flat, with future earnings predicted to fall well short of expectations.
Last week, CEO Chuck Robbins told analysts that the company was feeling the impacts of global supply chain issues and Russia’s invasion of Ukraine, but it’s increasingly unclear whether healthy software revenues can compensate for its sinking hardware business.
“Even when the supply chain issues are solved, Cisco must find a way to innovate and monetize in networking, something it has been struggling with over the last four to six years,” said Holger Mueller, an analyst at Constellation Research.
Why a downturn can separate the recession-proof startups from the ‘hacks’
Assuming competent management, startups that have product-market fit and a sensible burn rate will likely survive this era.
But that was true before slumping tech stocks began dragging down startup valuations.
“Companies building painkillers rather than vitamins, especially solutions that are technically hard or tricky to develop or anticipate fundamental but yet-to-be-mainstream shifts in an industry, are particularly well-positioned to weather the macro conditions that are out of their control,” said Operator Collective founder and CEO, Mallun Yen.
“Painkillers include products that increase revenue or significantly lower costs in a tangible way.”
Stripe and Plaid suit up for battle
Plaid and Stripe didn’t start out as rivals, but recent moves by both to expand their reach with new financial products may put them on a collision course, report Alex Wilhelm and Mary Ann Azevedo.
Citing “recent skirmishes from the Great Fintech War,” Mary Ann and Alex track a series of acquisitions and product releases that have these fintech companies “now standing face to face, if not already on each other’s toes.”