Market dissonance doesn’t always include an easy hot plug – TechCrunch
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At this point, it’s clear no one agrees on anything. Half of my sources say early-stage business has absolutely no correlation to the public stock market, while the other half say everyone is heading for profitability to expand the runway, regardless of the stadium. And while dissonance is an evergreen story to cover, it’s also puzzling.
For example, how can there be more VC dry powder than ever, but also a slowdown in investment? How can fintech still receive one in five dollars of venture funding, while remaining the sector with the most layoffs in this recent wave? How can LPs rethink their venture capital positions, but it’s also an optimistic time for emerging fund managers to finally get their start? How can Stripe’s adjusted valuation be bullish news of a company ahead of the curve, while also being a drop in its value amid the downturn in the fintech public market?
These are all rhetorical questions, so to quote my favorite podcast, don’t DM me. I am pointing out these imbalances not to complain, but to hopefully give some validation of how you may be feeling these days. Many things can happen at the same time, which makes absolute statements pretty useless when it comes to startup theory and understanding the market.
It’s the season of unlearning, in a way. I attended a meeting of emerging fund managers the other week and was very surprised by the optimism in the room. Investors weren’t as obsessed with the market’s impact on risk fundraising as I was; they were stressed about LPs, sure, but they were also more focused on expanding their definition of what an LP can be. And just like that, the story I was working on about a tough environment for emerging fund managers was given another layer of nuance.
My best advice for navigating through a period of change? Read on, ask your sources, and don’t feel pressured to get an immediate rundown of the week’s Big Tech news.
In the rest of this newsletter, we’ll cover a creative twist on cap table management, the impact of the Roe inversion on tech, and cauldrons. As always, you can support me by forwarding this newsletter to a friend or follow me on twitter or by subscribing to my blog.
Offer of the week
Continuum is a company-backed bet on split work and, best of all, that the founders want to show humanity during times of crisis. The company, launched by CEO Nolan Church in August 2020, began as a play to connect startups with part-time executive help. Now, it’s expanded to help struggling tech companies downsize in a more humane and thoughtful way.
Here’s why it’s important: Continuum’s new layoff tool connects startup leadership teams to a human resources manager who will help develop a corporate communications plan, diversity and impact analysis, and support day.
Continuum’s larger goal also hinges on early-stage startups feeling more comfortable with the idea of part-time executives. Church thinks the recession will accelerate the trend for startups to rely more on entrepreneurs, consultants, advisors and angel investors to contribute to a business. Part-time workers help mitigate risk, fill in key gaps during crucial times, and cost less money to add when a business is trying to focus on sustainable growth.
Stripe’s internal valuation is reduced
Stripe is the latest high-profile fintech company to suffer a massive valuation cut as the market downturn begins to hit the sector particularly hard. Last valued at $95 billion, the payments processor has reduced the internal value of its shares by 28%, sources told The Wall Street Journal. The Journal also reports that the reduction comes from a 409A process, which companies do regularly or when a market may even lower its valuation.
The significant event, in this case, is the stock market downturn.
Here’s why it’s important: Beyond the fintech space, growth-stage companies that have exploded during the pandemic have looked inward to respond to the changing macroeconomic environment. In March, Instacart also reduced its internal valuation by approximately 38.5% due to a 409A change. Instacart and now internal review cuts reported by Stripe mean employees may have their stock grants cropped.
Insert the “Pitch Perfect” joke here
First, TechCrunch Live is on a brand new platform and we’ve made it easier to apply for Pitch Practice. Investors (and my inbox) can attest to the importance of brevity, insight and clarity in presentations, so it’s great to see.
Startups can now apply any day, anytime for Pitch Practice by filling out this form. We will select startups 24 hours before this week’s event and notify startups via email. And if you are selected for an event, you can also apply for future events. We want companies to present themselves more than once using previous feedback. Call it free growth.
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Until next time,