Spread & Containment
Are the good times over for tech start-ups as the easy money that powered growth with little demand for profits dries up?
Back in 2008 as the international financial crisis was sweeping through the world economy,…
The post Are the good times over for tech start-ups as the…
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Back in 2008 as the international financial crisis was sweeping through the world economy, the renowned Silicon Valley VC firm Sequoia Capital sent a now famous presentation out to its portfolio of start-ups. The presentation was directly titled “RIP Good Times” and consisted of 56 slides.
Those slides started by listing the problems the U.S. and global economies were facing as follows:
- HOUSING LED RECESSION
- OVER LEVERAGED FINANCIALS
- FALLING ASSET PRICES
- FROZEN CREDIT MARKETS
- WEAK HOUSEHOLD BALANCE SHEET
- GLOBALLY SYNCHRONIZED SLOWING EXACERBATING ALL OF ABOVE
- FORCES OF INFLATION VERSUS FORCES OF DEFLATION
It was designed to explain to the portfolio of start-ups that counted Sequoia as an investor why they could no longer count on further cash flowing into their coffers. The message was that the broader environment had suddenly changed. And Sequoia’s investment case, which had expertly and lucratively spotted the potential in tech companies including Apple, Google and Instagram, with it.
Source: Sequoia Capital
The next 50 or so slides contained graphs and concise texts outlining what had changed and why. It also contained a number of slides spelling out exactly what the new reality meant for the promising tech start-ups Sequoia had invested in.
Companies were told in no uncertain terms that if they were currently in a funding cycle raising fresh investment, they should close it as quickly as possible and raise as much as possible. Sequoia predicted that any company that wasn’t yet self-sustaining and didn’t have “at least a year of cash minimum in the bank”, was “in trouble”.
The presentation concluded with a list of actions the VC firm titled “The Solution”:
- PERFORM SITUATION ANALYSIS
- ADAPT QUICKLY
- USE A ZERO-BASED BUDGETING APPROACH
- MAKE CUTS
- REVIEW SALARIES
- EMPLOY A HEAVILY COMMISSIONED SALES STRUCTURE
- BOLSTER BALANCE SHEETS
- BECOME CASH FLOW POSITIVE AS SOON AS POSSIBLE
- SPEND EVERY DOLLAR AS IF IT WERE YOUR LAST
Two months ago, the San Francisco-based venture capital firm NFX sent out a communication to its portfolio of start-ups that was eerily reminiscent of Sequoia’s 2008 RIP Good Times presentation. It indicated that investors, across venture capital, private equity, and public markets, as well as lenders, would soon be making tough calls on which high growth but low, or no, profit enterprises they would be prepared to let go to the wall rather than prop up with more cash over coming months.
James Currier, a partner at NFX, commented:
“It’s going to be similar to 2000. How it plays out is going to be dependent on how much capital was raised over the past 18 months versus the fear that’s about to grip the tech space.”
In a nutshell, tech companies that have raised enough funds to finance continued growth over the next year or two might be ok. Otherwise, they have two choices. Make enough money and/or cut costs by enough to make it last until economic conditions and investor sentiment improve. Or prepare to perish.
Tech start-ups have already started to cut their cloth in the realisation that the good times have, indeed, again come to an end as another long bull market cycle turns into a new, bearish, cycle.
Last week Steven Galanis, founder of the Chicago-based start-up Cameo which allows customers to order a personal greeting from celebrities willing to speak into a camera for a stranger for varying sums of cash, announced the company was letting go 87 members of staff. A year ago Cameo, which did very well during the lockdown periods of the pandemic, raised $100 million at a $1 billion valuation.
Cameo is now on a mission to conserve whatever part of that $100 million it hasn’t already spent in the realisation it probably won’t be able to raise any more anytime soon. At least not without existing investors taking a massive hit on the company’s valuation.
U.S. GDP shrank by 1.4% last quarter and if it doesn’t return to growth this quarter, which currently looks doubtful, the world’s largest economy will have officially entered recession. The old adage is that when the U.S. economy catches a cold the rest of the world sneezes and it is likely to prove true once again. Especially for high growth, low income, tech companies that rely on positive investor sentiment in the USA to keep funding their loss-making growth.
Even the big tech companies that do make huge revenues and profits and are unlikely to come under any pressure as going concerns are suffering from the change in the economic cycle from bull to bear. Shopify, whose platform lets anyone set up an e-commerce website and is seen as the only genuine potential challenger to Amazon’s dominance of the sector, has seen its valuation slump by almost 78% since its record high set on November 19 last year.
Facebook-owner Meta Platforms has seen its value plunge by over 46% since early last September when its decline began. Netflix currently trades at less than $181-a-share after seeing its market capitalisation pluge 70% this year. The last time the market-leading video content streaming service was worth so little was September 2017. Five years ago it had around 100 million paying subscribers compared to 200 million now and about one third of current revenues.
There are other reasons why investors have punished Netflix so hard, including growing competition, market saturation and its increasing overheads as it spends on proprietary content to remain competitive. But the main reason why it has lost so much value is simply a change in investor sentiment. The good times are over, for now.
Still private tech start-ups are already feeling the pinch and having to face up to the fact a new cycle has started. Some have already proactively self-reduced their valuations ahead of recent funding rounds.
And there have been early casualties of the shift in investor sentiment. Online one-click online checkout start-up Consider Fast closed last month after investors refused to refund it with more cash at a $1 billion valuation. It had burned through $120 million over the previous 12 months to generate less than $1 million in sales.
Payments giant Stripe and VC firm Index Ventures were among the existing investors who decided it would be better to cut their losses rather than throw good money after bad. Just a few months earlier they may well have put their hands in their pockets again.
The venture capital sector itself could well be in trouble over the months ahead. U.S.-based VCs invested $333 billion in start-ups in 2021, a new record. Their numbers have also multiplied rapidly, from 1328 at the end of 2019 to 2889 by the end of last year. Around 60% of these VCs have only ever raised one fund and many may well not survive the next year.
But such changes in economic cycle also bring opportunities and the birth of new generations of tech giants. Slumps in valuation need not be fatal as long as tech companies have a sound underlying business model. Netflix itself is a prime example.
In 2011 it also lost around 70% of its value and questions were raised about its ability to survive. It did and as a quick glance at the chart above shows, that 70% drop in valuation would now, in cash terms, barely register.
Investors exposed to start-ups, either through VC funds or as private investors, or growth companies already publically listed, would do well to audit that exposure. The key thing to assess is cash flow. Do these companies have enough cash to fund themselves for the next one to two years without having to raise significant fresh investment capital?
If the answer is yes and you still believe in the business model it could well be worth persevering or even increasing your investment at the lower valuations likely over the period ahead. If the answer is no, it might be worth seriously considering getting out now while you still can.
The post Are the good times over for tech start-ups as the easy money that powered growth with little demand for profits dries up? first appeared on Trading and Investment News. recession pandemic credit markets lockdown gdp
Spread & Containment
The Coming Of The Police State In America
The Coming Of The Police State In America
Authored by Jeffrey Tucker via The Epoch Times,
The National Guard and the State Police are now…
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Authored by Jeffrey Tucker via The Epoch Times,
The National Guard and the State Police are now patrolling the New York City subway system in an attempt to do something about the explosion of crime. As part of this, there are bag checks and new surveillance of all passengers. No legislation, no debate, just an edict from the mayor.
Many citizens who rely on this system for transportation might welcome this. It’s a city of strict gun control, and no one knows for sure if they have the right to defend themselves. Merchants have been harassed and even arrested for trying to stop looting and pillaging in their own shops.
The message has been sent: Only the police can do this job. Whether they do it or not is another matter.
Things on the subway system have gotten crazy. If you know it well, you can manage to travel safely, but visitors to the city who take the wrong train at the wrong time are taking grave risks.
In actual fact, it’s guaranteed that this will only end in confiscating knives and other things that people carry in order to protect themselves while leaving the actual criminals even more free to prey on citizens.
The law-abiding will suffer and the criminals will grow more numerous. It will not end well.
When you step back from the details, what we have is the dawning of a genuine police state in the United States. It only starts in New York City. Where is the Guard going to be deployed next? Anywhere is possible.
If the crime is bad enough, citizens will welcome it. It must have been this way in most times and places that when the police state arrives, the people cheer.
We will all have our own stories of how this came to be. Some might begin with the passage of the Patriot Act and the establishment of the Department of Homeland Security in 2001. Some will focus on gun control and the taking away of citizens’ rights to defend themselves.
My own version of events is closer in time. It began four years ago this month with lockdowns. That’s what shattered the capacity of civil society to function in the United States. Everything that has happened since follows like one domino tumbling after another.
It goes like this:
1) lockdown,
2) loss of moral compass and spreading of loneliness and nihilism,
3) rioting resulting from citizen frustration, 4) police absent because of ideological hectoring,
5) a rise in uncontrolled immigration/refugees,
6) an epidemic of ill health from substance abuse and otherwise,
7) businesses flee the city
8) cities fall into decay, and that results in
9) more surveillance and police state.
The 10th stage is the sacking of liberty and civilization itself.
It doesn’t fall out this way at every point in history, but this seems like a solid outline of what happened in this case. Four years is a very short period of time to see all of this unfold. But it is a fact that New York City was more-or-less civilized only four years ago. No one could have predicted that it would come to this so quickly.
But once the lockdowns happened, all bets were off. Here we had a policy that most directly trampled on all freedoms that we had taken for granted. Schools, businesses, and churches were slammed shut, with various levels of enforcement. The entire workforce was divided between essential and nonessential, and there was widespread confusion about who precisely was in charge of designating and enforcing this.
It felt like martial law at the time, as if all normal civilian law had been displaced by something else. That something had to do with public health, but there was clearly more going on, because suddenly our social media posts were censored and we were being asked to do things that made no sense, such as mask up for a virus that evaded mask protection and walk in only one direction in grocery aisles.
Vast amounts of the white-collar workforce stayed home—and their kids, too—until it became too much to bear. The city became a ghost town. Most U.S. cities were the same.
As the months of disaster rolled on, the captives were let out of their houses for the summer in order to protest racism but no other reason. As a way of excusing this, the same public health authorities said that racism was a virus as bad as COVID-19, so therefore it was permitted.
The protests had turned to riots in many cities, and the police were being defunded and discouraged to do anything about the problem. Citizens watched in horror as downtowns burned and drug-crazed freaks took over whole sections of cities. It was like every standard of decency had been zapped out of an entire swath of the population.
Meanwhile, large checks were arriving in people’s bank accounts, defying every normal economic expectation. How could people not be working and get their bank accounts more flush with cash than ever? There was a new law that didn’t even require that people pay rent. How weird was that? Even student loans didn’t need to be paid.
By the fall, recess from lockdown was over and everyone was told to go home again. But this time they had a job to do: They were supposed to vote. Not at the polling places, because going there would only spread germs, or so the media said. When the voting results finally came in, it was the absentee ballots that swung the election in favor of the opposition party that actually wanted more lockdowns and eventually pushed vaccine mandates on the whole population.
The new party in control took note of the large population movements out of cities and states that they controlled. This would have a large effect on voting patterns in the future. But they had a plan. They would open the borders to millions of people in the guise of caring for refugees. These new warm bodies would become voters in time and certainly count on the census when it came time to reapportion political power.
Meanwhile, the native population had begun to swim in ill health from substance abuse, widespread depression, and demoralization, plus vaccine injury. This increased dependency on the very institutions that had caused the problem in the first place: the medical/scientific establishment.
The rise of crime drove the small businesses out of the city. They had barely survived the lockdowns, but they certainly could not survive the crime epidemic. This undermined the tax base of the city and allowed the criminals to take further control.
The same cities became sanctuaries for the waves of migrants sacking the country, and partisan mayors actually used tax dollars to house these invaders in high-end hotels in the name of having compassion for the stranger. Citizens were pushed out to make way for rampaging migrant hordes, as incredible as this seems.
But with that, of course, crime rose ever further, inciting citizen anger and providing a pretext to bring in the police state in the form of the National Guard, now tasked with cracking down on crime in the transportation system.
What’s the next step? It’s probably already here: mass surveillance and censorship, plus ever-expanding police power. This will be accompanied by further population movements, as those with the means to do so flee the city and even the country and leave it for everyone else to suffer.
As I tell the story, all of this seems inevitable. It is not. It could have been stopped at any point. A wise and prudent political leadership could have admitted the error from the beginning and called on the country to rediscover freedom, decency, and the difference between right and wrong. But ego and pride stopped that from happening, and we are left with the consequences.
The government grows ever bigger and civil society ever less capable of managing itself in large urban centers. Disaster is unfolding in real time, mitigated only by a rising stock market and a financial system that has yet to fall apart completely.
Are we at the middle stages of total collapse, or at the point where the population and people in leadership positions wise up and decide to put an end to the downward slide? It’s hard to know. But this much we do know: There is a growing pocket of resistance out there that is fed up and refuses to sit by and watch this great country be sacked and taken over by everything it was set up to prevent.
Spread & Containment
Another beloved brewery files Chapter 11 bankruptcy
The beer industry has been devastated by covid, changing tastes, and maybe fallout from the Bud Light scandal.
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Before the covid pandemic, craft beer was having a moment. Most cities had multiple breweries and taprooms with some having so many that people put together the brewery version of a pub crawl.
It was a period where beer snobbery ruled the day and it was not uncommon to hear bar patrons discuss the makeup of the beer the beer they were drinking. This boom period always seemed destined for failure, or at least a retraction as many markets seemed to have more craft breweries than they could support.
Related: Fast-food chain closes more stores after Chapter 11 bankruptcy
The pandemic, however, hastened that downfall. Many of these local and regional craft breweries counted on in-person sales to drive their business.
And while many had local and regional distribution, selling through a third party comes with much lower margins. Direct sales drove their business and the pandemic forced many breweries to shut down their taprooms during the period where social distancing rules were in effect.
During those months the breweries still had rent and employees to pay while little money was coming in. That led to a number of popular beermakers including San Francisco's nationally-known Anchor Brewing as well as many regional favorites including Chicago’s Metropolitan Brewing, New Jersey’s Flying Fish, Denver’s Joyride Brewing, Tampa’s Zydeco Brew Werks, and Cleveland’s Terrestrial Brewing filing bankruptcy.
Some of these brands hope to survive, but others, including Anchor Brewing, fell into Chapter 7 liquidation. Now, another domino has fallen as a popular regional brewery has filed for Chapter 11 bankruptcy protection.
Image source: Shutterstock
Covid is not the only reason for brewery bankruptcies
While covid deserves some of the blame for brewery failures, it's not the only reason why so many have filed for bankruptcy protection. Overall beer sales have fallen driven by younger people embracing non-alcoholic cocktails, and the rise in popularity of non-beer alcoholic offerings,
Beer sales have fallen to their lowest levels since 1999 and some industry analysts
"Sales declined by more than 5% in the first nine months of the year, dragged down not only by the backlash and boycotts against Anheuser-Busch-owned Bud Light but the changing habits of younger drinkers," according to data from Beer Marketer’s Insights published by the New York Post.
Bud Light parent Anheuser Busch InBev (BUD) faced massive boycotts after it partnered with transgender social media influencer Dylan Mulvaney. It was a very small partnership but it led to a right-wing backlash spurred on by Kid Rock, who posted a video on social media where he chastised the company before shooting up cases of Bud Light with an automatic weapon.
Another brewery files Chapter 11 bankruptcy
Gizmo Brew Works, which does business under the name Roth Brewing Company LLC, filed for Chapter 11 bankruptcy protection on March 8. In its filing, the company checked the box that indicates that its debts are less than $7.5 million and it chooses to proceed under Subchapter V of Chapter 11.
"Both small business and subchapter V cases are treated differently than a traditional chapter 11 case primarily due to accelerated deadlines and the speed with which the plan is confirmed," USCourts.gov explained.
Roth Brewing/Gizmo Brew Works shared that it has 50-99 creditors and assets $100,000 and $500,000. The filing noted that the company does expect to have funds available for unsecured creditors.
The popular brewery operates three taprooms and sells its beer to go at those locations.
"Join us at Gizmo Brew Works Craft Brewery and Taprooms located in Raleigh, Durham, and Chapel Hill, North Carolina. Find us for entertainment, live music, food trucks, beer specials, and most importantly, great-tasting craft beer by Gizmo Brew Works," the company shared on its website.
The company estimates that it has between $1 and $10 million in liabilities (a broad range as the bankruptcy form does not provide a space to be more specific).
Gizmo Brew Works/Roth Brewing did not share a reorganization or funding plan in its bankruptcy filing. An email request for comment sent through the company's contact page was not immediately returned.
bankruptcy pandemic social distancing
Spread & Containment
Revving up tourism: Formula One and other big events look set to drive growth in the hospitality industry
With big events drawing a growing share of of tourism dollars, F1 offers a potential glimpse of the travel industry’s future.
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In late 2023, I embarked on my first Formula One race experience, attending the first-ever Las Vegas Grand Prix. I had never been to an F1 race; my interest was sparked during the pandemic, largely through the Netflix series “Formula 1: Drive to Survive.”
But I wasn’t just attending as a fan. As the inaugural chair of the University of Florida’s department of tourism, hospitality and event management, I saw this as an opportunity. Big events and festivals represent a growing share of the tourism market – as an educator, I want to prepare future leaders to manage them.
And what better place to learn how to do that than in the stands of the Las Vegas Grand Prix?
The future of tourism is in events and experiences
Tourism is fun, but it’s also big business: In the U.S. alone, it’s a US$2.6 trillion industry employing 15 million people. And with travelers increasingly planning their trips around events rather than places, both industry leaders and academics are paying attention.
Event tourism is also key to many cities’ economic development strategies – think Chicago and its annual Lollapalooza music festival, which has been hosted in Grant Park since 2005. In 2023, Lollapalooza generated an estimated $422 million for the local economy and drew record-breaking crowds to the city’s hotels.
That’s why when Formula One announced it would be making a 10-year commitment to host races in Las Vegas, the region’s tourism agency was eager to spread the news. The 2023 grand prix eventually generated $100 million in tax revenue, the head of that agency later announced.
Why Formula One?
Formula One offers a prime example of the economic importance of event tourism. In 2022, Formula One generated about $2.6 billion in total revenues, according to the latest full-year data from its parent company. That’s up 20% from 2021 and 27% from 2019, the last pre-COVID year. A record 5.7 million fans attended Formula One races in 2022, up 36% from 2019.
This surge in interest can be attributed to expanded broadcasting rights, sponsorship deals and a growing global fan base. And, of course, the in-person events make a lot of money – the cheapest tickets to the Las Vegas Grand Prix were $500.
That’s why I think of Formula One as more than just a pastime: It’s emblematic of a major shift in the tourism industry that offers substantial job opportunities. And it takes more than drivers and pit crews to make Formula One run – it takes a diverse range of professionals in fields such as event management, marketing, engineering and beyond.
This rapid industry growth indicates an opportune moment for universities to adapt their hospitality and business curricula and prepare students for careers in this profitable field.
How hospitality and business programs should prepare students
To align with the evolving landscape of mega-events like Formula One races, hospitality schools should, I believe, integrate specialized training in event management, luxury hospitality and international business. Courses focusing on large-scale event planning, VIP client management and cross-cultural communication are essential.
Another area for curriculum enhancement is sustainability and innovation in hospitality. Formula One, like many other companies, has increased its emphasis on environmental responsibility in recent years. While some critics have been skeptical of this push, I think it makes sense. After all, the event tourism industry both contributes to climate change and is threatened by it. So, programs may consider incorporating courses in sustainable event management, eco-friendly hospitality practices and innovations in sustainable event and tourism.
Additionally, business programs may consider emphasizing strategic marketing, brand management and digital media strategies for F1 and for the larger event-tourism space. As both continue to evolve, understanding how to leverage digital platforms, engage global audiences and create compelling brand narratives becomes increasingly important.
Beyond hospitality and business, other disciplines such as material sciences, engineering and data analytics can also integrate F1 into their curricula. Given the younger generation’s growing interest in motor sports, embedding F1 case studies and projects in these programs can enhance student engagement and provide practical applications of theoretical concepts.
Racing into the future: Formula One today and tomorrow
F1 has boosted its outreach to younger audiences in recent years and has also acted to strengthen its presence in the U.S., a market with major potential for the sport. The 2023 Las Vegas race was a strategic move in this direction. These decisions, along with the continued growth of the sport’s fan base and sponsorship deals, underscore F1’s economic significance and future potential.
Looking ahead in 2024, Formula One seems ripe for further expansion. New races, continued advancements in broadcasting technology and evolving sponsorship models are expected to drive revenue growth. And Season 6 of “Drive to Survive” will be released on Feb. 23, 2024. We already know that was effective marketing – after all, it inspired me to check out the Las Vegas Grand Prix.
I’m more sure than ever that big events like this will play a major role in the future of tourism – a message I’ll be imparting to my students. And in my free time, I’m planning to enhance my quality of life in 2024 by synchronizing my vacations with the F1 calendar. After all, nothing says “relaxing getaway” quite like the roar of engines and excitement of the racetrack.
Rachel J.C. Fu does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
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Revving up tourism: Formula One and other big events look set to drive growth in the hospitality industry
Another beloved brewery files Chapter 11 bankruptcy
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