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‘Wild times’ for tech startups: Making sense of the uncertainty with Madrona’s Tim Porter

What the heck is going on in the economy, and how will the market gyrations impact startups and venture capital? The backdrop for these questions is dynamic…



Tim Porter, Madrona Venture Group managing director. (Madrona Photo / GeekWire Illustration)

What the heck is going on in the economy, and how will the market gyrations impact startups and venture capital? The backdrop for these questions is dynamic and complex right now.

To help make sense of this turbulent environment, we invited Tim Porter to join us on the GeekWire Podcast. He’s a Madrona Venture Group managing director who has invested in early-stage technology startups at the Seattle-based venture capital firm for the past 15 years, focusing on cloud, AI and enterprise software companies.

Listen below, and continue reading for our notes from the discussion.

It seems a little grim out there. What are you seeing?

  • These last few years have been an absolute roller-coaster, for the world, the tech market, and in the startup market, as well.
  • In some ways, what’s happening now is a return to historical normalcy rather than a “sky is falling” scenario. There’s been a compression of multiples from unsustainably high levels last year. Companies are now focused a little bit more on efficiency, not just growth at all cost.
  • At the same time, the world has gone through so much trauma (pandemic, wars, supply chain issues, energy shocks, inflation), and those have a real impact on businesses and individual consumers.
  • It is going to be harder to fundraise in the near term. Investors have largely pressed the pause button right now. Startups need to think about extending their runway, rebalancing the trade-off between efficiency and growth. Growing a little bit less, but being a lot more efficient.
  • Companies aren’t hiring as aggressively, but there aren’t widespread hiring freezes or layoffs.
  • In many cases, demand from end customers is still strong. Companies have been hitting their Q1 targets, and Q2 is looking strong.
  • All that said, there’s an overall sense of caution, and a recognition that there’s a need to preserve capital.

It seems like a bit of a strange downturn. It’s not so much a business or customer reset; it’s simply a market and valuation reset. Is that an accurate assumption?

  • “I don’t want to say there’s zero impact in some of these end markets, but that’s largely been the case.”
  • The forward revenue multiple for the top 25 fastest-growing public SaaS companies was a median of 52 at the peak on Nov. 15. Now it’s a median of eight. And so you have seen a valuation reset.
  • Public companies are beating earnings expectations but tempering their forecasts due to issues including the impact of foreign exchange rates. (See Salesforce and Microsoft.)
  • For hardware companies, there is also a direct impact from supply chain challenges. (See Valve’s Steam Deck dock delay.) Consumer spending has become more muted as stimulus has worked its way through the economy.
  • “So I don’t want to say that there’s absolutely nothing to be concerned about around inflation and the overall economy. But most of the core trends we’re investing against — digital transformation, the move to the cloud, machine learning, the impacts of software — those all seem to be very durable.”
  • Looking ahead, people seem to be in a wait-and-see mode, not slamming on the brakes, but also not putting the gas pedal to the floor.

We’ve had COVID and a war and all these supply chain issues, inflation. Entrepreneurs must be feeling like they can’t catch a break. It’s exhausting and taking a psychological toll. How are you coaching entrepreneurs to get through this?

  • It has been wild. All the uncertainty and challenges of COVID in 2020, then the best fundraising market in history in 2021, the biggest run on tech valuations that we’d seen in 20 years. Now things are coming home to roost with inflation and broader global issues.
  • Yet founders are resilient and optimistic. Some of the best companies were created in past downturns. For Madrona, examples from the 2007-2009 era include Smartsheet, Apptio, and Extrahop.
  • “We want to partner with founders who want to build something meaningful and sustainable for the long term. Cycles are going to go up, and they’re going to go down. … And so you just have to respond, put your head down and keep building.”
  • “We try to always have a view of, every dollar demands a return. And if you see an opportunity, yes, be aggressive and invest against it. But don’t just pour money on something because money is available.”
  • That type of efficient growth mindset is what people are focused on right now.

Let’s say you’re an entrepreneur at the end of your Series A financing round, and going out for your Series B. What’s your advice for that entrepreneur?

Madrona is still figuring this out right now with several factors in mind.

  • Very late-stage private markets are essentially closed right now.
  • Up until three weeks ago, the very early stage market (pre-seed and seed investing) was cranking along. We saw a lot of early stage deals continuing to get done at robust prices. In the last three weeks, that market has started to slow.
  • In the Web3 world, the meltdown of Terra and Luna has contributed to a slowdown.
  • At the same time, the bar for startups to show progress in their metrics has been raised, with a greater focus on capital efficiency. Valuations are less than what entrepreneurs previously anticipated as a result.

So the advice is, if you don’t need to raise, don’t. Instead, extend your runway to achieve more with existing capital. If you need to raise now, consider a smaller round, and readjust your thoughts about valuation. Play for the long run, make your pie bigger down the road, don’t just focus on dilution now.

We’re seeing hiring cutbacks from small companies to big ones. What are you seeing as it relates to hiring? Is this an opportunity for earlier stage companies to grab talent?

  • It does seem like an opportunity. Just as in the funding markets, there’s a cascading impact in the talent market that starts with later-stage companies and trickles down to earlier-stage companies. It takes a while.
  • The competition for talent has just been intense in Seattle in recent years, certainly on the technical and engineering side, but also on sales and marketing.
  • “It still is pretty competitive from what I’m seeing. But I think it’s going to ease, and get a little bit more normalized here in the back half of the year and into next year.”

It’s another example of this being a strange downturn — all these macroeconomic issues and yet hiring is still keeping up and customers are still coming. How much of this is groupthink versus reality?

  • One popular observation is that the technology market moves swiftly from greed to fear. When it moves to fear, all these things build on each other.
  • One truism through many cycles is that when a downturn is coming, you never want to react too late.
  • However, things haven’t just completely stopped. There is opportunity to build. It really depends on your business, runway, and end market.
  • The move toward efficiency is real and needed. You don’t want to go into pure survival mode, but you also don’t want to ignore the warning signs and burn through your money.
  • Tim hasn’t yet seen any down rounds (where the valuation was lower in a new round than it was previously). However, there was a deal where the price was adjust down in real time, through a collaborative discussion between the investors and founders.

Does a downturn like this change your investment focus?

  • “It largely does not. We are trying to invest in trends that we think are decade-plus-long trends, and invest really early for companies that can build over the long term. And so that hasn’t changed at all.”
  • Madrona’s pace of investing has also stayed relatively steady.
  • One thing that slows things down is price discovery, determining how to value companies. So there will probably be a slower pace of follow-on rounds vs. the prior year. New investments might slow, but to a lesser degree.

Is there something specific about this downturn that concerns you the most?

“I think it’s whether inflation and a broader slowing in the world economy will turn this into a much longer downturn or recession. How long will this last? The longer it lasts, the more I think you will see markets having to pull back. … Will it turn into a full-on recession? I’m not sure. And we’re hoping not. But that’s the question.”

How concerned are you on a scale of 1-10, with 1 being no concern, and 10 being massive devastation?

Seven. “I think it’s going to be a harder fundraising market for some time here. And I think that there are some broader issues around inflation and the economy. I don’t think it’s a 10. I don’t think it’s as bad as in the Great Recession in 2008. But I also think you have to show appropriate caution and be really focused on efficiency, and really understanding the forward indicators of your business to see how things are going to continue to respond.”

Listen above, or subscribe to GeekWire in Apple Podcasts, Google Podcasts, Spotify or wherever you listen.

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Costco Tells Americans the Truth About Inflation and Price Increases

The warehouse club has seen some troubling trends but it’s also trumpeting something positive that most retailers wouldn’t share.



Costco has been a refuge for customers during both the pandemic and during the period when supply chain and inflation issues have driven prices higher. In the worst days of the covid pandemic, the membership-based warehouse club not only had the key household items people needed, it also kept selling them at fair prices.

With inflation -- no matter what the reason for it -- Costco  (COST) - Get Free Report worked aggressively to keep prices down. During that period (and really always) CFO Richard Galanti talked about how his company leaned on vendors to provide better prices while sometimes also eating some of the increase rather than passing it onto customers.

DON'T MISS: Why You May Not Want to Fly Southwest Airlines

That wasn't an altruistic move. Costco plays the long game, and it focuses on doing whatever is needed to keep its members happy in order to keep them renewing their memberships.

It's a model that has worked spectacularly well, according to Galanti.

"In terms of renewal rates, at third quarter end, our US and Canada renewal rate was 92.6%, and our worldwide rate came in at 90.5%. These figures are the same all-time high renewal rates that were achieved in the second quarter, just 12 weeks ago here," he said during the company's third-quarter earnings call.

Galanti, however, did report some news that suggests that significant problems remain in the economy.

Costco has done an incredibly good job at holding onto members.

Image source: Xinhua/Ting Shen via Getty Images

Costco Does See Some Economic Weakness

When people worry about the economy, they sometimes trade down when it comes to retailers. Walmart executives (WMT) - Get Free Report, for example, have talked about seeing more customers that earn six figures shopping in their stores.

Costco has always had a diverse customer base, but one weakness in its business may be a warning sign for its rivals like Target (TGT) - Get Free Report, Best Buy (BBY) - Get Free Report, and Amazon (AMZN) - Get Free Report. Galanti broke down some of the numbers during the call.

"Traffic or shopping frequency remains pretty good, increasing 4.8% worldwide and 3.5% in the U.S. during the quarter," he shared.

People shopped more, but they were also spending less, according to the CFO.

"Our average daily transaction or ticket was down 4.2% worldwide and down 3.5% in the U.S., impacted, in large part, from weakness in bigger-ticket nonfood discretionary items," he shared.

Now, not buying a new TV, jewelry, or other big-ticket items could just be a sign that consumers are being cautious. But, if they're not buying those items at Costco (generally the lowest-cost option) that does not bode well for other retailers.

Galanti laid out the numbers as well as how they broke down between digital and warehouse.

"You saw in the release that e-commerce was a minus 10% sales decline on a comp basis," he said. "As I discussed on our second quarter call and in our monthly sales recordings, in Q3, big-ticket discretionary departments, notably majors, home furnishings, small electrics, jewelry, and hardware, were down about 20% in e-com and made up 55% of e-com sales. These same departments were down about 17% in warehouse, but they only make up 8% in warehouse sales."

Costco's CFO Also Had Good News For Shoppers

Galanti has been very open about sharing information about the prices Costco has seen from vendors. He has shared in the past, for example, that the chain does not pass on gas price increases as fast as they happen nor does it lower prices as quick as they sometimes fall.

In the most recent call, he shared some very good news on inflation (that also puts pressure on Target, Walmart, and Amazon to lower prices).

"A few comments on inflation. Inflation continues to abate somewhat. If you go back a year ago to the fourth quarter of '22 last summer, we had estimated that year-over-year inflation at the time was up 8%. And by Q1 and Q2, it was down to 6% and 7% and then 5% and 6%," he shared. "In this quarter, we're estimating the year-over-year inflation in the 3% to 4% range."

The CFO also explained that he sees prices dropping on some very key consumer staples.

"We continue to see improvements in many items, notably food items like nuts, eggs and meat, as well as items that include, as part of their components, commodities like steel and resins on the nonfood side," he added.


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“What’s More Tragic Is Capitalism”: BLM Faces Bankruptcy As Founder Cullors Is Cut By Warner Bros

"What’s More Tragic Is Capitalism": BLM Faces Bankruptcy As Founder Cullors Is Cut By Warner Bros

Authored by Jonathan Turley,

Two years…



"What's More Tragic Is Capitalism": BLM Faces Bankruptcy As Founder Cullors Is Cut By Warner Bros

Authored by Jonathan Turley,

Two years ago, I wrote columns about companies pouring money into Black Lives Matter to establish their bona fides as “antiracist” corporations. The money continued to flow despite serious questions raised about BLM’s management and accounting. Democratic prosecutors like New York Attorney General Letitia James showed little interest in these allegations even as James sought to disband the National Rifle Association (NRA) over similar allegations. At the same time, Black Lives Matter co-founder Patrisse Cullors cashed in with companies like Warner Bros. eager to give her massive contracts to signal their own reformed status. It now appears that BLM is facing bankruptcy after burning through tens of millions and Warner Bros. cut ties with Cullors after the contract produced no — zero — new programming.

Some states belatedly investigated BLM as founders like Cullors seemed to scatter to the winds.

Gone are tens of millions of dollars, including millions spent on luxury mansions and windfalls for close associates of BLM leaders.

The usual suspects gathered around the activists like former Clinton campaign general counsel Marc Elias, who later removed himself from his “key role” as the scandals grew.

When questions were raised about the lack of accounting and questionable spending, BLM attacked critics as “white supremacists.”

Warner Bros. was one of the companies eager to grab its own piece of Cullors to signal its own anti-racist virtues.  It gave Cullors a lucrative contract to guide the company in the creation of both scripted and non-scripted content, focusing on reparations and other forms of social justice. It launched a publicity campaign for everyone to know that it established a “wide-ranging content partnership” with Cullors who would now help guide the massive corporation’s new programming. Calling Cullors “one of the most influential thought leaders in American public life,” Warner Bros. announced that she was going to create a wide array of new programming, including “but not limited to live-action scripted drama and comedy series; longform/event series; unscripted docuseries; animated programming for co-viewing among kids, young adults and families; and original digital content.”

Some are now wondering if Warner Bros. ever intended for this contract to produce anything other than a public relations pitch or whether Cullors took the money and ran without producing even a trailer for an actual product. Indeed, both explanations may be true.

Paying money to Cullors was likely viewed as a type of insurance to protect the company from accusations of racial insensitive. After all, the company was giving creative powers to a person who had no prior experience or demonstrated talent in the area. Yet, Cullors would be developing programming for one of the largest media and entertainment companies in the world.

One can hardly blame Cullors despite criticizism by some on the left for going on a buying spree of luxury properties.

After all, Cullors was previously open about her lack of interest in working with “capitalist” elements. Nevertheless, BLM was run like a Trotskyite study group as the media and corporations poured in support and revenue.

It was glaringly ironic to see companies like Warner Bros. falling over each other to grab their own front person as the group continued boycotts of white-owned businesses. Indeed, if you did not want to be on the wrong end of one of those boycotts, you needed to get Cullors on your payroll.

Much has now changed as companies like Bud Light have been rocked by boycotts over what some view as heavy handed virtue signaling campaigns.

It was quite a change for Cullors and her BLM co-founder, who previously proclaimed “[we] are trained Marxists. We are super versed on, sort of, ideological theories.” She denounced capitalism as worse than COVID-19. Yet, companies like Lululemon rushed to find their own “social justice warrior” while selling leggings for $120 apiece.

When some began to raise questions about Cullors buying luxury homes, Facebook and Twitter censored them.

With increasing concerns over the loss of millions, Cullors eventually stepped down as executive director of the Black Lives Matter Global Network Foundation, as others resigned.  At the same time, the New York Post was revealing that BLM Global Network transferred $6.3 million to Cullors’ spouse, Janaya Khan, and other Canadian activists to purchase a mansion in Toronto in 2021.

According to The Washington Examiner, BLM PAC and a Los Angeles-based jail reform group paid Cullors $20,000 a month. It also spent nearly $26,000 on meetings at a luxury Malibu beach resort in 2019. Reform LA Jails, chaired by Cullors, received $1.4 million, of which $205,000 went to the consulting firm owned by Cullors and her spouse, according to New York magazine.

Once again, while figures like James have spent huge amounts of money and effort to disband the NRA over such accounting and spending controversies, there has been only limited efforts directed against BLM in New York and most states.

Cullors once declared that “while the COVID-19 illness is tragic, what’s more tragic is capitalism.” These companies seem to be trying to prove her point. Yet, at least for Cullors, Warner Bros. fulfilled its slogan that this is all “The stuff that dreams are made of.”

Tyler Durden Sun, 05/28/2023 - 16:00

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Under Pressure From Fat Activists, NYC Bans Weight Discrimination

Under Pressure From Fat Activists, NYC Bans Weight Discrimination

Discriminating against fat people is now illegal in New York City, after…



Under Pressure From Fat Activists, NYC Bans Weight Discrimination

Discriminating against fat people is now illegal in New York City, after Mayor Eric Adams on Friday signed off on a ban that will affect not only employment, but also housing and access to public accommodations -- a term that encompasses most businesses. 

We're in safe company using the word "fat," as champions of the cause refer to themselves as "fat activists." With the mayor's signature, two more categories -- both weight and height -- are added to New York City's list of protected personal attributes, which already included race, gender, age, religion and sexual orientation. 

As Mayor Adams signs the law, self-described (and everyone else-described) fat activist Tigress Osborn consumes more than her share of the backdrop (James Messerschmidt for NY Post)

Embracing one of 2023's innumerable strains of Orwellian brainwashing, Adams declared, "Science has shown that body type is not a connection to if you’re healthy or unhealthy. I think that’s a misnomer that we’re really dispelling.”

Even the Centers for Disease Control and Prevention say obesity is an invitation to a host of maladies, including to high blood pressure Type 2 diabetes, coronary heart disease, stroke, gall bladder disease, many types of cancer, mental illness and difficulty with physical functioning. 

“Size discrimination is a social justice issue and a public health threat," said Councilmember Shaun Abreu, who introduced the measure. "People with different body types are denied access to job opportunities and equal wages — and they have had no legal recourse to contest it," said Abreu. "Worse yet, millions are taught to hate their bodies." 

A full 69% of American adults are overweight or obese, but our woke overlords would have us believe the real "public health threat" is a nice restaurant that doesn't want Two-Ton Tessie working the reception desk, or a landlord who's leary of a 400-pound man breaking a toilet seat or collapsing a porch.  

The enticingly-named Tigress Osborn, who chairs the National Association to Advance Fat Acceptance, said New York's ban "will ripple across the globe" -- perhaps something like what would happen if the hefty Smith College Africana Studies graduate were dropped into a swimming pool.  

Councilmember Shaun Abreu said he gained 40 pounds during the pandemic lockdowns and noticed people treated him differently

The New York Times reports that witnesses who testified as the measure was under consideration included "a student at New York University said that desks in classrooms were too small for her [and] a soprano at the Metropolitan Opera [who] said she had faced body shaming and pressure to develop an eating disorder." 

Some have dared to speak out against the measure. “This is another mandate where enforcement will be primarily through litigation, which imposes a burden on employers, regulators and the courts,” said Kathryn S. Wylde, president of the Partnership for New York City, speaking in April. 

Implicitly putting the weight ordinance in the same category as Brown vs Board of Education, Abrue said, “Today is a monumental advancement for civil rights, size freedom and body positivity and while our laws are only now catching up to our culture, it is a victory that I hope will cause more cities, states and one day the federal government to follow suit.” 

Taking effect in six months, the law has an exemption for employers "needing to consider height or weight in employment decisions" -- but "only where required by federal, state, or local laws or regulations or where the Commission on Human Rights permits such considerations because height or weight may prevent a person from performing essential requirements of a job." 

We pray there's a federal exemption for employers of strippers and lap dancers. 

Think we're joking? We remind you that the chair of the National Association to Advance Fat Acceptance is named "Tigress" -- and this is her Twitter profile banner photo:

via Tigress @iofthetigress
Tyler Durden Sun, 05/28/2023 - 15:30

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