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A reminder for new readers. That Was The Week collects the best writing on critical issues in tech, startups, and venture capital. I selected the articles because they are of interest. The selections often include things I disagree with. The articles are only snippets. Click on the headline to go to the original. I express my point of view in the editorial and the weekly video below.
This Week’s Video and Podcast:
Content this week from @kteare, @ajkeen, @noahpinion, @chudson, @LaurenGoode, @jordanschnyc, @ericnewcomer, @dylan522p, @jasonlk, @mariogabriele, @lauren_feiner, @cookie, @semil, @aashaysanghvi_, @nickrobinsearly, @daphneleprince, @obrien, @motherduck, @MKRocks
Editorial: Why Think Global? China, Chips and Airplanes
Walter Isaacson on Elon Musk
Cendana Capital closes on $470M more to back seed-stage fund managers
Google accused of spending billions to block rivals as landmark trial continues
The big French fire sale: record numbers of startups are selling at big discounts
China's C919 aircraft model begins demonstration flights across Xinjiang
Michael Kim, Cendana
Last week, Andrew and I got into a discussion of “nation-states.” It’s a theme I like, and Andrew doesn’t. Nothing new there.
Maybe because of that, I read a lot about Globalization this week. I was pulled towards this paragraph from Noah Smith’s “The Next Phase of Globalization is going to be Great”.
There’s a narrative going around out there that globalization is over, that decoupling will carve up the world into smaller trading networks, or even into isolated autarkic nations. And there’s another narrative that economic development is over, and that China was basically the last country to industrialize. Both of these narratives are wrong. In fact, globalization is simply changing form, as it has many times in the past.
As luck would have it Andrew interviewed Simon Johnson, the Ronald A. Kurtz (1954) Professor of Entrepreneurship at the MIT Sloan School of Management, where he is head of the Global Economics and Management group. In 2007-08 he was chief economist at the International Monetary Fund.
So, we both converged on the same topic.
A couple of news items triggered my thoughts. First, regarding mobile phone announcements from Huawei, revealing a 7-nanometer CPU produced by SMIC in China:
On August 29, Huawei released its newest smartphone, the Mate 60 Pro, setting off a buzz in both China and the US. The device likely contains a 7-nanometer 5G chip manufactured by SMIC — a real achievement for Chinese advanced semiconductor manufacturing in the shadow of unprecedented US export controls.
And second, the announcement of the first flight tests of the C919 plane in China:
A C919 plane, a China-developed large passenger aircraft, landed at Urumqi Diwopu International Airport in the capital of the Xinjiang Uygur autonomous region on Monday, according to the Commercial Aircraft Corporation of China, Ltd (COMAC).
On the chip, Tech Insights reported on it:
The team found evidence of SMIC 7nm (N+2) which represents a made-in-China design and manufacturing milestone for the most advanced Chinese foundry TechInsights has documented. Some of the highlights include:
The Kirin 9000s die measured 107 mm2, which is 2% larger than the Kirin 9000 (105 mm2). From various identifying features on the die, the team concluded the processor is manufactured by SMIC.
Initial lab results indicated that this die is more advanced than SMIC’s 14nm process node but presents larger critical dimensions (CDs) than what TechInsights has observed for 5nm process.
Additional measurements of critical dimensions (CDs) on the die, including logic gate pitch, fin pitch and lower back-end-of-line (BEOL) metallization pitches, the analyst team concluded the die has 7nm features.
“Discovering a Kirin chip using SMIC’s 7nm (N+2) foundry process in the new Huawei Mate 60 Pro smartphone demonstrates the technical progress China’s semiconductor industry has been able to make without EUV lithography tools,” said Dan Hutcheson, Vice Chair of TechInsights. “The difficulty of this achievement also shows the resilience of the country’s chip technological ability. At the same time, it is a great geopolitical challenge to the countries who have sought to restrict its access to critical manufacturing technologies. The result may likely be even greater restrictions than what exist today.”
The Kirin 9000s is a full SoC and “the C919 is a narrow-body plane comparable to the Boeing 737 and Airbus A320.” (NYT)
Why are these things even interesting? Well, on their own, they may not be.
Apple’s iPhone 15 Pro is using a 3-nanometer process, so well ahead of its Chinese rival:
We figured the iPhone 15 Pro would feature some sort a new A17 chip, but Apple surprised us by debuting its first "Pro" chip at its annual fall eventtoday. The A17 Pro is Apple's most powerful mobile silicon yet. The 3 nanometer chip features 17 billion transistors and a six-core CPU. Apple claims its two performance cores are 10 percent faster than the A16, while its four efficiency cores offer far better performance per watt. The 6-core GPU is also 20 percent faster than before, and it features advanced graphics features like hardware accelerated ray tracing. (EnGadget)
But China, driven by being excluded from some global markets, is rapidly developing internal capability. The more isolated it becomes, the more independent it will become. It is a good thing for Chinese citizens, but not so much for global businesses wanting to sell into China.
The backdrop here is the discussion of globalization.
The word has many meanings. It is a pejorative term for those who interpret it as a top-down pursuit of global structures that escape any kind of local control. Big Tech and Globalization are often used as weaponized words in those hands.
Others think of it as another word for progress. I am one of them. This bottoms-up globalization is driven by technology, especially technology that escapes national control due to its nature. The Internet and Cryptocurrency are good examples.
Top-down globalization is clearly flawed. Brexit in the UK and similar movements throughout Europe represent a backlash against alienating overlords.
But bottoms-up globalization is another way of describing the internationalization of structures, technology, and human experience. It includes the Internet, telephony, transport, money flows, food imports and exports, and much more.
This kind of globalization is good. It represents the free flow of knowledge and “things” across borders, enabling rapid innovation and progress. The COVID-19 vaccine benefitted a lot from globally shared science, for example.
In this context, anti-Chinese sentiment represents the self-interest of national elites in preserving their own economic, political, and military status. Chinese technical innovation represents proof that national rivalry will result in outcomes that strengthen and possibly accelerate the capabilities of the Chinese and its economy.
A fractured world where nations are increasingly cold or hot, “enemies” does not serve human needs. That is why I am an internationalist and a Globalist. We must move towards the inevitable - a relatively borderless globe with the free flow of people and things, where we cooperate in progress that benefits us all.
John Lennon comes to mind.
Imagine all the people
Livin' for today
Ah
Imagine there's no countries
It isn't hard to do
Nothing to kill or die for
And no religion, too
Imagine all the people
Livin' life in peace
You
You may say I'm a dreamer
But I'm not the only one
I hope someday you'll join us
And the world will be as one
SEP 11, 2023
The G-20 summit in New Delhi felt like the dawn of a new era in both global economics and geopolitics. It was India’s time to shine; the host country was the darling of developed and developing economies alike. U.S. President Joe Biden announced a new infrastructure investment corridor centered around India, and declared that the U.S. supports India’s bid for a permanent UN Security Council seat. Meanwhile, India released a joint statement with Brazil and South Africa to work together on geopolitics. Basically, the G-20 can be summed up by this photo:
Meanwhile, the summit was just as notable for who wasn’t there — Xi Jinping, whose absence was the first for a Chinese leader in the history of the G-20. His refusal to come might have been a snub to India, or simply to any international organization not dominated by China, or both.
Regardless, it was highly symbolic. The locus of industrial globalization is shifting from China to a bunch of other developing countries. India is at the center of this, along with other countries in South and Southeast Asia. That will open up opportunities for developed countries like the U.S., Japan, South Korea and Europe to invest and to open up new markets. And the new wave of globalization will create opportunities for resource exporters like Brazil and South Africa to sell their materials to someone other than China. But China itself won’t vanish behind an iron curtain; it’ll play its own important role in this wave of globalization, investing in and exporting to the next crop of developing nations.
There’s a narrative going around out there that globalization is over, that decoupling will carve up the world into smaller trading networks, or even into isolated autarkic nations. And there’s another narrative that economic development is over, and that China was basically the last country to industrialize. Both of these narratives are wrong. In fact, globalization is simply changing form, as it has many times in the past. Investors and executives at multinational companies should be getting ready for the next round.
SEP 12, 2023
I’ve shared this post by Hunter Walk with a lot of my founder friends lately. I think it’s one of the more honest takes on how many VCs are thinking about portfolio companies that have, as he says, more “capital than momentum” and what it means for what the VC business model prioritizes.
I’ve been part of a lot of challenging conversations with founders who are at odds with their VC investors. The investors want to see a path toward an outcome that works for their funds and returns models. The founders are often focused on making sure that their companies are viable and can survive to continue to fight to see another day. For many founders, survival is both necessary and sufficient; they want to keep going and fighting with the optimistic belief that they will find a big opportunity. For many VCs, portfolio company survival is necessary but not sufficient; the VC model doesn’t work well if portfolio companies survive and stay alive but don’t grow or turn into successful exits. There is natural and inevitable tension here as the two sides don’t have the same incentives or benefits from every outcome. If you are a founder and you are experiencing new or renewed tension in your conversations with your VC investors, it’s worth re-examining whether you all have a shared view of the likely outcome of your company and whether you’re both as excited about what that outcome means. In many cases, I’ve seen situations where there are founder-acceptable outcomes that are below-the-line outcomes for VCs, and that conversation goes unsaid or unexamined. This creates a lot of unspoken and unexamined tension in the founder and VC relationship.
I think the same is true of VC fund managers who are looking to raise money from limited partners (LPs), many of whom are facing their own set of constraints and challenges. Many VCs raised a few years ago with the expectation that the next fund would be straightforward to raise. The world in mid-2023 is not the same as it was in mid-2022. We’ve seen a pullback in public company valuations, a big shakeup in the banking world, higher interest rates, and (probably most importantly) a notable lack in VC distributions back to LPs. Many LPs rely on regular distributions, either via IPOs, M&A outcomes, or secondary transactions, to generate the liquidity that they need to continue to make new VC commitments. Many LPs are facing real challenges in making new VC commitments; they are getting less money back from their existing managers than they expected, and they still have existing capital call obligations that they have to meet. And, in a world where VC firms are no longer the hottest investment opportunity available to LPs (that crown goes to private credit and secondaries at the moment), it takes a lot of courage to take a new or re-up venture commitment to your investment committee in a world where venture capital is down relative to other investment classes. It’s very hard to be in market as a venture fund manager without at least internalizing what’s happening on the other side of the table.
I’m a big believer that all pressure flows downhill. The pressure that LPs feel to generate liquidity in venture flows down to VCs. Many VCs feel pressure to generate liquidity for their LPs, either through M&A transactions or secondary sales. And, at a minimum, I think it makes many VCs think hard about what portion of their current portfolio will generate returns for their LPs and makes many of us more circumspect about which companies to support financially and which to ask to figure things out with the resources they have available. If your VC investors feel more tight or agitated or pressed of late, it’s likely that they are feeling the effects of pressure flowing downhill.
New iPhones, sure. But the company’s compelling new service lures you even deeper into its ecosystem.
JUST AS APPLE was wrapping up its annual presentation of a brand-new iPhone today—a whole suite of them, plus a watch—the company’s senior vice president of marketing, Greg Joswiak, let slip that two new iCloud plans would launch on September 18. Somewhat remarkably, the in-person crowd of more than 300 Apple acolytes and members of the global press were more enthused by the new iCloud tiers than they were by the iPhones’ new USB-C port.
These are “iCloud+” plans, signifying a premium Apple service, the kind that might make your wallet wince. The first new iCloud+ tier offers 6 terabytes of cloud storage for $30 per month. The next option is double the price for double the storage: $60 for 12 TB.
The Gathering Clouds
Convincing customers to store even more of their digital goods in iCloud makes it much harder for them to leave Apple’s ecosystem. There’s the actual cost of the service, and then there’s the so-called switching cost: the hassle that comes with deciding to leave and trying to move all your data from one service to another. With its new iCloud tiers, Apple is promising premium features like Hide My Email, Custom Email Domains, and HomeKit Secure Video as a part of the service. But just as many people will be lured in by what seems like a lifetime’s amount of photo storage.
“It’s a good business opportunity for Apple, because most users will need more storage in the long term,” says Francisco Jeronimo, vice president of data and analytics for IDC Europe. “The issue with bringing better and better cameras to everyone’s hands is we take more and more high-resolution photos and videos.”
More cloud storage is also valuable for Apple’s creative class, says Carolina Milanesi, founder of the technology research and consultancy firm The Heart of Tech. “For creators on the Pro iPhones, it’s more of a need.”
“The only thing I'm going to buy from the Apple event announcement today is the 6 TB iCloud storage,” tweeted Kunal Kushwaha, a YouTuber and the founder of online education service We Make Devs.
And, Milanesi points out, as Apple gets nearer to the launch of its (even more expensive) Vision Pro headset, the local storage on people’s iPhones may fill up even faster. The Vision Pro supports spatial photos and video—and today, at the iPhone event, Apple said its iPhone 15 Pro will capture 3D spatial videos. “This sets up the future of creating content for the Vision Pro,” Milanesi says…. More
SEP 12, 2023
On August 29, Huawei released its newest smartphone, the Mate 60 Pro, setting off a buzz in both China and the US. The device likely contains a 7-nanometer 5G chip manufactured by SMIC — a real achievement for Chinese advanced semiconductor manufacturing in the shadow of unprecedented US export controls.
Its release also just happened to coincide with Commerce Secretary Gina Raimondo’s visit to Beijing, making it a powerful geopolitical statement — Bill Bishop called it an “orchestrated snub to Raimondo.” I think he’s right. If Beijing didn’t approve of this release and was worried about the snub upsetting US-China relations, there is no way you would have seen the crowing endorsement on state and social media illustrated below. Beijing likes to talk about the importance of preserving “atmospherics,” and in the wake of the balloon reportedly convinced the Biden administration of the need to stop escalating restrictions on Huawei’s access to technology to put a floor under US-China relations.
On the other hand, had Biden pulled a similar stunt — like dropping the FBI’s balloon report during a Chinese official’s visit — Beijing would have portrayed it as unconscionable. Hopefully G7 policymakers take this incident to heart that for the China, “preserving atmospherics” is for thee and not for me.
Now onto the tech. First off, serious credit goes to Huawei engineers and the ecosystem the firm has helped prop up. We already knew that HiSilicon, Huawei’s design outfit, had serious chops: by the late 2010s pre-sanctions, they demonstrated the ability to go toe to toe with the big boys at Apple and Qualcomm. Now, after four years in the wilderness using what are outdated (or pilfered) ARM instruction set architecture and EDA tools, as well as last-generation manufacturing technology in DUV lithography, the firm produced something broadly competitive with other flagship phones.
What’s also impressive is how Huawei has broadly followed through on its commitment to indigenize production through aggressive investment in the Chinese semiconductor ecosystem. As the TechInsights teardown illustrates, nearly all the phone’s components come from Chinese firms. There is, however, one glaring exception: some rather sketchy SK Hynix memory (hopefully just) stockpiled in the run-up to sanctions. Recall that, after all, the US put China’s leading memory manufacturer YMTC on the entity list — and it seems as though the US has been even harder on YMTC than SMIC when it comes to licenses.
The outstanding questions below will determine just how big a deal the SMIC + Huawei breakthrough will turn out to be.
What’s the yield on this process, and will SMIC be able to produce 7nm at scale? As Doug O’Laughlin of Fabricated Knowledge colorfully explained to me, “‘Anyone’ could get a PhD to, atom by atom, build themselves a 2nm chip.” My guess is that the yield is not a complete joke: Huawei is a serious firm, and they would probably see more downside than upside in having rushed out a phone just for the memes, only to be able to sell a few thousand phones at an enormous loss. But it’s possible that this launch is not really ready for primetime, and instead was accelerated for the headlines to help convince the state, in its new $40 billion Big Fund, to not give up on pursuing leading-edge technology. But this strategy, as Ben Thompson points out, will prolong Chinese dependency on foreign tech:
SEP 8, 2023
With Instacart, Arm, and Klaviyo filing to go public, there’s cautious excitement in the air. At a hoped-for $52 billion valuation, Arm could be the largest IPO of the year.
IPOs are key stepping stones to exits for venture capitalists. And initial public offerings are a major source of fresh funding for late-stage technology companies.
Both exits and new funding are desperately needed in a world where much of growth stage financing is frozen.
VCs want to show skeptical limited partners actual cash returns as markdowns proliferate. High-growth companies want fresh outside capital to maintain momentum even as funding sources have dried up.
A rebounding IPO market would help restore some confidence to the damaged psyche of the startup ecosystem. So investors are wondering whether the IPO market might pick up.
A lot will hang on how the stock market receives Instacart, the food delivery company that has relied on a surge in advertising revenue to boost its performance, Klaviyo, the under-the-radar marketing automation platform, and Arm, the SoftBank-owned semiconductor and software design company.
Given the acute interest among venture capitalists and startup founders for a read on the IPO market, I had our data whiz Wenqi Shao whip up some charts and tables on the state of the IPO and M&A market. We’ve pulled together the reported and rumored IPO pipeline, data on the slowdown in IPOs, a comparison of DoorDash and Instacart’s valuations, a review of declining bank fees, and more.
Exit volumes and values (both M&A and IPO) in 2023 have remained low.
Instacart had reached a peak valuation of $39 billion in March 2021 but is estimated to be now worth around $10 to $15 billion.
Generally, neither Tech SPACs nor IPOs have performed well in 2023.
Quarterly M&A activity globally continues to trend lower, leaving little exit opportunities for VC backed startups.
Over 230 companies previously valued at over $1 billion have not raised any money since 2021 and are still private. As time ticks on, unprofitable unicorns’ cash reserves are thinning.
While the US IPO market has been fairly lackluster so far this year, there’s a backlog of high-profile tech unicorns that investors would like to see go public. Companies like Rubrik and Navan have made actual moves toward IPOs. Others like Reddit and Discord have long been seen as potential candidates. Meanwhile, Stripe tapped the private markets earlier this year, dispelling any hope that it would go public in 2023. And Databricks is reportedly in the process of raising at $43 billion valuation, putting off hopes that it would go public soon.
If all the IPO chatter turned into reality over the next 16 months, the hypothetical combined valuation totaling $250 billion would be 2x the value-to-date achieved in 2023 and all of 2022.
But if history is any guide, chatter won’t turn into reality. Even companies that file for an IPO can change their mind. Companies fuel speculation that they could go public for years before they really get the courage to do so.
Nothing beats building a sustainable, long-term business. But there’s also value in getting IPO timing right. When companies go out in a frothy market, they can raise money at better prices and give their existing shareholders an opportunity to exit at high prices. Of course, once those same companies’ stock prices fall, deflated valuations can hurt morale and their perceived momentum.
DoorDash, the restaurant delivery company, went public in December 2020 and reached a valuation of more than $80 billion. (Today it stands at $32 billion.) That meant that early investors had a chance to exit during a roaring market. Of course, some investors, namely Sequoia Capital, decided to hold onto their shares in public portfolio companies like DoorDash even as the stock market turned on money-losing, high-growth businesses.
Instacart finally filed its S-1 Aug. 26 to go public on the Nasdaq stock exchange under the symbol CART.
The grocery delivery startup has had a bumpy ride to an exit. It held talks with DoorDash about a potential merger in August 2021 but the deal fell apart amid regulatory concerns. Then Instacart canceled its IPO in October 2022.
Instacart reached a peak valuation of $39 billion in March 2021 but may only be worth between $10 and 15 billion in an IPO.
While 14% of IPOs raised $50 million or less in 2020, so far this year 61% of IPOs have been on the smaller end.
In fact, within the VC-backed tech sector, IPO deal sizes over $1 billion have completely dried up in the last 2 years, according to a chart from CNBC.
As I highlighted in my piece on Chamath Palihapitiya, over the past few years a bunch of technology companies desperate to go public embraced special purpose acquisition companies to get them there.
One defense of Palihapitiya is that many companies that went public in that period also saw their valuations decline.
Looking at the performance of 4 SPAC’ed companies and four similar companies that went public via an IPO — all have suffered a considerable decline in stock since January 2022 with Virgin Galactic the most at -81%, Clover Health -69%, Opendoor -78%, Redfin -77%, Lending Club -73% and SoFi down 47%.
The main difference here is that SPAC sponsors lent their personal reputations to SPAC mergers, going on television and in the media to promote their target companies. With traditional IPOs, banks play a far more subdued role and are typically courting institutional investors. And, of course, SPACs were generally pitching bold forward-looking projections while IPO-bound companies were not allowed to do so.
The last notable venture-backed tech IPO was in December 2021 when software vendor HashiCorp held its debut…. More
DYLAN PATEL,MYRON XIE, AFZAL AHMAD, AND DANIEL NISHBALL
SEP 13, 2023
Arm's success can be attributed to its innovative architecture, flexible licensing model, and strong ecosystem of partners. This highly flexible licensing model combined with aggressive investments into automotive, IoT, and datacenter have led to Arm’s margins being depressed for a number of years.
Now the screws are tightening, with Arm looking to maintain a sustainable business model by ratcheting up pricing and coming closer to extracting the value that they actually deliver to the market instead of effectively discounting to secure market share growth. Today we will dive into royalty rates across the smartphone industry and how high they can be ratcheted up, scenarios around what happens with Arm’s nuclear option in the Qualcomm lawsuit, datacenter outlook, Arm’s role in the chiplet ecosystem, Arm China, and RISC-V. We will be sharing our framework and model for the firm’s prospects going forward.
Arm has a range of engagement options with customers and their monetization increases as you go along the curve, from purely their instruction set all the way up to chip design partnerships and chiplets.
Arm is an Instruction Set Architecture (ISA), which is the interface between the software and the hardware, or specifically the microprocessor. The Instruction Set is the library of specific instructions that the chip is able to execute. All code that is written for that particular device is basically an abstraction of a combination of all these instructions. The Arm ISA is the most ubiquitous instruction set in the world, with the other famous one being x86 that we see in many CPUs. RISC-V is also on a meteoric rise.
The Arm ISA moat is very strong, especially in smartphones. We do not see smartphones able to transition to RISC-V anytime soon due to numerous software challenges. Designing a CPU is no easy task, and to date only a handful of firms (AMD, Intel, IBM, Apple, and Arm) have ever designed great CPUs and brought them to market. It requires a lot of time and engineering talent. Money alone doesn’t make a good CPU. Apple licenses the Arm ISA via an Architectural License Agreement (ALA) and has been building their own core for many years. HiSilicon also licensing the Armv9 architecture but with a custom core design was another shocking part of new Huawei’s Kirin 9000S news.
Due to the difficulty in designing custom cores and CPUs, even with the benefit of Arm’s instruction set, most users choose to go with using external CPUs. Those handful of other companies that design CPUs only let you access them if you purchase their chips or devices, whereas Arm’s flexible business model lets you integrate the CPU into your own chip by entering into a Technology License Agreements (TLAs) to purchase “off-the-shelf” CPU designs from Arm.
The TLA can be various degrees of customization of reference designs obtained through TLAs. Customers such as MediaTek use Arm Cortex cores in their smartphone SoCs that are fully off the shelf, whereas Qualcomm’s Snapdragon SoCs have CPU cores (Kryo) that are Cortex cores with some slight customization. All else being equal, TLAs are more expensive with higher royalty rates than ALAs as TLAs offer greater value add and relieve the chip design companies of significant design work.
Arm is also trying to provide more versatile options to suit different customer use cases, for example its recent announcement at Hot Chips 2023 of the compute subsystem (CSS) offering for its Neoverse line of CPU cores for datacenter and cloud computing. The CSS offering is a fully validated block that allows for some customization in terms of memory, I/O and any additional accelerators needed either on or off die. This offers lower cost and faster design cycle time while still allowing for some customization.
Arm is also branching out into more segments, including the contract chip business. This would bring them into competition with Broadcom, Marvell, and more. Instead of just collecting royalties, designing the whole chip would allow them to charge higher prices. This opportunity would also create new customers. For example, phone vendors like Xiaomi or Vivo are designing custom chips with Arm. This would cut out the middleman of Qualcomm and significantly increase the TAM for Arm. Their vast array of IP gives customers many options and their interoperability makes the cost of development lower and time to market shorter. It also enables many new IoT, Edge, and Datacenter players to be stood up.
Whereas other companies tend to grow by upselling products and services to their customers, Arm falls into the conundrum of experiencing an opposite pattern with their customers. As their main customers grow and become more sophisticated, the customers may actually require less from Arm as they start designing their own cores and downgrade from TLAs to bare ALAs.
For example, Qualcomm has been a purchaser of fully off the shelf cores. However, after acquiring datacenter CPU startup Nuvia who are designing fully custom Arm-based Phoenix cores, Qualcomm expressed their intention to use Phoenix Cores in their Snapdragon APs in the future. No doubt, this is part of the dispute between Qualcomm and Arm as this would be a way for Qualcomm to basically sidestep paying Arm for technology.
The compute subsystems are also a way for Arm to absorb more design effort from customers. By offering the compute subsystem as a whole, switching to in-house architecture is more difficult because a whole host of verification, validation, and NOC IP must be brought up.
Arm is even potentially going to offer datacenter CPU chiplets for their major datacenter customers such as Marvell, Google, Amazon, Microsoft, Meta. These firms are designing a variety of chips, from CPUs to ASICs, but that doesn’t preclude them from utilizing an Arm based chiplet that is sold to them from Arm. This would dramatically reduce design costs, which is important as design costs are soaring…. More
by Jason Lemkin | Blog Posts, Growth
So the other day I looked back at about 25 SaaS seed investments I’d made that had scaled well past $10m-$20m and reflected on the top themes. Including — the top mistakes founders make again and again as they cross $10m ARR. Trust me.
Here they are. They are all avoidable:
Ok really this is mistake #1, #2, #3, #4 and #5. I see way too many founders, in the transition from founder-led sales to their first (or second) VP of Sales, look to get that time back. This almost never works. Founders never get that time back. Instead, how they spend time in sales changes. You spend more time in the middle of deals, and less at the beginning (qualifiying) and end (closing). But you still have to do 10+ customer calls a week. Are you doing that?
More here.
I know this one may sound obvious, and yet, it’s not. Way, way too many founders never quite tame the burn rate as they scale past $10m ARR or so. The teams all get bigger. You start hiring faster. It starts to feel more like a “normal” company. And these additional costs just compound, and stack on top of each other. Pretty soon, that $300k burn has turned into $800k, and then … it never declines. It grows to $1m and beyond. Burn rates never seem to decline unless you take serious, and often radical,action. No matter what the model says. Whatever you do, at least do a rolling L4M model.
More here.
Once you really start to scale post $10m-$15m, the “internal” stuff starts taking up a ton of time. Keeping existing customers happy. Fixing long-standing product gaps and technical debt. Scaling DevOps and TechOps and FinOps and AllTheOps and HR and Recruiting and the SKO. Again, you’re finally building a real company. What can happen with all that internal focus is you lose a little focus on remaining ruthlessly competitive. Especially if your space is evolving. You might be the #1 vendor in your niche, but if that niche no longer is quite enough on its own, without more functionality, you can quietly fall behind. I’m constantly surprised how many founders are less close to the pulse of the competition once things start to scale.
More here.
If you hire everyone from outside the company to your leadership and senior teams, you lose what makes you special. The “outsiders” often never 100% get it. They never know all the features, the nooks and crannies, how the integrations really work, the nuances to parts of the sales playbook. But you also need them to inject new thinking and new experience into your startup.
As a rough rule, once you start scaling, try to have 50% of your leadership from internal promotions (you keep the special DNA and knowledge), and 50% from outsiders you bring in to mix things up and bring in new skills. Too few outsiders, and as you scale, everyone starts to make excuses when it gets harder. And the excuses are “right”. Too many outsiders and everything is done without true deep knowledge of what makes you special. They just never have the time, nor often the inclination, to learn what the insiders learned the past 2-3 years on the battlefield.
More here.
Look, we’ve all been there. I’ve made this mistake myself again and again. And all I can tell you, and every other successful startup CEO will tell you, is this — The Desperation VP Hire Never Works Out.
It usually goes like this: you go off to hire a VP you absolutely need to hire. Often VP of Sales, but it can be VP of Eng, Marketing, etc. as well. And 4, 5, 6 months go by and you just aren’t finding anyone great, and you get burnt out. You feel like you can’t be that Interim VP yourself any longer, than someone “OK” has to at least be better than how you’re doing now. And you hire someone, often someone that looks decent on paper, on LinkedIn — that you know isn’t great. They’re nice and seem OK. But they didn’t really do the 60 Day Plan. They don’t really have anyone great to bring with them. But hey, they look and sounds good. The team likes them, even if no one is blown away. So you make the Desperation VP Hire. They’re just always gone in 6 months or so, and leave a mediocre team you don’t need behind with them.
More here.
Related to the prior point, but not quite the same. Another huge mistake almost every CEO makes is hiring one or more VPs that are just too hands-off as they begin to scale. Not only do they spend more — since they need bigger teams when they aren’t involved themselves. But the bigger issue is they never really understand the product or the market. I see way too many “Hands Off ” VPs of Sales and Marketing say something like this 120 days after they joined: “I should have gotten to know the product better”. And that’s the self-aware ones.
The ones not as good simply never really understand the product and just blame other factors when it all sloooows down. And so sales goes down. The competition boxes you out. Product velocity goes down. They build the wrong stuff. It all goes down when you hire a VP of Sales that doesn’t really sell themselves, a VP of Eng that doesn’t really commit code themselves, a VP of Marketing that doesn’t really do demand gen or ABM themselves.
A related post here.
Ok this is a slightly subtler mistake, but it’s oh so important. In the early days, founders generally underestimate how many sales reps they’ll need to hit next year’s plan. Once you have a few strong reps hitting quota, the engine gets pretty efficient in the early days. So if we got to say $5m ARR with just 3 reps, can’t we get to $10m ARR with just a few more? Well, no. To add +$5m in ARR in 1 year, at a $500k yielded attainment per rep, you’d need 10 reps. At least. Plus a VP, plus support, plus revops, etc.
In fact, most SaaS startups that start scaling need about 2x as many reps as the founders think. More on that math here.
So at first founders think you can go further with just a few reps than you really can. But they later, they fall too much into the Sales Capacity Trap. What’s that? That pure bodies will get you there. No. Mediocre VPs of Sales, and desperate VPs of Sales, often push this type of thinking. And there’s of course some mathematically truth here. But hiring 10 reps that can’t close gets you somewhere Worse Than Nowhere. Lowering the bar too much in sales to hit a capacity target just makes things worse. There are few things worse than 10-20 new reps running around, untrained, that can’t close anything, that never close anything. And more time rarely helps.
This one is somewhat related to Getting Less Competitive in point 3, but different enough and important enough to call out here. Incredibly agile startups tend to find a way to stay that way even as they scale. But most SaaS startups I’d characterize as scrappy and “sort of agile”. Scrappy is great in the early days, and it forces very focused thinking. But that’s not the same as being truly agile. As pushing out that critical feature this week, not next year. As building that key integration now, and not complaining how hard it is to build. When your competitor has already built it.
Most founders need to find a way to make their engineering team better as they cross $10 million in ARR. The world just gets more competitive as you scale and enter new segments, and get into more deals. Too many founders instead end up with a slower engineering team as they scale. Lots of valid complaints about technical debt, and the like. But net net, in the end, story points and builds and releases don’t accelerate. They have to accelerate after $10m ARR if you don’t want to .. decelerate.
A related post here.
Ok this one is super important and applies to many SaaS startups — but not all. First, if you start in the enterprise, you’ve already gone upmarket ;). And certainly, there are categories that are very SMB, so going too upmarket too early doesn’t make sense. Because the vast majority of the revenue is in SMBs. This was the case with Shopify, which only now is truly going more upmarket. You can see it with Klaviyo as well, which is just going upmarket as it scales past $600m ARR. And it’s also true with folks like Toast and Bill and others, whose heart and soul is just SMBs.
But what I see pretty frequently is founders that resist the existing customer and market demand to go upmarket. As a rough rule, if 10% of your early customers are “bigger” customers, that’s a sign to go more upmarket. If it’s 20%+, that’s a sign there a ton of revenue if you just go a bit more upmarket. That means probably hiring a real sales team. That means adding SOC-2 and much more security. That means building workflows and dashboards and integrations you might otherwise not really want to build now. But the tradeoff can be $50k, $100k, $200k+ deals now.
Here’s the challenge: if your customer base is saying go upmarket but your personal DNA doesn’t want to — change your DNA. It’s you. Get with the program. Love the customers you have, and that want you. Not the ones you thought you’d have, or you wish you have. Not everyone can be a magical self-serve PLG unicorn with zero effort in sales or security or enterprise marketing.
More here.
Ok this final point I’m not sure belongs in the Top 10 per se, only because the consequences are often a slow burn. But still, I see this mistake haunt founders later. They abandon the smallest customers, they ignore the long tail, they shut down the free edition. Everything starts being “Contact Me”. The sales team will often push for this. The rest of the company often stops caring about the tiniest customers and the free users, once you scale past $10m, $20m, $50m ARR. I get it, mathematically.
But then you turn around, and someone new has taken over that white space. Someone new is the Hero App in the space. That empowers the next generation of developers, of marketers, of sales reps.
There’s a reason HubSpot and Mailchimp and Atlassian went back and added Free editions later. They realized how powerful that long tail was. If you have one, invest in it. Build your community. Maybe even make your Free edition — even Freer. That will take some pressure off monetizing it, and unleash an every larger army of champions to spread the great world about you.
More here.
And the bonus point:
Almost every single founder I talk to ranks this high on their list. I’m not quite sure it’s a mistake as much as a lament, but I want to call it out here as our bonus point. Aaron Levie of Box rates this as one of his top mistakes, not going multi-product earlier. Others, like Freshworks and Samsara, layered in their second, third and fourth acts just in the right sequence. Focus matters, and you have to stay focused. But even as early as 1,000 customers, and maybe even 100 in the enterprise, you’ll start to see some market fatigue. Without a second product to sell to your existing base
Much more here.
If you only have a few minutes to spare, here’s what investors, operators, and founders should know about regulating artificial intelligence.
Indecent proposals. As artificial intelligence booms, suggestions for how to regulate it have emerged. Earlier this year, a coalition including Elon Musk argued for a hard pause on developing cutting-edge models. Not long after, OpenAI CEO Sam Altman proposed a licensing process that would restrict the number of high-end operational companies. So far, no suggestion appears particularly promising.
Imperfect options. In defense of the safeguards suggested to date, regulating AI is an extraordinary challenge. Though managing any disruptive technology is difficult – a dance between encouraging innovation and minimizing harm – the speed and structure of AI make the task uniquely difficult and consequential.
Under the gun. We may not have much time to devise an appropriate regulatory response to AI’s renaissance. The advances of the past year have compressed timelines radically. We may now be just a breakthrough or two away from ungovernable technologies.
Guru warfare. Not all agree with this worrisome portrayal. For as many experts as there are fretting about AI, an equivalent number seem to view it as an overwhelming good, set to improve our lives beyond measure. Which guru should be listened to? This is a topic that everyone must examine for themselves rather than relying on an information leader.
Iterative governance. No single rule will eliminate the risks of AI. More than specific regulation, what is needed is a new, more flexible form of decision-making. Technology’s radical speed greatly outmatches our current institutions. To have any hope of adapting to a changing landscape, we must find ways to embrace more iterative governance.
…More
PUBLISHED WED, SEP 13 2023
KEY POINTS
Tech CEOs descended on Capitol Hill Wednesday to speak with senators about artificial intelligence as lawmakers consider how to craft guardrails for the powerful technology.
Senate Majority Leader Chuck Schumer, D-N.Y., hosted the panel of tech executives, labor and civil rights leaders as part of the Senate’s inaugural “AI Insight Forum.”
Tesla and SpaceX CEO Elon Musk, Google CEO Sundar Pichai, Meta CEO Mark Zuckerberg, Microsoft CEO Satya Nadella and OpenAI CEO Sam Altman were among those in attendance.
Elon Musk and Palantir co-founder; CEO Alex Karp attend a bipartisan Artificial Intelligence (AI) Insight Forum for all U.S. senators hosted by Senate Majority Leader Chuck Schumer (D-NY) at the U.S. Capitol in Washington, U.S., September 13, 2023.
Leah Millis | Reuters
Tech CEOs descended on Capitol Hill Wednesday to speak with senators about artificial intelligence as lawmakers consider how to craft guardrails for the powerful technology.
It was a meeting that “may go down in history as being very important for the future of civilization,” billionaire tech executive Elon Musk told CNBC’s Eamon Javers and other reporters as he left the meeting.
Senate Majority Leader Chuck Schumer, D-N.Y., hosted the panel of tech executives, labor and civil rights leaders as part of the Senate’s inaugural “AI Insight Forum.” Sens. Mike Rounds, R-S.D., Martin Heinrich, D-N.M., and Todd Young, R-Ind., helped organize the event and have worked with Schumer on other sessions educating lawmakers on AI.
Top tech executives in attendance Wednesday included:
OpenAI CEO Sam Altman
Former Microsoft CEO Bill Gates
Nvidia CEO Jensen Huang
Palantir CEO Alex Karp
IBM CEO Arvind Krishna
Tesla and SpaceX CEO Elon Musk
Microsoft CEO Satya Nadella
Alphabet and Google CEO Sundar Pichai
Former Google CEO Eric Schmidt
Meta CEO Mark Zuckerberg
The panel, attended by more than 60 senators, according to Schumer, took place behind closed doors. Schumer said the closed forum allowed for an open discussion among the attendees, without the normal time and format restrictions of a public hearing. But Schumer said some future forums would be open to public view.
Chris Metinko, September 14, 2023
While Thursday was supposed to be all about Arm’s IPO, another chipmaker seemed unwilling to let all it have all the buzz.
Nvidia — which joined the $1 trillion market cap club this spring — joined Databricks‘ $500 million-plus Series I led by funds and accounts advised by T. Rowe Price Associates. The deal values the startup at $43 billion.
However, that is far from the only deal the AI chipmaking darling has participated in recently, as Nvidia has become one of the leading investors in all things AI.
In the current third quarter, Nvidia has participated in 11 funding deals — the majority in AI-related startups — per Crunchbase data. In Q2, the company made eight such deals.
Before those two quarters, Nvidia had not made more than four deals in any quarter dating back to at least 2005, per Crunchbase.
Just in the last few weeks Nvidia has participated in:
The $125 million Series B for Mountain View, California-based Enfabrica, which designs networking chips to handle AI workloads.
San Francisco-based Imbue’s massive $200 million Series B that valued the AI research lab at $1 billion.
Israel-based AI startup AI21 Labs’ $155 million Series C. The startup competes with generative AI powerhouses OpenAI and Anthropic.
New York-based Hugging Face’s $200 million round
While many big-name firms like Tiger Global and Coatue are pulling back on their deal numbers, Nvidia is picking up the pace — at least when it comes to AI.
Nvidia is leading the charge for chips with better processing to train large language models for AI and it seems to stay ahead by keeping its finger on the pulse of innovation.
Some of the other largest deals Nvidia participated in all have come this calendar year and include:
Adept AI’s $350 million Series B in March that gave the San Francisco-based startup a post-money valuation of at least $1 billion. Adept is developing AI models that cannot just respond to text commands — like a chatbot — but actually turn that command into actions. In theory, the company’s generative AI could help users do tasks from browsing the internet to navigating enterprise software tools.
Toronto-based Cohere’s $270 million round in May. The startup’s AI platform competes with OpenAI.
Drone startup Skydio’s $230 million Series E at a $2.2 billion valuation in February.
While it is not known what Nvidia invested in any of these deals — cash, stock, technology and services or even a combination of all three — it is clear Nvidia has a desire to be not just a big player in AI, but the dominant player.
Connie Loizos
Updated Mon, September 11, 2023
Michael Kim of Cendana Capital is often a first call for emerging seed-stage fund managers. Cendana has invested in many VC teams that have gone on to enjoy great success — like Forerunner Ventures, K9 Ventures, and IA Ventures. Thanks to its own backers, Cendana keeps replenishing its supply of investing capital, too.
Indeed, Kim tells us that 13-year-old Cendana just closed on $470 million across several new funds that bring the firm’s total assets under management to roughly $2 billion. The biggest pool, $340 million, will be funneled into U.S.-based investors. Another $67 million will flow to managers outside the United States. Cendana also has $30 million in capital commitments to invest directly in startups and $30 million from the University of Texas, whose positions will reflect that bigger, $340 million fund.
We talked with Kim earlier today about the current market, where exits are few and far between. We also talked about seed-stage managers who happen also to run companies and are, in some cases, currently preoccupied with making sure those companies survive this topsy-turvy market. Kim called us from his home in the Bay Area ahead of a trip next week to Singapore, where many institutional investors are expected to gather for a summit hosted by the Milken Institute, as well as a Formula 1 race.
You can hear our full conversation; meanwhile, excerpts follow below.
September 9, 2023
The start of 2022 marked a change in financial markets. Since then, many believed risk capital would dry up, early-stage valuations would fall (just like all other valuations). Now that we are nearly two years into this downturn, I wanted to briefly take stock of what actually happened versus what was speculated.
1/ Seed-stage valuations have generally been left-unchanged, and I could argue even they’ve gone up since the beginning of 2022. Looking back now, it makes sense – VC firms have lots of dry powder, and while they may have slowed down relative to 2021, they’re still making investments. Early-stage is perhaps a more attractive stage to deploy smaller dollars these days – a friend remarked everyone wants to gamble, but no one wants to sit at the whale tables just yet.
2/ Angel investors are tightening things up. I’ve been a bit surprised by individual angel investors holding more of a line or just preserving liquidity. This makes sense, too. I’ve seen two responses from the networks of angels we frequently syndicate with — one half simply won’t engage unless a valuation or post-money CAP is at $10M or below; the other half have left the market entirely as they wait for liquidity from their existing assets. Founders are fortunate the pre-seed & seed VC activity has institutionalized over the past decade, because if that hadn’t happened, angel/pre-seed capital would be much harder to raise right now.
3/ Y Combinator has a huge shot in the arm with the installation of Garry Tan. Garry is a designer, engineer, builder, strategies, and systems thinker. It’s already a machine, and I would suspect Garry and his new team will make their engines even more efficient.
4/ Where founders live matters again. It’s not acceptable yet to say this bluntly on Twitter, but in private, many investors remark how they’re enjoying deal evaluation in person (primarily in the Bay Area and NYC), and when possible, they’d prefer to seed companies in those locations specifically.
5/ Where seed investors lives matters a bit less, but still matters. A seed-stage VC relic of the pandemic is that nearly all initial screenings and much of the evaluation happens on video, even when founders live near investors. But while seed stage VCs are quietly tacking to founding teams based in the Bay Area and/or New York, where those seed stage VCs live matters less and less, though one could argue founders may want more local, on-the-ground investors now given how hard future financings have been.
6/ Speaking of future financings, the conversion of these early-stage investments from pre-seed to seed, or seed to Series A (I’ve given up deciphering the nomenclature) has suffered dramatically since the start of 2022. If we take out the AI-hype or momentum deals from 2023, the traditional Series A firms have really slowed down as they’ve digested the portfolio triage that needed to happen while waiting for evidence-based momentum deals to invest in after years of narrative-driven high-priced Series As.
I could go on, but that feels like enough for now. What I’ll maybe add in closing is that the quality of founding teams out there seem to be increasing, and when we meet them, they’re not thinking about interest rates, or overseas conflicts, or public market valuations — all of those things are important, but they’re not really on the radar of today’s technical creators, and perhaps for that reason alone, the analysis above makes sense in hindsight. All that said, there’s enormous pressures on these founders to gather enough positive evidence to keep going and raise more capital. While the ecosystem is still flush “starter capital,” that’s where the party stops. Let’s see what happens.
SEP 10, 2023
The Haystack team is proud to announce Haystack VII, a $75M fund designed to invest in founders at the earliest stages of company building. Throughout its decade of existence, Haystack has been one of the first investors in businesses like DoorDash, Instacart, Hashicorp, Figma, Carta, Applied Intuition, Ironclad, Redpanda, and many other startups. Our goals are simple – to remain focused on early stage investing, to remain nimble, and to be a choice partner for ambitious founders at the beginning of their journeys.
Haystack would not be possible without three groups – the founders we work for and help support, our Limited Partners who believe in Haystack, and VC friends & collaborators who vouch for us in this ecosystem. Here is the clearest articulation of the Haystack ethos, written in 2017 – “we believe it is the founder who carries a special secret, and our job is to identify those with secrets and partner with them to bring those secrets to the world.”
With the announcement of the fund, we would also like to share some personnel updates:
We are thrilled to announce Divya Dhulipala’s promotion to Principal at Haystack. She has been a tireless force at Haystack the last couple years, and we are grateful for her for initiative, energy, and strategic thinking. Divya is a steady hand and an optimist that brings out the best in all of us. Thank you Divya for your friendship and continued push towards excellence!
On the personal front, and going forward, I am excited to share that I will be a Partner at Haystack. I’m proud of our work here over the last 4+ years and incredibly excited for what the future holds. The truth is that I love being in the venture business – I feel lucky I’m able to practice this craft. And I’ve learned over time that it’s a job that pushes one to personally evolve alongside the companies you invest in, from digging through nooks and crannies to find new people and investment opportunities to the active management of a portfolio as it matures.
I would also like to acknowledge my now partner(!) Semil Shah. We first met when I was in college, and he took a chance on me when I was completely unproven. He has guided me, both professionally and personally, and I’ve found that guidance to be invaluable. I have the utmost respect for him as an investor and as an entrepreneur in his own right with the way he’s built Haystack.
Onwards!
Justice department takes on tech giant in court, seeking to prove it illegally used its power to maintain monopoly on internet search
Wed 13 Sep 2023 19.08 EDT
The court battle between the US justice department and Google has entered its second day, as the United States government seeks to prove that the tech behemoth illegally leveraged its power to maintain a monopoly over internet search engines. The trial is a major test of antitrust law and could have far-reaching implications for the tech industry and for how people engage with the internet.
The question at the heart of the trial is whether Google’s place as the search engine for most Americans is the result of anti-competitive practices that gave internet users no other choice but to use its services.
On the first day of the trial, attorneys for the justice department and the dozens of states that have joined in the suit accused Google of shutting out competition through billion-dollar agreements with companies such as Apple and Samsung.
The justice department lawyer Kenneth Dintzer alleged Google spends $10bn a year in deals to ensure it is the default search engine on devices such as the iPhone, effectively blocking meaningful competition and positioning Google as the gatekeeper of the internet.
“They knew these agreements crossed antitrust lines,” Dintzer said on Tuesday.
Google’s opening statement gave a window into how the company and its lead attorney, John Schmidtlein, plan to defend against the accusations. Schmidtlein argued that Google had achieved its dominance over online search – the government estimates it holds about a 90% market share – because it is simply a better product than alternatives such as Microsoft’s Bing search engine. Consumers are free to switch default settings with “a few easy clicks” and use other search engines if they please, Schmidtlein told the court on Tuesday….More
The number of startup acquisitions in France is hitting record highs. But deal value is down, as cash-strapped businesses desperately seek acquirers
Daphné Leprince-Ringuet and Chris O’Brien
With startups running out of cash, the French tech fire sale is in full swing — and it’s emblematic of a broader collapse across Europe that is forcing desperate startups to sell at any price.
The rising wave of selling suggests that many founders and VCs are still just beginning to feel the consequences of the frigid funding climate, marking a painful end to an era of startup excess.
“Companies burned cash, they spent on marketing, they recruited profusely, they made bad decisions, they bought big offices and, today, they find themselves with a model that isn’t sustainable,” said Olivier Saint-Marc, senior analyst at M&A advisory firm Avolta. “They still need cash but no one can back them anymore, so it’s a fire sale.”
Avolta recorded 201 exits in France in the first half of 2023 — up almost 10% compared with the same period last year. Yet the total value of €738m is 71% less than the 184 deals that closed in the first semester of 2022. And the average deal size has collapsed from €40m to €10m.
These numbers are based on a subset of exits where parties voluntarily communicated the details — and the fact that fewer companies were willing to communicate the deal value in 2023 suggests bad news, says Saint-Marc.
It’s a rude dose of reality for an ecosystem that had known only exuberance in recent years. In the first half of 2023, startups raised about half as much as they did in the same period a year earlier. That drop was 37% and 62% in Germany and the UK, respectively.
Now that funding has dried up, companies frantically have tried to cut costs in a bid for profitability, but many have found themselves caught short, with no additional funding in sight. M&A is the exit of last resort for some — and an opportunity for others.
One of the most dramatic falls from startup grace was the recent sale of French insurtech startup Luko.
The company had raised €68m and by early 2022 looked like a juggernaut. That spring, it acquired two companies to fuel a European expansion.
That’s when Raphaël Vullierme, CEO and cofounder of Luko, said he began the fundraising process for a Series C round. But, then, publicly traded insurtech stocks crashed in the US and VCs suddenly soured on the sector.
Unable to raise more money, Luko cut staff, new product development and exited some countries. But it wasn’t enough. Earlier this year, Luko sought protection in a French business court to renegotiate €45m in debt.
During those legal proceedings, UK-based Admiral Group announced it had acquired Luko. While the companies did not disclose the value, reports suggest it was around €14m — a humbling amount for a company once valued at €220m.
“The risks we have taken in 2022 are probably the same risks we would have taken in 2020,” Vullierme said. “But in 2020, those risks were highly valued by the market. To build this company, you need to be incredibly aggressive and pushy and take risks, and be bold. When markets turn around, you’re much more exposed.”
A sale puts a concrete value on an investment that can’t be ignored — meaning that a reckoning is at hand for VCs who have reportedly been reluctant to mark down their portfolios to reflect the decline in value of their holdings.
Jean de La Rochebrochard, head of Kima Ventures, recently noted in his newsletter headlined “Delusion” that the firm had written off two startups it had backed with €150,000 each. Kima’s investments at one point had a combined value of $8m.
One of those companies was Luko.
“Those two companies are part of a portfolio of 1200 companies in total, and they are just larger rocks that followed a lot of small ones over the past few months, but I do believe that sooner rather than later, larger ones will come off that mountain of paper money,” he wrote. “The next six to eighteen months won’t be pretty, that’s for sure.”
While for some founders, the end of easy money means selling the company for a disappointing cheque, others are finding themselves in a stronger position. Startups with a bit of spare cash are ready to rummage through the bargain bin.
Buying competitors’ technologies at a cheap price is a great way to develop rapidly, offer new services and expand to new markets with limited cash burn. … More
Xinhua | Updated: 2023-09-11 22:04
SHANGHAI - A C919 plane, a China-developed large passenger aircraft, landed at Urumqi Diwopu International Airport in the capital of the Xinjiang Uygur autonomous region on Monday, according to the Commercial Aircraft Corporation of China, Ltd (COMAC).
The landing marked the beginning of two weeks of demonstration flights the aircraft model will make across 25 airports in Xinjiang.
According to the plan, COMAC will use two C919 aircraft for the demonstration flights, which will take them to Karamay, Yining, Kuqa, Altay and other major airports in Xinjiang.
Air travel is the most convenient mode of transport between regions in Xinjiang, which is vast and has complex terrain and numerous civil airports.
The C919 demonstration flights will help meet the passenger demand for high-quality air travel and explore a new path for the commercial operation of domestic passenger aircraft, according to COMAC.
SEP 11, 2023
The buzzy open source database company MotherDuck is in talks to raise about $50 million at a $350 million pre-money valuation, people familiar with the matter tell me.
The venture fund Felicis, which has been leaning hard into artificial intelligence with investments in Weights & Biases and Runway, is leading the Series B round, sources tell me.
MotherDuck is built around the open source project DuckDB, which makes it easy for data analysts to process information locally on their computers. DuckDB is getting more than 2 million downloads a month, one person told me.
This June, MotherDuck announced a cloud-based analytics platform to support companies using DuckDB. The database management system is currently restricted access.
I believe I was the first to report on MotherDuck’s Series A. Martin Casado at Andreessen Horowitz won that competitive round.
Casado and partner Jennifer Li wrote about that investment, “DuckDB focuses on a scale-up performance approach that allows it to run orders of magnitude faster than traditional scale-out approaches, and it can do so over terabytes of data. The petite size also lets it run anywhere — on-device, in-browser, or on a server.”
MotherDuck is led by Jordan Tigani, who played a key role building the serverless data warehouse BigQuery at Google.
Madrona, Amplify Partners, Altimeter, and Redpoint are among MotherDuck’s existing investors.
A reminder for new readers. That Was The Week collects the best writing on critical issues in tech, startups, and venture capital. I selected the articles because they are of interest. The selections often include things I disagree with. The articles are only snippets. Click on the headline to go to the original. I express my point of view in the editorial and the weekly video below.
This Week’s Video and Podcast:
Content this week from @kteare, @ajkeen, @noahpinion, @chudson, @LaurenGoode, @jordanschnyc, @ericnewcomer, @dylan522p, @jasonlk, @mariogabriele, @lauren_feiner, @cookie, @semil, @aashaysanghvi_, @nickrobinsearly, @daphneleprince, @obrien, @motherduck, @MKRocks
Editorial: Why Think Global? China, Chips and Airplanes
Walter Isaacson on Elon Musk
Cendana Capital closes on $470M more to back seed-stage fund managers
Google accused of spending billions to block rivals as landmark trial continues
The big French fire sale: record numbers of startups are selling at big discounts
China's C919 aircraft model begins demonstration flights across Xinjiang
Michael Kim, Cendana
Last week, Andrew and I got into a discussion of “nation-states.” It’s a theme I like, and Andrew doesn’t. Nothing new there.
Maybe because of that, I read a lot about Globalization this week. I was pulled towards this paragraph from Noah Smith’s “The Next Phase of Globalization is going to be Great”.
There’s a narrative going around out there that globalization is over, that decoupling will carve up the world into smaller trading networks, or even into isolated autarkic nations. And there’s another narrative that economic development is over, and that China was basically the last country to industrialize. Both of these narratives are wrong. In fact, globalization is simply changing form, as it has many times in the past.
As luck would have it Andrew interviewed Simon Johnson, the Ronald A. Kurtz (1954) Professor of Entrepreneurship at the MIT Sloan School of Management, where he is head of the Global Economics and Management group. In 2007-08 he was chief economist at the International Monetary Fund.
So, we both converged on the same topic.
A couple of news items triggered my thoughts. First, regarding mobile phone announcements from Huawei, revealing a 7-nanometer CPU produced by SMIC in China:
On August 29, Huawei released its newest smartphone, the Mate 60 Pro, setting off a buzz in both China and the US. The device likely contains a 7-nanometer 5G chip manufactured by SMIC — a real achievement for Chinese advanced semiconductor manufacturing in the shadow of unprecedented US export controls.
And second, the announcement of the first flight tests of the C919 plane in China:
A C919 plane, a China-developed large passenger aircraft, landed at Urumqi Diwopu International Airport in the capital of the Xinjiang Uygur autonomous region on Monday, according to the Commercial Aircraft Corporation of China, Ltd (COMAC).
On the chip, Tech Insights reported on it:
The team found evidence of SMIC 7nm (N+2) which represents a made-in-China design and manufacturing milestone for the most advanced Chinese foundry TechInsights has documented. Some of the highlights include:
The Kirin 9000s die measured 107 mm2, which is 2% larger than the Kirin 9000 (105 mm2). From various identifying features on the die, the team concluded the processor is manufactured by SMIC.
Initial lab results indicated that this die is more advanced than SMIC’s 14nm process node but presents larger critical dimensions (CDs) than what TechInsights has observed for 5nm process.
Additional measurements of critical dimensions (CDs) on the die, including logic gate pitch, fin pitch and lower back-end-of-line (BEOL) metallization pitches, the analyst team concluded the die has 7nm features.
“Discovering a Kirin chip using SMIC’s 7nm (N+2) foundry process in the new Huawei Mate 60 Pro smartphone demonstrates the technical progress China’s semiconductor industry has been able to make without EUV lithography tools,” said Dan Hutcheson, Vice Chair of TechInsights. “The difficulty of this achievement also shows the resilience of the country’s chip technological ability. At the same time, it is a great geopolitical challenge to the countries who have sought to restrict its access to critical manufacturing technologies. The result may likely be even greater restrictions than what exist today.”
The Kirin 9000s is a full SoC and “the C919 is a narrow-body plane comparable to the Boeing 737 and Airbus A320.” (NYT)
Why are these things even interesting? Well, on their own, they may not be.
Apple’s iPhone 15 Pro is using a 3-nanometer process, so well ahead of its Chinese rival:
We figured the iPhone 15 Pro would feature some sort a new A17 chip, but Apple surprised us by debuting its first "Pro" chip at its annual fall eventtoday. The A17 Pro is Apple's most powerful mobile silicon yet. The 3 nanometer chip features 17 billion transistors and a six-core CPU. Apple claims its two performance cores are 10 percent faster than the A16, while its four efficiency cores offer far better performance per watt. The 6-core GPU is also 20 percent faster than before, and it features advanced graphics features like hardware accelerated ray tracing. (EnGadget)
But China, driven by being excluded from some global markets, is rapidly developing internal capability. The more isolated it becomes, the more independent it will become. It is a good thing for Chinese citizens, but not so much for global businesses wanting to sell into China.
The backdrop here is the discussion of globalization.
The word has many meanings. It is a pejorative term for those who interpret it as a top-down pursuit of global structures that escape any kind of local control. Big Tech and Globalization are often used as weaponized words in those hands.
Others think of it as another word for progress. I am one of them. This bottoms-up globalization is driven by technology, especially technology that escapes national control due to its nature. The Internet and Cryptocurrency are good examples.
Top-down globalization is clearly flawed. Brexit in the UK and similar movements throughout Europe represent a backlash against alienating overlords.
But bottoms-up globalization is another way of describing the internationalization of structures, technology, and human experience. It includes the Internet, telephony, transport, money flows, food imports and exports, and much more.
This kind of globalization is good. It represents the free flow of knowledge and “things” across borders, enabling rapid innovation and progress. The COVID-19 vaccine benefitted a lot from globally shared science, for example.
In this context, anti-Chinese sentiment represents the self-interest of national elites in preserving their own economic, political, and military status. Chinese technical innovation represents proof that national rivalry will result in outcomes that strengthen and possibly accelerate the capabilities of the Chinese and its economy.
A fractured world where nations are increasingly cold or hot, “enemies” does not serve human needs. That is why I am an internationalist and a Globalist. We must move towards the inevitable - a relatively borderless globe with the free flow of people and things, where we cooperate in progress that benefits us all.
John Lennon comes to mind.
Imagine all the people
Livin' for today
Ah
Imagine there's no countries
It isn't hard to do
Nothing to kill or die for
And no religion, too
Imagine all the people
Livin' life in peace
You
You may say I'm a dreamer
But I'm not the only one
I hope someday you'll join us
And the world will be as one
SEP 11, 2023
The G-20 summit in New Delhi felt like the dawn of a new era in both global economics and geopolitics. It was India’s time to shine; the host country was the darling of developed and developing economies alike. U.S. President Joe Biden announced a new infrastructure investment corridor centered around India, and declared that the U.S. supports India’s bid for a permanent UN Security Council seat. Meanwhile, India released a joint statement with Brazil and South Africa to work together on geopolitics. Basically, the G-20 can be summed up by this photo:
Meanwhile, the summit was just as notable for who wasn’t there — Xi Jinping, whose absence was the first for a Chinese leader in the history of the G-20. His refusal to come might have been a snub to India, or simply to any international organization not dominated by China, or both.
Regardless, it was highly symbolic. The locus of industrial globalization is shifting from China to a bunch of other developing countries. India is at the center of this, along with other countries in South and Southeast Asia. That will open up opportunities for developed countries like the U.S., Japan, South Korea and Europe to invest and to open up new markets. And the new wave of globalization will create opportunities for resource exporters like Brazil and South Africa to sell their materials to someone other than China. But China itself won’t vanish behind an iron curtain; it’ll play its own important role in this wave of globalization, investing in and exporting to the next crop of developing nations.
There’s a narrative going around out there that globalization is over, that decoupling will carve up the world into smaller trading networks, or even into isolated autarkic nations. And there’s another narrative that economic development is over, and that China was basically the last country to industrialize. Both of these narratives are wrong. In fact, globalization is simply changing form, as it has many times in the past. Investors and executives at multinational companies should be getting ready for the next round.
SEP 12, 2023
I’ve shared this post by Hunter Walk with a lot of my founder friends lately. I think it’s one of the more honest takes on how many VCs are thinking about portfolio companies that have, as he says, more “capital than momentum” and what it means for what the VC business model prioritizes.
I’ve been part of a lot of challenging conversations with founders who are at odds with their VC investors. The investors want to see a path toward an outcome that works for their funds and returns models. The founders are often focused on making sure that their companies are viable and can survive to continue to fight to see another day. For many founders, survival is both necessary and sufficient; they want to keep going and fighting with the optimistic belief that they will find a big opportunity. For many VCs, portfolio company survival is necessary but not sufficient; the VC model doesn’t work well if portfolio companies survive and stay alive but don’t grow or turn into successful exits. There is natural and inevitable tension here as the two sides don’t have the same incentives or benefits from every outcome. If you are a founder and you are experiencing new or renewed tension in your conversations with your VC investors, it’s worth re-examining whether you all have a shared view of the likely outcome of your company and whether you’re both as excited about what that outcome means. In many cases, I’ve seen situations where there are founder-acceptable outcomes that are below-the-line outcomes for VCs, and that conversation goes unsaid or unexamined. This creates a lot of unspoken and unexamined tension in the founder and VC relationship.
I think the same is true of VC fund managers who are looking to raise money from limited partners (LPs), many of whom are facing their own set of constraints and challenges. Many VCs raised a few years ago with the expectation that the next fund would be straightforward to raise. The world in mid-2023 is not the same as it was in mid-2022. We’ve seen a pullback in public company valuations, a big shakeup in the banking world, higher interest rates, and (probably most importantly) a notable lack in VC distributions back to LPs. Many LPs rely on regular distributions, either via IPOs, M&A outcomes, or secondary transactions, to generate the liquidity that they need to continue to make new VC commitments. Many LPs are facing real challenges in making new VC commitments; they are getting less money back from their existing managers than they expected, and they still have existing capital call obligations that they have to meet. And, in a world where VC firms are no longer the hottest investment opportunity available to LPs (that crown goes to private credit and secondaries at the moment), it takes a lot of courage to take a new or re-up venture commitment to your investment committee in a world where venture capital is down relative to other investment classes. It’s very hard to be in market as a venture fund manager without at least internalizing what’s happening on the other side of the table.
I’m a big believer that all pressure flows downhill. The pressure that LPs feel to generate liquidity in venture flows down to VCs. Many VCs feel pressure to generate liquidity for their LPs, either through M&A transactions or secondary sales. And, at a minimum, I think it makes many VCs think hard about what portion of their current portfolio will generate returns for their LPs and makes many of us more circumspect about which companies to support financially and which to ask to figure things out with the resources they have available. If your VC investors feel more tight or agitated or pressed of late, it’s likely that they are feeling the effects of pressure flowing downhill.
New iPhones, sure. But the company’s compelling new service lures you even deeper into its ecosystem.
JUST AS APPLE was wrapping up its annual presentation of a brand-new iPhone today—a whole suite of them, plus a watch—the company’s senior vice president of marketing, Greg Joswiak, let slip that two new iCloud plans would launch on September 18. Somewhat remarkably, the in-person crowd of more than 300 Apple acolytes and members of the global press were more enthused by the new iCloud tiers than they were by the iPhones’ new USB-C port.
These are “iCloud+” plans, signifying a premium Apple service, the kind that might make your wallet wince. The first new iCloud+ tier offers 6 terabytes of cloud storage for $30 per month. The next option is double the price for double the storage: $60 for 12 TB.
The Gathering Clouds
Convincing customers to store even more of their digital goods in iCloud makes it much harder for them to leave Apple’s ecosystem. There’s the actual cost of the service, and then there’s the so-called switching cost: the hassle that comes with deciding to leave and trying to move all your data from one service to another. With its new iCloud tiers, Apple is promising premium features like Hide My Email, Custom Email Domains, and HomeKit Secure Video as a part of the service. But just as many people will be lured in by what seems like a lifetime’s amount of photo storage.
“It’s a good business opportunity for Apple, because most users will need more storage in the long term,” says Francisco Jeronimo, vice president of data and analytics for IDC Europe. “The issue with bringing better and better cameras to everyone’s hands is we take more and more high-resolution photos and videos.”
More cloud storage is also valuable for Apple’s creative class, says Carolina Milanesi, founder of the technology research and consultancy firm The Heart of Tech. “For creators on the Pro iPhones, it’s more of a need.”
“The only thing I'm going to buy from the Apple event announcement today is the 6 TB iCloud storage,” tweeted Kunal Kushwaha, a YouTuber and the founder of online education service We Make Devs.
And, Milanesi points out, as Apple gets nearer to the launch of its (even more expensive) Vision Pro headset, the local storage on people’s iPhones may fill up even faster. The Vision Pro supports spatial photos and video—and today, at the iPhone event, Apple said its iPhone 15 Pro will capture 3D spatial videos. “This sets up the future of creating content for the Vision Pro,” Milanesi says…. More
SEP 12, 2023
On August 29, Huawei released its newest smartphone, the Mate 60 Pro, setting off a buzz in both China and the US. The device likely contains a 7-nanometer 5G chip manufactured by SMIC — a real achievement for Chinese advanced semiconductor manufacturing in the shadow of unprecedented US export controls.
Its release also just happened to coincide with Commerce Secretary Gina Raimondo’s visit to Beijing, making it a powerful geopolitical statement — Bill Bishop called it an “orchestrated snub to Raimondo.” I think he’s right. If Beijing didn’t approve of this release and was worried about the snub upsetting US-China relations, there is no way you would have seen the crowing endorsement on state and social media illustrated below. Beijing likes to talk about the importance of preserving “atmospherics,” and in the wake of the balloon reportedly convinced the Biden administration of the need to stop escalating restrictions on Huawei’s access to technology to put a floor under US-China relations.
On the other hand, had Biden pulled a similar stunt — like dropping the FBI’s balloon report during a Chinese official’s visit — Beijing would have portrayed it as unconscionable. Hopefully G7 policymakers take this incident to heart that for the China, “preserving atmospherics” is for thee and not for me.
Now onto the tech. First off, serious credit goes to Huawei engineers and the ecosystem the firm has helped prop up. We already knew that HiSilicon, Huawei’s design outfit, had serious chops: by the late 2010s pre-sanctions, they demonstrated the ability to go toe to toe with the big boys at Apple and Qualcomm. Now, after four years in the wilderness using what are outdated (or pilfered) ARM instruction set architecture and EDA tools, as well as last-generation manufacturing technology in DUV lithography, the firm produced something broadly competitive with other flagship phones.
What’s also impressive is how Huawei has broadly followed through on its commitment to indigenize production through aggressive investment in the Chinese semiconductor ecosystem. As the TechInsights teardown illustrates, nearly all the phone’s components come from Chinese firms. There is, however, one glaring exception: some rather sketchy SK Hynix memory (hopefully just) stockpiled in the run-up to sanctions. Recall that, after all, the US put China’s leading memory manufacturer YMTC on the entity list — and it seems as though the US has been even harder on YMTC than SMIC when it comes to licenses.
The outstanding questions below will determine just how big a deal the SMIC + Huawei breakthrough will turn out to be.
What’s the yield on this process, and will SMIC be able to produce 7nm at scale? As Doug O’Laughlin of Fabricated Knowledge colorfully explained to me, “‘Anyone’ could get a PhD to, atom by atom, build themselves a 2nm chip.” My guess is that the yield is not a complete joke: Huawei is a serious firm, and they would probably see more downside than upside in having rushed out a phone just for the memes, only to be able to sell a few thousand phones at an enormous loss. But it’s possible that this launch is not really ready for primetime, and instead was accelerated for the headlines to help convince the state, in its new $40 billion Big Fund, to not give up on pursuing leading-edge technology. But this strategy, as Ben Thompson points out, will prolong Chinese dependency on foreign tech:
SEP 8, 2023
With Instacart, Arm, and Klaviyo filing to go public, there’s cautious excitement in the air. At a hoped-for $52 billion valuation, Arm could be the largest IPO of the year.
IPOs are key stepping stones to exits for venture capitalists. And initial public offerings are a major source of fresh funding for late-stage technology companies.
Both exits and new funding are desperately needed in a world where much of growth stage financing is frozen.
VCs want to show skeptical limited partners actual cash returns as markdowns proliferate. High-growth companies want fresh outside capital to maintain momentum even as funding sources have dried up.
A rebounding IPO market would help restore some confidence to the damaged psyche of the startup ecosystem. So investors are wondering whether the IPO market might pick up.
A lot will hang on how the stock market receives Instacart, the food delivery company that has relied on a surge in advertising revenue to boost its performance, Klaviyo, the under-the-radar marketing automation platform, and Arm, the SoftBank-owned semiconductor and software design company.
Given the acute interest among venture capitalists and startup founders for a read on the IPO market, I had our data whiz Wenqi Shao whip up some charts and tables on the state of the IPO and M&A market. We’ve pulled together the reported and rumored IPO pipeline, data on the slowdown in IPOs, a comparison of DoorDash and Instacart’s valuations, a review of declining bank fees, and more.
Exit volumes and values (both M&A and IPO) in 2023 have remained low.
Instacart had reached a peak valuation of $39 billion in March 2021 but is estimated to be now worth around $10 to $15 billion.
Generally, neither Tech SPACs nor IPOs have performed well in 2023.
Quarterly M&A activity globally continues to trend lower, leaving little exit opportunities for VC backed startups.
Over 230 companies previously valued at over $1 billion have not raised any money since 2021 and are still private. As time ticks on, unprofitable unicorns’ cash reserves are thinning.
While the US IPO market has been fairly lackluster so far this year, there’s a backlog of high-profile tech unicorns that investors would like to see go public. Companies like Rubrik and Navan have made actual moves toward IPOs. Others like Reddit and Discord have long been seen as potential candidates. Meanwhile, Stripe tapped the private markets earlier this year, dispelling any hope that it would go public in 2023. And Databricks is reportedly in the process of raising at $43 billion valuation, putting off hopes that it would go public soon.
If all the IPO chatter turned into reality over the next 16 months, the hypothetical combined valuation totaling $250 billion would be 2x the value-to-date achieved in 2023 and all of 2022.
But if history is any guide, chatter won’t turn into reality. Even companies that file for an IPO can change their mind. Companies fuel speculation that they could go public for years before they really get the courage to do so.
Nothing beats building a sustainable, long-term business. But there’s also value in getting IPO timing right. When companies go out in a frothy market, they can raise money at better prices and give their existing shareholders an opportunity to exit at high prices. Of course, once those same companies’ stock prices fall, deflated valuations can hurt morale and their perceived momentum.
DoorDash, the restaurant delivery company, went public in December 2020 and reached a valuation of more than $80 billion. (Today it stands at $32 billion.) That meant that early investors had a chance to exit during a roaring market. Of course, some investors, namely Sequoia Capital, decided to hold onto their shares in public portfolio companies like DoorDash even as the stock market turned on money-losing, high-growth businesses.
Instacart finally filed its S-1 Aug. 26 to go public on the Nasdaq stock exchange under the symbol CART.
The grocery delivery startup has had a bumpy ride to an exit. It held talks with DoorDash about a potential merger in August 2021 but the deal fell apart amid regulatory concerns. Then Instacart canceled its IPO in October 2022.
Instacart reached a peak valuation of $39 billion in March 2021 but may only be worth between $10 and 15 billion in an IPO.
While 14% of IPOs raised $50 million or less in 2020, so far this year 61% of IPOs have been on the smaller end.
In fact, within the VC-backed tech sector, IPO deal sizes over $1 billion have completely dried up in the last 2 years, according to a chart from CNBC.
As I highlighted in my piece on Chamath Palihapitiya, over the past few years a bunch of technology companies desperate to go public embraced special purpose acquisition companies to get them there.
One defense of Palihapitiya is that many companies that went public in that period also saw their valuations decline.
Looking at the performance of 4 SPAC’ed companies and four similar companies that went public via an IPO — all have suffered a considerable decline in stock since January 2022 with Virgin Galactic the most at -81%, Clover Health -69%, Opendoor -78%, Redfin -77%, Lending Club -73% and SoFi down 47%.
The main difference here is that SPAC sponsors lent their personal reputations to SPAC mergers, going on television and in the media to promote their target companies. With traditional IPOs, banks play a far more subdued role and are typically courting institutional investors. And, of course, SPACs were generally pitching bold forward-looking projections while IPO-bound companies were not allowed to do so.
The last notable venture-backed tech IPO was in December 2021 when software vendor HashiCorp held its debut…. More
DYLAN PATEL,MYRON XIE, AFZAL AHMAD, AND DANIEL NISHBALL
SEP 13, 2023
Arm's success can be attributed to its innovative architecture, flexible licensing model, and strong ecosystem of partners. This highly flexible licensing model combined with aggressive investments into automotive, IoT, and datacenter have led to Arm’s margins being depressed for a number of years.
Now the screws are tightening, with Arm looking to maintain a sustainable business model by ratcheting up pricing and coming closer to extracting the value that they actually deliver to the market instead of effectively discounting to secure market share growth. Today we will dive into royalty rates across the smartphone industry and how high they can be ratcheted up, scenarios around what happens with Arm’s nuclear option in the Qualcomm lawsuit, datacenter outlook, Arm’s role in the chiplet ecosystem, Arm China, and RISC-V. We will be sharing our framework and model for the firm’s prospects going forward.
Arm has a range of engagement options with customers and their monetization increases as you go along the curve, from purely their instruction set all the way up to chip design partnerships and chiplets.
Arm is an Instruction Set Architecture (ISA), which is the interface between the software and the hardware, or specifically the microprocessor. The Instruction Set is the library of specific instructions that the chip is able to execute. All code that is written for that particular device is basically an abstraction of a combination of all these instructions. The Arm ISA is the most ubiquitous instruction set in the world, with the other famous one being x86 that we see in many CPUs. RISC-V is also on a meteoric rise.
The Arm ISA moat is very strong, especially in smartphones. We do not see smartphones able to transition to RISC-V anytime soon due to numerous software challenges. Designing a CPU is no easy task, and to date only a handful of firms (AMD, Intel, IBM, Apple, and Arm) have ever designed great CPUs and brought them to market. It requires a lot of time and engineering talent. Money alone doesn’t make a good CPU. Apple licenses the Arm ISA via an Architectural License Agreement (ALA) and has been building their own core for many years. HiSilicon also licensing the Armv9 architecture but with a custom core design was another shocking part of new Huawei’s Kirin 9000S news.
Due to the difficulty in designing custom cores and CPUs, even with the benefit of Arm’s instruction set, most users choose to go with using external CPUs. Those handful of other companies that design CPUs only let you access them if you purchase their chips or devices, whereas Arm’s flexible business model lets you integrate the CPU into your own chip by entering into a Technology License Agreements (TLAs) to purchase “off-the-shelf” CPU designs from Arm.
The TLA can be various degrees of customization of reference designs obtained through TLAs. Customers such as MediaTek use Arm Cortex cores in their smartphone SoCs that are fully off the shelf, whereas Qualcomm’s Snapdragon SoCs have CPU cores (Kryo) that are Cortex cores with some slight customization. All else being equal, TLAs are more expensive with higher royalty rates than ALAs as TLAs offer greater value add and relieve the chip design companies of significant design work.
Arm is also trying to provide more versatile options to suit different customer use cases, for example its recent announcement at Hot Chips 2023 of the compute subsystem (CSS) offering for its Neoverse line of CPU cores for datacenter and cloud computing. The CSS offering is a fully validated block that allows for some customization in terms of memory, I/O and any additional accelerators needed either on or off die. This offers lower cost and faster design cycle time while still allowing for some customization.
Arm is also branching out into more segments, including the contract chip business. This would bring them into competition with Broadcom, Marvell, and more. Instead of just collecting royalties, designing the whole chip would allow them to charge higher prices. This opportunity would also create new customers. For example, phone vendors like Xiaomi or Vivo are designing custom chips with Arm. This would cut out the middleman of Qualcomm and significantly increase the TAM for Arm. Their vast array of IP gives customers many options and their interoperability makes the cost of development lower and time to market shorter. It also enables many new IoT, Edge, and Datacenter players to be stood up.
Whereas other companies tend to grow by upselling products and services to their customers, Arm falls into the conundrum of experiencing an opposite pattern with their customers. As their main customers grow and become more sophisticated, the customers may actually require less from Arm as they start designing their own cores and downgrade from TLAs to bare ALAs.
For example, Qualcomm has been a purchaser of fully off the shelf cores. However, after acquiring datacenter CPU startup Nuvia who are designing fully custom Arm-based Phoenix cores, Qualcomm expressed their intention to use Phoenix Cores in their Snapdragon APs in the future. No doubt, this is part of the dispute between Qualcomm and Arm as this would be a way for Qualcomm to basically sidestep paying Arm for technology.
The compute subsystems are also a way for Arm to absorb more design effort from customers. By offering the compute subsystem as a whole, switching to in-house architecture is more difficult because a whole host of verification, validation, and NOC IP must be brought up.
Arm is even potentially going to offer datacenter CPU chiplets for their major datacenter customers such as Marvell, Google, Amazon, Microsoft, Meta. These firms are designing a variety of chips, from CPUs to ASICs, but that doesn’t preclude them from utilizing an Arm based chiplet that is sold to them from Arm. This would dramatically reduce design costs, which is important as design costs are soaring…. More
by Jason Lemkin | Blog Posts, Growth
So the other day I looked back at about 25 SaaS seed investments I’d made that had scaled well past $10m-$20m and reflected on the top themes. Including — the top mistakes founders make again and again as they cross $10m ARR. Trust me.
Here they are. They are all avoidable:
Ok really this is mistake #1, #2, #3, #4 and #5. I see way too many founders, in the transition from founder-led sales to their first (or second) VP of Sales, look to get that time back. This almost never works. Founders never get that time back. Instead, how they spend time in sales changes. You spend more time in the middle of deals, and less at the beginning (qualifiying) and end (closing). But you still have to do 10+ customer calls a week. Are you doing that?
More here.
I know this one may sound obvious, and yet, it’s not. Way, way too many founders never quite tame the burn rate as they scale past $10m ARR or so. The teams all get bigger. You start hiring faster. It starts to feel more like a “normal” company. And these additional costs just compound, and stack on top of each other. Pretty soon, that $300k burn has turned into $800k, and then … it never declines. It grows to $1m and beyond. Burn rates never seem to decline unless you take serious, and often radical,action. No matter what the model says. Whatever you do, at least do a rolling L4M model.
More here.
Once you really start to scale post $10m-$15m, the “internal” stuff starts taking up a ton of time. Keeping existing customers happy. Fixing long-standing product gaps and technical debt. Scaling DevOps and TechOps and FinOps and AllTheOps and HR and Recruiting and the SKO. Again, you’re finally building a real company. What can happen with all that internal focus is you lose a little focus on remaining ruthlessly competitive. Especially if your space is evolving. You might be the #1 vendor in your niche, but if that niche no longer is quite enough on its own, without more functionality, you can quietly fall behind. I’m constantly surprised how many founders are less close to the pulse of the competition once things start to scale.
More here.
If you hire everyone from outside the company to your leadership and senior teams, you lose what makes you special. The “outsiders” often never 100% get it. They never know all the features, the nooks and crannies, how the integrations really work, the nuances to parts of the sales playbook. But you also need them to inject new thinking and new experience into your startup.
As a rough rule, once you start scaling, try to have 50% of your leadership from internal promotions (you keep the special DNA and knowledge), and 50% from outsiders you bring in to mix things up and bring in new skills. Too few outsiders, and as you scale, everyone starts to make excuses when it gets harder. And the excuses are “right”. Too many outsiders and everything is done without true deep knowledge of what makes you special. They just never have the time, nor often the inclination, to learn what the insiders learned the past 2-3 years on the battlefield.
More here.
Look, we’ve all been there. I’ve made this mistake myself again and again. And all I can tell you, and every other successful startup CEO will tell you, is this — The Desperation VP Hire Never Works Out.
It usually goes like this: you go off to hire a VP you absolutely need to hire. Often VP of Sales, but it can be VP of Eng, Marketing, etc. as well. And 4, 5, 6 months go by and you just aren’t finding anyone great, and you get burnt out. You feel like you can’t be that Interim VP yourself any longer, than someone “OK” has to at least be better than how you’re doing now. And you hire someone, often someone that looks decent on paper, on LinkedIn — that you know isn’t great. They’re nice and seem OK. But they didn’t really do the 60 Day Plan. They don’t really have anyone great to bring with them. But hey, they look and sounds good. The team likes them, even if no one is blown away. So you make the Desperation VP Hire. They’re just always gone in 6 months or so, and leave a mediocre team you don’t need behind with them.
More here.
Related to the prior point, but not quite the same. Another huge mistake almost every CEO makes is hiring one or more VPs that are just too hands-off as they begin to scale. Not only do they spend more — since they need bigger teams when they aren’t involved themselves. But the bigger issue is they never really understand the product or the market. I see way too many “Hands Off ” VPs of Sales and Marketing say something like this 120 days after they joined: “I should have gotten to know the product better”. And that’s the self-aware ones.
The ones not as good simply never really understand the product and just blame other factors when it all sloooows down. And so sales goes down. The competition boxes you out. Product velocity goes down. They build the wrong stuff. It all goes down when you hire a VP of Sales that doesn’t really sell themselves, a VP of Eng that doesn’t really commit code themselves, a VP of Marketing that doesn’t really do demand gen or ABM themselves.
A related post here.
Ok this is a slightly subtler mistake, but it’s oh so important. In the early days, founders generally underestimate how many sales reps they’ll need to hit next year’s plan. Once you have a few strong reps hitting quota, the engine gets pretty efficient in the early days. So if we got to say $5m ARR with just 3 reps, can’t we get to $10m ARR with just a few more? Well, no. To add +$5m in ARR in 1 year, at a $500k yielded attainment per rep, you’d need 10 reps. At least. Plus a VP, plus support, plus revops, etc.
In fact, most SaaS startups that start scaling need about 2x as many reps as the founders think. More on that math here.
So at first founders think you can go further with just a few reps than you really can. But they later, they fall too much into the Sales Capacity Trap. What’s that? That pure bodies will get you there. No. Mediocre VPs of Sales, and desperate VPs of Sales, often push this type of thinking. And there’s of course some mathematically truth here. But hiring 10 reps that can’t close gets you somewhere Worse Than Nowhere. Lowering the bar too much in sales to hit a capacity target just makes things worse. There are few things worse than 10-20 new reps running around, untrained, that can’t close anything, that never close anything. And more time rarely helps.
This one is somewhat related to Getting Less Competitive in point 3, but different enough and important enough to call out here. Incredibly agile startups tend to find a way to stay that way even as they scale. But most SaaS startups I’d characterize as scrappy and “sort of agile”. Scrappy is great in the early days, and it forces very focused thinking. But that’s not the same as being truly agile. As pushing out that critical feature this week, not next year. As building that key integration now, and not complaining how hard it is to build. When your competitor has already built it.
Most founders need to find a way to make their engineering team better as they cross $10 million in ARR. The world just gets more competitive as you scale and enter new segments, and get into more deals. Too many founders instead end up with a slower engineering team as they scale. Lots of valid complaints about technical debt, and the like. But net net, in the end, story points and builds and releases don’t accelerate. They have to accelerate after $10m ARR if you don’t want to .. decelerate.
A related post here.
Ok this one is super important and applies to many SaaS startups — but not all. First, if you start in the enterprise, you’ve already gone upmarket ;). And certainly, there are categories that are very SMB, so going too upmarket too early doesn’t make sense. Because the vast majority of the revenue is in SMBs. This was the case with Shopify, which only now is truly going more upmarket. You can see it with Klaviyo as well, which is just going upmarket as it scales past $600m ARR. And it’s also true with folks like Toast and Bill and others, whose heart and soul is just SMBs.
But what I see pretty frequently is founders that resist the existing customer and market demand to go upmarket. As a rough rule, if 10% of your early customers are “bigger” customers, that’s a sign to go more upmarket. If it’s 20%+, that’s a sign there a ton of revenue if you just go a bit more upmarket. That means probably hiring a real sales team. That means adding SOC-2 and much more security. That means building workflows and dashboards and integrations you might otherwise not really want to build now. But the tradeoff can be $50k, $100k, $200k+ deals now.
Here’s the challenge: if your customer base is saying go upmarket but your personal DNA doesn’t want to — change your DNA. It’s you. Get with the program. Love the customers you have, and that want you. Not the ones you thought you’d have, or you wish you have. Not everyone can be a magical self-serve PLG unicorn with zero effort in sales or security or enterprise marketing.
More here.
Ok this final point I’m not sure belongs in the Top 10 per se, only because the consequences are often a slow burn. But still, I see this mistake haunt founders later. They abandon the smallest customers, they ignore the long tail, they shut down the free edition. Everything starts being “Contact Me”. The sales team will often push for this. The rest of the company often stops caring about the tiniest customers and the free users, once you scale past $10m, $20m, $50m ARR. I get it, mathematically.
But then you turn around, and someone new has taken over that white space. Someone new is the Hero App in the space. That empowers the next generation of developers, of marketers, of sales reps.
There’s a reason HubSpot and Mailchimp and Atlassian went back and added Free editions later. They realized how powerful that long tail was. If you have one, invest in it. Build your community. Maybe even make your Free edition — even Freer. That will take some pressure off monetizing it, and unleash an every larger army of champions to spread the great world about you.
More here.
And the bonus point:
Almost every single founder I talk to ranks this high on their list. I’m not quite sure it’s a mistake as much as a lament, but I want to call it out here as our bonus point. Aaron Levie of Box rates this as one of his top mistakes, not going multi-product earlier. Others, like Freshworks and Samsara, layered in their second, third and fourth acts just in the right sequence. Focus matters, and you have to stay focused. But even as early as 1,000 customers, and maybe even 100 in the enterprise, you’ll start to see some market fatigue. Without a second product to sell to your existing base
Much more here.
If you only have a few minutes to spare, here’s what investors, operators, and founders should know about regulating artificial intelligence.
Indecent proposals. As artificial intelligence booms, suggestions for how to regulate it have emerged. Earlier this year, a coalition including Elon Musk argued for a hard pause on developing cutting-edge models. Not long after, OpenAI CEO Sam Altman proposed a licensing process that would restrict the number of high-end operational companies. So far, no suggestion appears particularly promising.
Imperfect options. In defense of the safeguards suggested to date, regulating AI is an extraordinary challenge. Though managing any disruptive technology is difficult – a dance between encouraging innovation and minimizing harm – the speed and structure of AI make the task uniquely difficult and consequential.
Under the gun. We may not have much time to devise an appropriate regulatory response to AI’s renaissance. The advances of the past year have compressed timelines radically. We may now be just a breakthrough or two away from ungovernable technologies.
Guru warfare. Not all agree with this worrisome portrayal. For as many experts as there are fretting about AI, an equivalent number seem to view it as an overwhelming good, set to improve our lives beyond measure. Which guru should be listened to? This is a topic that everyone must examine for themselves rather than relying on an information leader.
Iterative governance. No single rule will eliminate the risks of AI. More than specific regulation, what is needed is a new, more flexible form of decision-making. Technology’s radical speed greatly outmatches our current institutions. To have any hope of adapting to a changing landscape, we must find ways to embrace more iterative governance.
…More
PUBLISHED WED, SEP 13 2023
KEY POINTS
Tech CEOs descended on Capitol Hill Wednesday to speak with senators about artificial intelligence as lawmakers consider how to craft guardrails for the powerful technology.
Senate Majority Leader Chuck Schumer, D-N.Y., hosted the panel of tech executives, labor and civil rights leaders as part of the Senate’s inaugural “AI Insight Forum.”
Tesla and SpaceX CEO Elon Musk, Google CEO Sundar Pichai, Meta CEO Mark Zuckerberg, Microsoft CEO Satya Nadella and OpenAI CEO Sam Altman were among those in attendance.
Elon Musk and Palantir co-founder; CEO Alex Karp attend a bipartisan Artificial Intelligence (AI) Insight Forum for all U.S. senators hosted by Senate Majority Leader Chuck Schumer (D-NY) at the U.S. Capitol in Washington, U.S., September 13, 2023.
Leah Millis | Reuters
Tech CEOs descended on Capitol Hill Wednesday to speak with senators about artificial intelligence as lawmakers consider how to craft guardrails for the powerful technology.
It was a meeting that “may go down in history as being very important for the future of civilization,” billionaire tech executive Elon Musk told CNBC’s Eamon Javers and other reporters as he left the meeting.
Senate Majority Leader Chuck Schumer, D-N.Y., hosted the panel of tech executives, labor and civil rights leaders as part of the Senate’s inaugural “AI Insight Forum.” Sens. Mike Rounds, R-S.D., Martin Heinrich, D-N.M., and Todd Young, R-Ind., helped organize the event and have worked with Schumer on other sessions educating lawmakers on AI.
Top tech executives in attendance Wednesday included:
OpenAI CEO Sam Altman
Former Microsoft CEO Bill Gates
Nvidia CEO Jensen Huang
Palantir CEO Alex Karp
IBM CEO Arvind Krishna
Tesla and SpaceX CEO Elon Musk
Microsoft CEO Satya Nadella
Alphabet and Google CEO Sundar Pichai
Former Google CEO Eric Schmidt
Meta CEO Mark Zuckerberg
The panel, attended by more than 60 senators, according to Schumer, took place behind closed doors. Schumer said the closed forum allowed for an open discussion among the attendees, without the normal time and format restrictions of a public hearing. But Schumer said some future forums would be open to public view.
Chris Metinko, September 14, 2023
While Thursday was supposed to be all about Arm’s IPO, another chipmaker seemed unwilling to let all it have all the buzz.
Nvidia — which joined the $1 trillion market cap club this spring — joined Databricks‘ $500 million-plus Series I led by funds and accounts advised by T. Rowe Price Associates. The deal values the startup at $43 billion.
However, that is far from the only deal the AI chipmaking darling has participated in recently, as Nvidia has become one of the leading investors in all things AI.
In the current third quarter, Nvidia has participated in 11 funding deals — the majority in AI-related startups — per Crunchbase data. In Q2, the company made eight such deals.
Before those two quarters, Nvidia had not made more than four deals in any quarter dating back to at least 2005, per Crunchbase.
Just in the last few weeks Nvidia has participated in:
The $125 million Series B for Mountain View, California-based Enfabrica, which designs networking chips to handle AI workloads.
San Francisco-based Imbue’s massive $200 million Series B that valued the AI research lab at $1 billion.
Israel-based AI startup AI21 Labs’ $155 million Series C. The startup competes with generative AI powerhouses OpenAI and Anthropic.
New York-based Hugging Face’s $200 million round
While many big-name firms like Tiger Global and Coatue are pulling back on their deal numbers, Nvidia is picking up the pace — at least when it comes to AI.
Nvidia is leading the charge for chips with better processing to train large language models for AI and it seems to stay ahead by keeping its finger on the pulse of innovation.
Some of the other largest deals Nvidia participated in all have come this calendar year and include:
Adept AI’s $350 million Series B in March that gave the San Francisco-based startup a post-money valuation of at least $1 billion. Adept is developing AI models that cannot just respond to text commands — like a chatbot — but actually turn that command into actions. In theory, the company’s generative AI could help users do tasks from browsing the internet to navigating enterprise software tools.
Toronto-based Cohere’s $270 million round in May. The startup’s AI platform competes with OpenAI.
Drone startup Skydio’s $230 million Series E at a $2.2 billion valuation in February.
While it is not known what Nvidia invested in any of these deals — cash, stock, technology and services or even a combination of all three — it is clear Nvidia has a desire to be not just a big player in AI, but the dominant player.
Connie Loizos
Updated Mon, September 11, 2023
Michael Kim of Cendana Capital is often a first call for emerging seed-stage fund managers. Cendana has invested in many VC teams that have gone on to enjoy great success — like Forerunner Ventures, K9 Ventures, and IA Ventures. Thanks to its own backers, Cendana keeps replenishing its supply of investing capital, too.
Indeed, Kim tells us that 13-year-old Cendana just closed on $470 million across several new funds that bring the firm’s total assets under management to roughly $2 billion. The biggest pool, $340 million, will be funneled into U.S.-based investors. Another $67 million will flow to managers outside the United States. Cendana also has $30 million in capital commitments to invest directly in startups and $30 million from the University of Texas, whose positions will reflect that bigger, $340 million fund.
We talked with Kim earlier today about the current market, where exits are few and far between. We also talked about seed-stage managers who happen also to run companies and are, in some cases, currently preoccupied with making sure those companies survive this topsy-turvy market. Kim called us from his home in the Bay Area ahead of a trip next week to Singapore, where many institutional investors are expected to gather for a summit hosted by the Milken Institute, as well as a Formula 1 race.
You can hear our full conversation; meanwhile, excerpts follow below.
September 9, 2023
The start of 2022 marked a change in financial markets. Since then, many believed risk capital would dry up, early-stage valuations would fall (just like all other valuations). Now that we are nearly two years into this downturn, I wanted to briefly take stock of what actually happened versus what was speculated.
1/ Seed-stage valuations have generally been left-unchanged, and I could argue even they’ve gone up since the beginning of 2022. Looking back now, it makes sense – VC firms have lots of dry powder, and while they may have slowed down relative to 2021, they’re still making investments. Early-stage is perhaps a more attractive stage to deploy smaller dollars these days – a friend remarked everyone wants to gamble, but no one wants to sit at the whale tables just yet.
2/ Angel investors are tightening things up. I’ve been a bit surprised by individual angel investors holding more of a line or just preserving liquidity. This makes sense, too. I’ve seen two responses from the networks of angels we frequently syndicate with — one half simply won’t engage unless a valuation or post-money CAP is at $10M or below; the other half have left the market entirely as they wait for liquidity from their existing assets. Founders are fortunate the pre-seed & seed VC activity has institutionalized over the past decade, because if that hadn’t happened, angel/pre-seed capital would be much harder to raise right now.
3/ Y Combinator has a huge shot in the arm with the installation of Garry Tan. Garry is a designer, engineer, builder, strategies, and systems thinker. It’s already a machine, and I would suspect Garry and his new team will make their engines even more efficient.
4/ Where founders live matters again. It’s not acceptable yet to say this bluntly on Twitter, but in private, many investors remark how they’re enjoying deal evaluation in person (primarily in the Bay Area and NYC), and when possible, they’d prefer to seed companies in those locations specifically.
5/ Where seed investors lives matters a bit less, but still matters. A seed-stage VC relic of the pandemic is that nearly all initial screenings and much of the evaluation happens on video, even when founders live near investors. But while seed stage VCs are quietly tacking to founding teams based in the Bay Area and/or New York, where those seed stage VCs live matters less and less, though one could argue founders may want more local, on-the-ground investors now given how hard future financings have been.
6/ Speaking of future financings, the conversion of these early-stage investments from pre-seed to seed, or seed to Series A (I’ve given up deciphering the nomenclature) has suffered dramatically since the start of 2022. If we take out the AI-hype or momentum deals from 2023, the traditional Series A firms have really slowed down as they’ve digested the portfolio triage that needed to happen while waiting for evidence-based momentum deals to invest in after years of narrative-driven high-priced Series As.
I could go on, but that feels like enough for now. What I’ll maybe add in closing is that the quality of founding teams out there seem to be increasing, and when we meet them, they’re not thinking about interest rates, or overseas conflicts, or public market valuations — all of those things are important, but they’re not really on the radar of today’s technical creators, and perhaps for that reason alone, the analysis above makes sense in hindsight. All that said, there’s enormous pressures on these founders to gather enough positive evidence to keep going and raise more capital. While the ecosystem is still flush “starter capital,” that’s where the party stops. Let’s see what happens.
SEP 10, 2023
The Haystack team is proud to announce Haystack VII, a $75M fund designed to invest in founders at the earliest stages of company building. Throughout its decade of existence, Haystack has been one of the first investors in businesses like DoorDash, Instacart, Hashicorp, Figma, Carta, Applied Intuition, Ironclad, Redpanda, and many other startups. Our goals are simple – to remain focused on early stage investing, to remain nimble, and to be a choice partner for ambitious founders at the beginning of their journeys.
Haystack would not be possible without three groups – the founders we work for and help support, our Limited Partners who believe in Haystack, and VC friends & collaborators who vouch for us in this ecosystem. Here is the clearest articulation of the Haystack ethos, written in 2017 – “we believe it is the founder who carries a special secret, and our job is to identify those with secrets and partner with them to bring those secrets to the world.”
With the announcement of the fund, we would also like to share some personnel updates:
We are thrilled to announce Divya Dhulipala’s promotion to Principal at Haystack. She has been a tireless force at Haystack the last couple years, and we are grateful for her for initiative, energy, and strategic thinking. Divya is a steady hand and an optimist that brings out the best in all of us. Thank you Divya for your friendship and continued push towards excellence!
On the personal front, and going forward, I am excited to share that I will be a Partner at Haystack. I’m proud of our work here over the last 4+ years and incredibly excited for what the future holds. The truth is that I love being in the venture business – I feel lucky I’m able to practice this craft. And I’ve learned over time that it’s a job that pushes one to personally evolve alongside the companies you invest in, from digging through nooks and crannies to find new people and investment opportunities to the active management of a portfolio as it matures.
I would also like to acknowledge my now partner(!) Semil Shah. We first met when I was in college, and he took a chance on me when I was completely unproven. He has guided me, both professionally and personally, and I’ve found that guidance to be invaluable. I have the utmost respect for him as an investor and as an entrepreneur in his own right with the way he’s built Haystack.
Onwards!
Justice department takes on tech giant in court, seeking to prove it illegally used its power to maintain monopoly on internet search
Wed 13 Sep 2023 19.08 EDT
The court battle between the US justice department and Google has entered its second day, as the United States government seeks to prove that the tech behemoth illegally leveraged its power to maintain a monopoly over internet search engines. The trial is a major test of antitrust law and could have far-reaching implications for the tech industry and for how people engage with the internet.
The question at the heart of the trial is whether Google’s place as the search engine for most Americans is the result of anti-competitive practices that gave internet users no other choice but to use its services.
On the first day of the trial, attorneys for the justice department and the dozens of states that have joined in the suit accused Google of shutting out competition through billion-dollar agreements with companies such as Apple and Samsung.
The justice department lawyer Kenneth Dintzer alleged Google spends $10bn a year in deals to ensure it is the default search engine on devices such as the iPhone, effectively blocking meaningful competition and positioning Google as the gatekeeper of the internet.
“They knew these agreements crossed antitrust lines,” Dintzer said on Tuesday.
Google’s opening statement gave a window into how the company and its lead attorney, John Schmidtlein, plan to defend against the accusations. Schmidtlein argued that Google had achieved its dominance over online search – the government estimates it holds about a 90% market share – because it is simply a better product than alternatives such as Microsoft’s Bing search engine. Consumers are free to switch default settings with “a few easy clicks” and use other search engines if they please, Schmidtlein told the court on Tuesday….More
The number of startup acquisitions in France is hitting record highs. But deal value is down, as cash-strapped businesses desperately seek acquirers
Daphné Leprince-Ringuet and Chris O’Brien
With startups running out of cash, the French tech fire sale is in full swing — and it’s emblematic of a broader collapse across Europe that is forcing desperate startups to sell at any price.
The rising wave of selling suggests that many founders and VCs are still just beginning to feel the consequences of the frigid funding climate, marking a painful end to an era of startup excess.
“Companies burned cash, they spent on marketing, they recruited profusely, they made bad decisions, they bought big offices and, today, they find themselves with a model that isn’t sustainable,” said Olivier Saint-Marc, senior analyst at M&A advisory firm Avolta. “They still need cash but no one can back them anymore, so it’s a fire sale.”
Avolta recorded 201 exits in France in the first half of 2023 — up almost 10% compared with the same period last year. Yet the total value of €738m is 71% less than the 184 deals that closed in the first semester of 2022. And the average deal size has collapsed from €40m to €10m.
These numbers are based on a subset of exits where parties voluntarily communicated the details — and the fact that fewer companies were willing to communicate the deal value in 2023 suggests bad news, says Saint-Marc.
It’s a rude dose of reality for an ecosystem that had known only exuberance in recent years. In the first half of 2023, startups raised about half as much as they did in the same period a year earlier. That drop was 37% and 62% in Germany and the UK, respectively.
Now that funding has dried up, companies frantically have tried to cut costs in a bid for profitability, but many have found themselves caught short, with no additional funding in sight. M&A is the exit of last resort for some — and an opportunity for others.
One of the most dramatic falls from startup grace was the recent sale of French insurtech startup Luko.
The company had raised €68m and by early 2022 looked like a juggernaut. That spring, it acquired two companies to fuel a European expansion.
That’s when Raphaël Vullierme, CEO and cofounder of Luko, said he began the fundraising process for a Series C round. But, then, publicly traded insurtech stocks crashed in the US and VCs suddenly soured on the sector.
Unable to raise more money, Luko cut staff, new product development and exited some countries. But it wasn’t enough. Earlier this year, Luko sought protection in a French business court to renegotiate €45m in debt.
During those legal proceedings, UK-based Admiral Group announced it had acquired Luko. While the companies did not disclose the value, reports suggest it was around €14m — a humbling amount for a company once valued at €220m.
“The risks we have taken in 2022 are probably the same risks we would have taken in 2020,” Vullierme said. “But in 2020, those risks were highly valued by the market. To build this company, you need to be incredibly aggressive and pushy and take risks, and be bold. When markets turn around, you’re much more exposed.”
A sale puts a concrete value on an investment that can’t be ignored — meaning that a reckoning is at hand for VCs who have reportedly been reluctant to mark down their portfolios to reflect the decline in value of their holdings.
Jean de La Rochebrochard, head of Kima Ventures, recently noted in his newsletter headlined “Delusion” that the firm had written off two startups it had backed with €150,000 each. Kima’s investments at one point had a combined value of $8m.
One of those companies was Luko.
“Those two companies are part of a portfolio of 1200 companies in total, and they are just larger rocks that followed a lot of small ones over the past few months, but I do believe that sooner rather than later, larger ones will come off that mountain of paper money,” he wrote. “The next six to eighteen months won’t be pretty, that’s for sure.”
While for some founders, the end of easy money means selling the company for a disappointing cheque, others are finding themselves in a stronger position. Startups with a bit of spare cash are ready to rummage through the bargain bin.
Buying competitors’ technologies at a cheap price is a great way to develop rapidly, offer new services and expand to new markets with limited cash burn. … More
Xinhua | Updated: 2023-09-11 22:04
SHANGHAI - A C919 plane, a China-developed large passenger aircraft, landed at Urumqi Diwopu International Airport in the capital of the Xinjiang Uygur autonomous region on Monday, according to the Commercial Aircraft Corporation of China, Ltd (COMAC).
The landing marked the beginning of two weeks of demonstration flights the aircraft model will make across 25 airports in Xinjiang.
According to the plan, COMAC will use two C919 aircraft for the demonstration flights, which will take them to Karamay, Yining, Kuqa, Altay and other major airports in Xinjiang.
Air travel is the most convenient mode of transport between regions in Xinjiang, which is vast and has complex terrain and numerous civil airports.
The C919 demonstration flights will help meet the passenger demand for high-quality air travel and explore a new path for the commercial operation of domestic passenger aircraft, according to COMAC.
SEP 11, 2023
The buzzy open source database company MotherDuck is in talks to raise about $50 million at a $350 million pre-money valuation, people familiar with the matter tell me.
The venture fund Felicis, which has been leaning hard into artificial intelligence with investments in Weights & Biases and Runway, is leading the Series B round, sources tell me.
MotherDuck is built around the open source project DuckDB, which makes it easy for data analysts to process information locally on their computers. DuckDB is getting more than 2 million downloads a month, one person told me.
This June, MotherDuck announced a cloud-based analytics platform to support companies using DuckDB. The database management system is currently restricted access.
I believe I was the first to report on MotherDuck’s Series A. Martin Casado at Andreessen Horowitz won that competitive round.
Casado and partner Jennifer Li wrote about that investment, “DuckDB focuses on a scale-up performance approach that allows it to run orders of magnitude faster than traditional scale-out approaches, and it can do so over terabytes of data. The petite size also lets it run anywhere — on-device, in-browser, or on a server.”
MotherDuck is led by Jordan Tigani, who played a key role building the serverless data warehouse BigQuery at Google.
Madrona, Amplify Partners, Altimeter, and Redpoint are among MotherDuck’s existing investors.
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