Science & Tech

Startups Weekly: How will tech hubs weather the pandemic?

April 19, 2020

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Cities around the world have become home this decade to distributed tech teams and homegrown startup successes. Each of these additional layers of experience and specialization help to make each local community stronger, like what began happening in Silicon Valley many decades ago.

Now layoffs are striking deep into these fragile, complex ecosystems.

Yes, companies in San Francisco and other tech metros are seeing big cuts, as you can read all about on TechCrunch this week. But the satellite offices also seem to be taking big hits, as Natasha Mascarenhas covered. Data from Layoffs.fyi shows thousands of jobs bleeding out in places like Salt Lake City, Las Vegas and Louisville to name a few.

The immediate reason this is particularly bad is that tech jobs have a multiplier on jobs in other local industries, particularly where there aren’t that many tech jobs. But the bigger long-term risk is that people who might be starting the next company in your city don’t get the hands-on experience and the connections locally and globally that come distributed teams. How long will it take many of the hubs that were going strong just a couple months ago to recover now?

Of course, the even bigger opposing trend is remote work now that everyone is doing it. Will the future founder who was going to move to San Francisco for networking purposes just stay in Louisville, and have a local HQ or just keep it remote-first? Will we still need all that commercial real estate in the Bay Area, actually?

TechCrunch is covering the downs-and-ups of startup hubs during the pandemic (see Extra Crunch for more on Salt Lake City this week, actually). Want to talk about what your city is doing to keep its startup scene strong? Email me at eldon@techcrunch.com and let’s discuss.

Investors rethink consumer and edtech investing

For our first investor survey this week, Josh Constine and Arman Tabatabai talked to 17 top social investors about the impact of COVID-19 on the category. Here’s Wayne Hu of SignalFire, excerpted from the full article on Extra Crunch.

There are, however, other social trends that were already picking up steam before COVID-19 that may further accelerate now. Many of these may be newer behaviors that sound dumb or are hard to explain, but ultimately provide value. Peloton sounded silly to many before they became popular, and there are several other companies now bridging the gap between consumers, trainers and fellow participants to bring the in-person social phenomenon of spin cycle and fitness boutiques into the living room. Tempo, a SignalFire portfolio company, is the first to offer high-intensity strength training complete with weights in the home. Beyond the convenience, 3D sensors automatically track reps and weights and users also receive targeted feedback on form from world-class trainers aided by real-time motion tracking — something that would be too expensive for most consumers otherwise. Coronavirus will be a catalyst for many to experience this and other accelerating trends for the first time.

EC members, don’t miss their social overview survey last week.

Next, Natasha and Arman talked to leading edtech investors for Extra Crunch about how the new coronavirus is impacting their companies. Many startups in the category have suddenly had much brighter futures — with some new challenges. Here’s Tetyana Astashkina of Learn Launch:

A lot of our companies across all segments are offering their products for free. User (teacher) training has always been key to successful product adoption. All of the training happens online now which is new and needs adjustment. Also, the timelines to respond to customer inquiries are very compressed which puts pressure on companies, especially because of eternally limited resources.

K-12 districts need to have budgets in place by the end of June for the next school year. So selling, while giving the product away for free and while supporting un-trained users is going to be a scramble. Now imagine being a cash-starved start-up trying to deal with your own homeschooling needs…

It also follows an overview edtech survey the previous week.

The latest venture shifts in the COVID-19 era

Many VCs continue to say they are open for biz while others say they are ‘focused on helping portfolio companies.’ So here’s what we’re seeing on the fundraising front this week.

First, leading seed-stage VC Y Combinator has scaled down its pro-rata program of recent years. It had taken a 7% stake in every company that has raised a priced seed or Series A round since it began the policy in 2015, totaling hundreds of rounds in hundreds of companies.

But it has also expanded its class size dramatically in recent years. Eventually, as described by CEO Michael Seibel, in a memo to companies this week obtained by Jon Shieber for TechCrunch, it couldn’t do both. So starting next month, it will be doing pro-rata for YC companies on a case-by-case basis and at a flat 4%.

This change likely would have happened anyway, but it happens right when more startups than ever are looking for sources of cash.

Overall, seed money appears to continue to be in sharp decline — a trend that had already accelerated before the pandemic, Alex Wilhem detailed on Extra Crunch.

The mortality rate continues to increase across the board, too. When investors give up on selling a company, they send them to Sherwood Partners, a “restructuring firm” that acts as a sort of startup undertaker (mainly selling off the IP and other parts). In an interview with Connie Loizos for Extra Crunch this week, founder Marty Pichinson says they are winding down two to three companies per day, up from two to four per week a few years ago. “We’re in companies that raised $10 million to $25 million, to companies that raised up to $1.5 billion,” he told her. “It doesn’t matter what size they are; when they come to us, they’re all broke. If we’re closing it down to clean up and monetize what we can, they are basically in the same position, whether they raised $20 million or they were once a billion-dollar business.”

Across the week

TechCrunch

Tech for good during COVID-19: Pivots and partnerships to help people deal

This venture firm is offering fast funding in a time of uncertainty

How I Podcast: First Draft and Track Changes’ Sarah Enni

Extra Crunch

As COVID-19 pummels global economy, 8 new companies join the $100M ARR club

Punitive liquidation preferences return to VC — don’t do it

Traditional sales and marketing strategies won’t see you through this crisis

How Adobe shifted a Las Vegas conference to executives’ living rooms in less than 30 days

Dear Sophie: How do I extend my visa status without leaving the US?

#EquityPod

From Alex:

Turning to the show, as has been the case every single week since we cannot recall when, we had a hell of a packed agenda.; there were new funds to talk about, there were rounds aplenty. As the unicorn era hands the baton to the COVID-19 downturn, there still more than we can get through each week.

But we did manage all that follows:

Lightspeed raised a host of new funds worth billions of dollars, including $1.83 billion in capital for later-stage deals and $1.5 billion to pour more capital into its international investments.
Andreessen Horowitz wants to put together a second crypto-focused fund worth $450 million. That’s more than last time, and we had questions.
Corigin Ventures raised its first institutional fund at $36 million, effectively stepping out of complete control from its parent organization, Corigin Real Estate.
Stripe raised $600 million more, at a flat valuation to its preceding round. The payments company is now worth around $36 billion. The news dropped out of nowhere, and probably means that the eventual Stripe IPO is far, far away.
Robinhood is raising new capital, which caught our eye.
Carta, which helps manage equity for startups, laid off 16 percent of its staff as detailed in an emotional memo by the company’s CEO Henry Ward. Then, the plot thickened when news broke that it’s raising a new round of funding that would value it at $3 billion.
Lucid and Everee, two Utah-based companies raised capital this week, right after we saw Podium raise the week before. $52 million for Lucid, makers of Lucidchart, and $10 million fo Everee, a payroll software startup with a fun twist.
But we weren’t done yet, as we had to talk about Airbnb’s new debt work; Danny made the point that it’s hardly cheap capital for the firm to raise, possibly adding pressure to Airbnb later on. This is another company that will not go public in 2020.
Savi raised $6 million to help students pay student loans, while Frank raised $5 million to help students avoid racking them up.
Despite tight school budgets, Labster landed a deal with the California Community Colleges which tells us a bit about how edtech optimism is turning into actual dollars.