The founders of Starkware, an Israeli crypto company, which just raised $100M at an $8B valuation.

Angular Ventures Weekly

Angular Ventures Weekly
Angular Ventures
Published in
7 min readMay 31, 2022

--

Issue #144:
For the week ended May 31, 2022

A note on resiliency in a dark time
Gil Dibner

Zeitgeist. Over the past two weeks, VCs large and small have been tripping over themselves in a race to put out useful, impactful, and hard-hitting content on how founders (and other, less experienced, VCs) should navigate the downturn. So far, my favorites are the Sequoia deck, the Craft Ventures presentation and deck, the A16Z blog post, some recent episodes of the All-in Podcast (which has been phenomenally on-point lately — in particular this session with Bill Gurley), and this piece by Samir Kaji on implications for VCs. Even YC, which was arguably one of the worst offenders in terms of stimulating startup (and VC) excess, has published strong, solid advice to founders to cut costs and focus on getting to default alive (see Paul Graham’s brilliant 2015 post). I have my own version of this deck, but the truth is — it doesn’t say anything different from any of the above links — and they all say it better than I could. If you haven’t yet, I’d encourage you to read (or listen to) them all. In short, the music has stopped, the party is over, and everyone is busy figuring out how to stay alive long enough to get to the other side.

Managing risk. The only truly terrible decision a founder can make right now is to not react to what is going on. Waiting to see if things get better or waiting to see if you hit your numbers and are somehow immune from the ailment afflicting the world is a foolish move. In short, we’re all living on less cash (less time) than we thought. Waiting, or reacting too slowly, is the one move you will not be able to recover from. If you cut costs too aggressively and it turns out you shouldn’t have, you will be able to recover from that mistake. The opposite, however, is not true. Fail to react fast enough, and if it turns out that reaction was wrong, you’ll hit the wall before you can slam on the brakes. This is existential stuff.

A limited menu of options. One of the best points in the Sequoia deck referenced above has to do with preparing yourself mentally as a business leader to deal with the situation we are in. After all, the menu of levers that founders have to adjust is not that big. And — for the most part — every single founder I’m working with or talking to is already trying to adjust all of them: figure out where inside investors stand, corral up outside investor interest, freeze hiring and new expenses, figure out how to maximize pricing, immediately cut any underperforming staff and line up headcount reductions, map a path to breakeven if at all feasible, and lengthen runway as much as possible. That’s pretty much it. There are no secret moves. All the options are laid out for you in hundreds of nearly identical blog posts, including from a bunch of investors who until yesterday were rushing founders to buy growth at all costs. The hard part is not figuring out what can be done or even what must be done. The hard part is actually doing it — because these are not easy moves. They require a clearheadedness and a decisiveness that is not often found among young, first-time founders. But it’s exactly those traits that will separate the survivors from the rest of the pack — and that is why Sequoia so wisely starts by encouraging founders to mentally prepare.

Resiliency is not a commodity. Given the limited set of options we all face and the fact that some companies have huge cash reserves, it’s intellectually tempting to assume that cash reserves imply survival. Tempting yes, but also intellectually lazy. Just because your competitors have $50M each does not mean they can automatically survive the down-market. In fact, you might be advantaged if you are small and under-funded. Just like for you, a lot has to go right for your well-funded competition to get through this and come out alive on the other side. First, they need to be able to cut their burn rate dramatically. The higher the starting point, the harder it is to cut burn…and the more side effects doing so can have on morale. Second, culturally, they may have gotten used to easy money and the high burn that came with it. They may not be culturally geared up for tough times. You are. Third, their high valuation means employees are likely underwater and looking at a super unlikely pathway to making big dollars on an exit. That might lead to an employee exodus death spiral. Your low valuation is a secret weapon in the recruiting wars. Finally, even if they get through this, unless they somehow get to profitability, they will need to raise and the odds they can grow into their valuation are way lower than the odds that you can grow into yours. Easy money doesn’t solve problems, and it doesn’t anoint winners — especially not in this market. Grit and determination are way more important than you may realize right now. Write your own amazing story. It ain’t over till it’s over.

Stay focused. Stay strong.
Gil

Copenhagen/Aarhus. Berlin. Tel Aviv. Last week, I visited Copenhagen and (for the first time) Aarhus, Denmark’s second largest city and home to a surprising number of outstanding startups. On June 14–15, I’ll be in Berlin — mostly at the SuperVenture conference where I’m excited to be interviewing one of Europe’s leading LPs on stage for conversation on the state of the venture eco-system. On June 18, I’m headed to Israel for the summer — and looking forward to spending a ton of time with existing portfolio companies and new companies there.

EVENTS

Jun 22 / The Importance of Culture and Values As You Scale a Business
Oren Kaniel, Co-Founder & CEO, AppsFlyer

FROM THE BLOG

What do a 2003 BMW and Microsoft Excel have in Common?
Leaving users feeling empowered and energized, rather than managed and disconnected.

Fewer, but Better Than Ever
The Israeli tech eco-system ponders a slowdown in startup creation.

Success Can be About Less Than You Think
Don’t fall victim to unfocused ambition.

Why Building a “Compound Startup” Might be the Next, Great, Non-Obvious SaaS Play
Or why “just focus” might be bad advice.

EUROPE & ISRAEL FUNDING NEWS

Israel/Security. Semperis raised $200M for its Identity and Access Management (IAM) solution.
Israel/Blockchain Infrastructure. Starkware closed $100M for its scaling and security solutions for Ethereum-based products to enable more efficient use of blockchain.
UK/Agriculture. Stable closed $60M for its commodity pricing hedging platform.
Czech Republic/Data Tooling. Manta raised $35M for its data lineage platform that automatically scans an organization’s data sources to build a map of data flows.
Poland/Warehouse Systems. Nomagic raised $22M for its pick-and-place warehouse robots.
UK/Industrial Systems. Greyparrot raised $11M to help waste management sort through the rubbish with AI.

WORTH READING

ENTERPRISE/TECH NEWS

Broadcom moving into enterprise. Last week, Broadcom announced their intention to acquire VMWare for approximately $61B in cash and stock. This is a massive move by the chipmaker, as they attempt to diversify their business into enterprise software following their failed bid to acquire Qualcomm in 2018 (a deal which was quashed by the Trump administration on national security grounds). This acquisition is the second largest announced this year, trailing Microsoft’s $68.7B deal to acquire video game maker Activision.

Robots to the rescue. Workplace robot orders jumped by 40% during the first quarter of 2022, as companies struggled to hire enough workers to fill rising orders. Rising wages and worker shortages, compounded by unplanned Covid-19-related absences, are changing some manufacturers’ attitudes about robotics. Perhaps the time has come when robotics will make significant inroads into manufacturing outside of just the auto industry? From the article: “While auto makers and manufacturers of auto components accounted for 71% of robot orders in 2016, their share declined to 42% in 2021…robots [have also] made inroads in other sectors including food production, consumer products and pharmaceuticals.”

ProfitWell profits. Paddle, the complete payments, tax and subscription solution for SaaS, announced its acquisition of ProfitWell for $200M. ProfitWell is a bootstrapped provider of subscription pricing and retention analysis tools.

HOW TO STARTUP
Capital efficiency. Dave Kellog, author of the excellent Kellblog, former Salesforce SVP/GM and current EIR at Balderton Capital, published a helpful write-up this past week on capital efficiency. Give it a read here. He recommends using his version of the “cash conversion score,” which he defines as cash consumed over ARR generated, and provides benchmarks. This individual blog post is worth a skim, but so is Dave’s entire archive. He’s been churning out excellent, tactical content for over a decade.

Are cram-downs back? Steve Blank issues a warning to founders that, just as happened during the dotcom crash, cram-downs may be back on the table. So be on the lookout. For those unfamiliar, a cram-down is not a down round. A down round is when a company raises at a valuation lower than the last round. A cram-down is when that capital comes with a massive reverse-split (“meaning your common shares are now worth 1/10th, 1/100th or even 1/1,000th of their previous value”) or change in terms (e.g. insisting that all prior preferred stock has to be converted to common stock).

HOW TO VENTURE
Downturn implications. Samir Kaji authored an excellent blog post this past week on the implications of the market downturn for venture capital investors. The post is a good overview of what fund managers and LPs are thinking right now. TL;DR there’s every reason to be optimistic over the long term (as Samir writes, “innovation is secular and will not slow…and tends to thrive in periods of disruption”), but there will be pain in the short term, as institutional investors reset and try to identify the best managers. As Samir writes: “The retreat of institutional capital due to asset allocation issues historically has had a significant effect on venture capital supply (and a reduction in VC supply typically results in a reduction in deployment pace and valuations).” Firms that are not well-positioned and differentiated in the minds of founders and LPs will have trouble raising their next funds.

PORTFOLIO NEWS

CruxOCM’s CEO, Vicki Knott, shared how market leaders create new categories.

Forwrd won a 2022 Digital Innovator Award.

Aspecto also won a 2022 Digital Innovator Award.

JFrog integrated with ServiceNow to improve software security vulnerability response times.

--

--

Angular Ventures Weekly
Angular Ventures

Early stage. Enterprise Tech. Europe & Israel.