Operating in uncertainty.
Gil Dibner

Consensus. Last week seemed to be the week. One week ago, there were still some people who thought we might not be entering a sustained and significant downturn in the tech world. As of today, I don’t think there are any doubters left. David and I spent last week meeting LPs and VCs in four different cities across the US. The overwhelming consensus is that we are in for a long period of choppy waters, high winds, and generally difficult sailing.

Soft landing or crash? Also last week, I started digging in a bit on the macro-econonic outlook, trying to answer the question of just how deep the downturn will go. Are we talking about six months of lower valuations and tougher fundraising? Or are we talking about a 2000-style (or perhaps even a 1929-style) crash/recession followed by a sustained period of very painful recovery and adjustment. There are certainly some observers — and some very intelligent ones — that have an increasingly dark outlook on what is about to happen. The list of factors goes way beyond the technology world: federal reserve policy, interest rates, debt-to-GDP ratios, consumer credit, war in Europe, the global supply chain crisis, and environment/political shocks to the global food supply to name a few. The possibility that some of these factors could combine to produce a global economic crisis of historic proportion is not zero.

The unknowable future. What I quickly realized is that this is way above my pay grade. If you ask me about whether or not I think a given enterprise/B2B/SaaS company can get to $100M in ARR, I can have a semi-informed view, and I know how to get to an answer. So could most of you. But none of us has any idea just how bad this downturn is going to get. Donald Rumsfeld would refer to this as a new “known unknown:” we may not know how this ends, but we no longer have any excuse to pretend that we were not aware of the new uncertainty we face — or of the bounds of the “left tail” risk.

The responsibility of CEOs & Founders. The implication of this uncertainty for CEOs and founders is clear: to keep your company alive long enough to create the right conditions for growth and maximizing shareholder value. Over the past five years, financing rounds came quickly, easily, and — often — prematurely. Few of us were thinking in existential terms about survival. Overnight, that equation has changed. Not only is survival suddenly on the table, but the depth and duration of the downturn is unknowable at this early stage. We are all suddenly making business decisions under far greater uncertainty than we have become accustomed to. Risk has returned in a big way, and many companies will not survive into 2023 or 2024. CEOs and founders need to look this harsh reality square in the eyes and start planning to ensure survival today. Every company’s situation is different and will require a different path. CEOs and founders who don’t grasp the potential severity of this downturn — who don’t acknowledge the very real possibility (however remote) of extreme left-tail downside risks — are setting themselves up to pursue far more fragile strategies than they might realize. To help focus this advice on something tangible, I’ll leave you with two questions:

• What is your plan if half your current customers go bankrupt?

• Do you have a plan for survival if you can not raise capital for the next two years?

I hope that none of us have to deal with these questions in reality — but I think all of us should begin to consider them, preparing for the worst case while hoping for the best. While I can’t predict the future — and I hope for the best — the macro-economic risk we’re all facing right now is greater than at any point in our professional lives — and it is our responsibility to our stakeholders and to ourselves to think seriously about the downside macro risk, however remote it might seem. If we are to eventually thrive, we must first survive.

EVENTS

May 24 / VC Series: Gil Dibner is Coming to Aarhus
Gil Dibner, Partner, Angular Ventures

Jun 1 / The Importance of Culture and Values As You Scale a Business
Oren Kaniel, Co-Founder & CEO, AppsFlyer

FROM THE BLOG

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.

Enterprise & Deep Tech VC in Europe & Israel 2021
A data-driven look at a record-setting year.

EUROPE & ISRAEL FUNDING NEWS

Finland/IT Infrastructure. Aiven raised $210M for its data infrastructure platform.
UK/Pricing SaaS. Paddle raised $200M for its SaaS-based payment routing solutions for merchants.
Israel/Data Tooling. Pyramid Analytics closed $120M for its cloud-based data visualization and analytics solutions provider.
France/ML Tooling. Hugging Face closed $100M for its open-source NLP technology platform and community.
Israel/Retail Systems. Nexite raised $67M for its battery-less IoT tags for offline retailers.
Austria/Logistics Services. byrd raised $56M for its fulfilment network for e-commerce solutions.
Israel/IT Infrastructure. Komodor raised $42M for its Kubernetes troubleshooting platform.
UK/Financial Services. BVNK raised $40M for its crypto-based treasury and payment solutions for businesses and partners.

WORTH READING

ENTERPRISE/TECH NEWS

Closer to AGI? Bharath Ramsundar does a great job covering DeepMind’s latest research and new paper Gato, a multi-modal multi-task transformer. Large transformers are now able to learn across a very broad range of tasks (visual, NLP, robotic control, arcade games and more). “Gato has spurred discussion of whether AGI is imminent (see hacker news). While fears of runaway intelligence may be premature, it is striking how scaled-up transformers are capable of solving tasks across a wide variety of domains. Combined with advances in hardware and new pre training regimes, we may soon see large transformer architectures capable of controlling standalone robotic agents.”

Europe’s first microlauncher. Orbex has unveiled the first full-scale prototype of the Prime orbital space rocket on its dedicated launch pad publicly for the first time. The unveiling of the first of a new generation of European launch vehicles — designed to launch a new category of very small satellites to orbit — represents a major step forward for the British rocket company as it prepares for the first ever vertical rocket launch to orbit from UK soil.

A frank assessment of dbt (data build tool). A post that stirred up a lot reaction in the data community this week, Pedram Navid, the Head of Data at Hightouch, wrote a love letter filled with frustrations with the progress of dbt labs and the dbt project. “dbt has made itself a core part of the Modern Data Stack ™ (whatever that may be). Analysts love using it, data tools all want to integrate with it, and it’s seen explosive growth in the past few years. But with that growth, something feels off in the state of data. dbt Cloud is a really bad experience. I hate saying this, but it’s also so universally known that I don’t think it is even controversial to say. In the end, it’s nothing more than a text editor with some syntax highlighting. Loading it is exceptionally slow, it has almost no awareness of the dbt ecosystem, and the interface is so confusing that I find it impossible to recommend to people learning dbt, which is so painful for me.”

Algorithmic peg no more. Jonathan Wu, of Aztech Network, has a breakdown tweetstorm on the inner workings and the downfall of LUNA, the algorithmic stable coin that crashed.

HOW TO STARTUP

Downturn funding self appraisal. David Sacks, of Craft Ventures, open-sourced his discussion with his own portfolio company founders about the current downturn, what caused it, and how to survive it. “Most important: You have to honestly assess your ability to fundraise in a downturn. The bar has gone way up. Give yourself time to fix any problems in your business. Cut burn asap to give yourself that time.” David lays out a 3x2 matrix of high-level metrics needed to raise in this environment from Great, to Good, to the Danger Zone.

The many challenges of success. Apoorva Mehta, the Founder & Chairman at Instacart (who filed for IPO last week), reflected in this tweetstorm on the many challenges over the years that the company faced and had to meet head on. “In the beginning, VCs struggled to understand what Instacart was and dozens rejected us. YC initially rejected Instacart. Not wanting to take no for an answer, I sent Garry Tan a 6-pack of beer using our service. He immediately grasped the company’s potential and the next day I was invited to interview at Y Combinator.”

HOW TO VENTURE

Crash or return to normal? John Luttig’s, from Founder’s Fund, latest piece ‘Reversion to the mean’, frames this ‘crash’ as more a return to normal. “Mean-reversion seemed to be the least popular story to tell — who wants to rain on the tech parade? But the last six months clarified that much of the tech acceleration was transient. Tech massively over-earned in 2021 — generating growth and profits at a temporarily high rate — driven by substitute demand from the pre-COVID economy. Companies with accelerated temporary growth got credit for a permanent acceleration. But investors recently realized that underwriting growth permanence from COVID acceleration was wrong. The ensuing correction was harsh, but note that many high-growth companies are trading very close to their pre-COVID prices.”

PORTFOLIO NEWS

Planable’s CEO, Xenia Muntean shares with Startup Moldova how she and her co-founders, three young people from Moldova, created a product that has over 2000 customers, including Hyundai, Viber, Christian Louboutin, and the United Nations.

Aspecto has launched the observability.store — where fashion meets observability.

Front ranked among highest-scoring businesses on Inc. Magazine’s annual list of Best Workplaces for 2022.