Death on Two Legs

By Keith Teare • Issue #309 • View online

Terra’s LUNA token lost 99.99% of its value in a flash and UST, its stable coin, lost close to 80%. This is not supposed to happen. The FT disclosed Tiger Global may be down $17 billion as the tech stocks collapsed. Are crypto and unicorn investing dead?



Another week another meltdown. Last week’s newsletter was titled “Markets in Freefall”. This week we have gone with “Death on Two Legs”. Crypto and Venture Capital are both experiencing, let’s say, challenges.

It seems that no asset class has gone untouched by the retrenchment in asset values. Property remains relatively unscathed and the US $ is strong despite inflation. But beyond those two, wow!

The center stage must go to UST, the stable coin (sic) that is part of the Terra blockchain and ecosystem. It is down, as I write, by 56% in a couple of days. Its low was down almost 80%.

LUNA, the token that backs it up has declined 99.99% in the same time and is now trading at just over $0.01 per LUNA. The words of the Queen song from A Night at the Opera resonate:

You suck my blood like a leech

You break the law and you breach

Screw my brain till it hurts

You’ve taken all my money, and you want more

Misguided old mule with your pigheaded rules

With your narrow-minded cronies who are fools

Of the first division

Death on two legs

You’re tearing me apart

Death on two legs

You never had a heart of your own

Killjoy, bad guy, big-talking, small fry

You’re just an old barrow boy

Have you found a new toy to replace me?

Can you face me?

But now you can kiss my ass goodbye

Feel good, are you satisfied?

Do you feel like suicide? (I think you should)

Is your conscience all right? Does it plague you at night?

Do you feel good? (Feel good)

Talk like a big business tycoon

You’re just a hot-air balloon

So no one gives you a damn

You’re just an overgrown schoolboy

Let me tan your hide

A dog with disease, you’re the king of the sleaze

Put your money where your mouth is Mr Know All

Was the fin on your back part of the deal? Shark

A stable coin is supposed to be, well, stable. Clearly, a 99.99% drop in 24 hours does not qualify as stability.

The details of the UST/LUNA debacle are outlined in an excellent article by Jon Wu in Packy McCormick’s Not Boring newsletter, linked below. Jon has a wonderful Twitter explainer that Paddy links to:

The crypto collapse is the first “leg” suffering apparent death. The second “leg” is the news from the FT and covered by Connie Loizos from TechCrunch (linked below) that Tiger Global may be $17 billion down in the first quarter. Connie opines:

The question is whether that trouncing will impact the firm’s venture business, which — like that of many other venture businesses — has ballooned rapidly in recent years. In 2020, the firm closed its twelfth venture fund with $3.75 billion in capital commitments. Early last year, it closed its thirteenth venture fund (titled XIV for superstitious reasons) with $6.65 billion before closing its newest fund, fund XV, with a massive $12.7 billion in capital commitments in March of this year.

Yet even that new fund — which reportedly took less than six months to raise and includes $1.5 billion in commitments from Tiger Global’s own employees — is almost fully invested already, according to a source close to the firm.

On the one hand, it’s not entirely astonishing to anyone paying attention that Tiger Global has put so much money to work already. It added 118 unicorn companies to its list of portfolio companies last year, according to Crunchbase News, and it continued to outpace every other investor in the first quarter of this year.

The widely reported death of crypto and venture is offset by other readings from the week. Tomasz Tunguz of Redpoint Ventures predicts a rapid expansion of Web3 investing and its associated ecosystem. Crunchbase reports that Q1 saw 35 new unicorns added to its leaderboard. Prequel announces that VC funds under management are now over $2 Trillion.

The secret is to understand that more than one thing can be happening simultaneously. The apparent collapse of Terra and the public tech stocks live alongside a very healthy web3 ecosystem and a robust venture capital landscape.

If you focus on the short term things look bad. if you focus on the next stage of innovation things look great.

Beauty is definitely in the eyes of the beholder. I for one am looking through a long-term lens.



Crypto Apocalypse?

$1 Trillion Crypto Meltdown — Huge Crash Wipes Out The Price Of Bitcoin, Ethereum, BNB, XRP, Cardano, Solana, Terra’s Luna And Avalanche

Bitcoin and cryptocurrencies have crashed further overnight, dropping to levels not seen since the crypto market began surging in late 2020 and wiping away almost $1 trillion worth of value in a month as a serious “ripple” warning comes into effect.

The bitcoin price has dropped to around $27,000 per bitcoin, down 12% on the last 24 hours, and dragging down the wider crypto market with other top ten coins ethereum, BNB BNB -1.2%, XRP XRP -8.2%, solana, cardano, and avalanche recording even steeper loses. Ethereum has crashed 22% since this time yesterday, with BNB, XRP, solana, cardano and avalanche all lossing between 25% and 33%.

The sell-off comes after the $18 billion algorithmic stablecoin terraUSD (UST) lost its peg to the U.S. dollar, wiping out the price of its support coin luna which has now lost almost 99% of its value — and risks dragging the bitcoin and crypto market even lower. • Share

Terra: To the Moon and Back

Jon Wu on What’s Happening With Terra-Luna, UST, and the Broken Peg

Happy Thursday! We weren’t planning on sending anything out today, but then the market completely crumbled. It’s been a bloody, across-the-board meltdown kind of week, but one meltdown in particular has captured everyone’s attention: Terra.

Specifically, Terra’s two native tokens, Luna (LUNA) and TerraUSD (UST) were supposed to work in tandem to peg UST, the algorithmic stablecoin, to a $1 price.

It’s important that stablecoins are worth $1, because their whole point is to be worth $1. When everything fluctuates wildly, people need something they can use to reliably spend and transact. The world’s two biggest stablecoins — USDC and USDT — are both backed by relatively stable assets like dollars and bonds, that sit in a bank account, $1 worth for every $1 worth of stablecoin. That’s the safer way to do it (although whether Tether (USDT) is actually 100% doing it has been the subject of debate).

Algorithmic stablecoins, which are deeply undercollateralized, are a much riskier proposition, and many attempts at pulling it off have failed. It’s just that none have gotten as big as UST, thanks to its charismatic founder Do Kwon, whose twitter handle is literally @stablekwon, and the ecosystem that Terra has built on top of its L1.

The fact that UST broke its peg to the dollar, and that LUNA is down from an all-time high of $119 to its current price of $0.09 is a big, big deal. It’s broken an already shaky market. And if you’re at all interested in crypto, you should understand what happened.

So I’m bringing in my friend Jon Wu, who has become of the the most popular follows on Crypto Twitter for, among other things, his simple and colorful explanations of really complex things happening in DeFi. • Share

Five Mid-Year Predictions for Web3

The past three days may be the most eventful in web3 ever. Crypto assets have fallen by half or more, following their software counterparts. The attack on an algorithmic stablecoin’s peg harkens back to Druckenmiller breaking the Bank of England.

All the tumult in the crypto markets will catalyze change. Here are my five mid-year predictions for the major evolutions that arise in response.

Let me know your mid-year predictions for web3 on Twitter. • Share

Venture Schizophrenia

Tiger Global, hit by $17B in hedge fund losses, has nearly depleted its latest VC fund — TechCrunch

Tiger Global is having a year.

According to a new report from Financial Times, the low-flying-yet-seemingly-ubiquitous 21-year-old outfit has seen losses of about $17 billion during this year’s tech stock sell-off. FT notes that’s one of the biggest dollar declines for a hedge fund in history.

As shocking, per FT, according to the calculations of a fund of hedge funds run by the Edmond de Rothschild Group, Tiger Global’s hedge fund assets have been so hard hit that the outfit has in four months erased about two-thirds of its gains since its launch in 2001. (Ouch.)

The question is whether that trouncing will impact the firm’s venture business, which — like that of many other venture businesses — has ballooned rapidly in recent years. In 2020, the firm closed its twelfth venture fund with $3.75 billion in capital commitments. Early last year, it closed its thirteenth venture fund (titled XIV for superstitious reasons) with $6.65 billion before closing its newest fund, fund XV, with a massive $12.7 billion in capital commitments in March of this year.TechCrunch • Share

SoftBank is cutting its startup investments 50–75%

Japanese conglomerate SoftBank is severely cutting its planned startup investments through next March, Chief Executive Masayoshi Son said in a Thursday earnings call. With the announcement, Son joins a chorus of VCs who have been vocal about an economic downturn forcing them to tighten their belts.

“It depends on our LTV levels and investment opportunities, and we strike balance, but I will say compared to last year, the amount of new investments will be half or could be as small as a quarter,” said Son, according to a company-provided translation of the call.

VC funding has slowed down markedly amid a turbulent market. After a heady 2021 for much of the industry, startups have turned to quick cost-cutting and layoffs. The Dow has seen the longest downturn since 2020 this week, while crypto markets also fell 10% between Thursday and Friday alone. Some entrepreneurs and investors have gone so far as to question whether the industry is approaching something like the dot-com crash, with VC David Sacks calling it the “Panic of 2022” on Twitter.

The impact on VC looks particularly dramatic in the case of SoftBank, which is coming off a record-breaking 2021. Its $100 billion Vision Fund and $50 billion Vision Fund 2 (which includes $30 billion of its own money) made it and Tiger Global among the biggest players in VC last year. It also made headlines with the announcement of a $100 million Opportunity Fund, which has helped finance the projects of diverse founders who have struggled to find funding.

But in the last few months, the conglomerate’s VC strategy has done a 180. SoftBank recently reported a loss of $20.5 billion at its Vision Fund for the last fiscal year. The accompanying drop in SoftBank’s value, along with the market slide, has meant Son taking a huge financial hit — some $25 billion, or almost two-thirds of his personal fortune. • Share

Meet The 35 Unicorns Who Joined The Board In April

Gené Teare@geneteare

Thirty-five companies joined The Crunchbase Unicorn Board last month, raising a median $188 million in funding.

This cohort of new unicorns added $57 billion in value to the board, according to a Crunchbase News analysis. The average funding round for the new entrants was $241 million.

The most active investors in this cohort of companies include Insight Partners and SoftBank Vision Fund, with five portfolio companies each.

Let’s meet the companies:

Crunchbase Pro queries listed for this article

All Crunchbase Pro queries are dynamic, with results updating over time. They can be adapted by location and/or timeframe for analysis.

Unicorn queries • Share

Venture capital passes $2 trillion in AUM — Preqin — Pensions & Investments

Venture capital assets under management surpassed $2 trillion for the first time in September, according to a newly released Preqin report.

According to the most recent data available, total venture capital AUM reached $2.03 trillion in September.

While the segment, now the second largest asset class in the alternatives industry, is still a third the size of private equity, which had an AUM of $6.03 trillion in September, it has grown significantly faster, Preqin said.

While private equity has experienced a compound annual growth rate of 11.5% since the end of 2012, venture capital’s rate has been 20.2% over the same period.

Also, year-to-date Wednesday, Preqin said venture capital firms have amassed $497 billion of dry powder. Pensions & Investments • Share

European VC funds raise a record €18B in 2021 — Science Business

A report published this week by Invest Europe, an association representing private equity, venture capital and infrastructure firms in Europe, shows private equity fundraising reached €118 billion in 2021, the highest level seen to date.

Fundraising for growth funds reaching a new record of €20 billion and venture capital pulled in over €18 billion, an increase of more than 70% compared to 2020. More than 5,300 companies received a venture investment in 2021, 98% of which were SMEs.

Private equity and venture capital firms invested a total of €138 billion in European companies in 2021, a 51% increase on 2020. The figure far exceeds levels in any year recorded.

“The data is proof that private equity and venture capital are an essential part of the European investment universe, providing capital and support for companies, both to weather tough conditions and to seize opportunities in fast-moving European markets,” said Eric de Montgolfier, Invest Europe CEO.

Science Business • Share

Innovation of the Week

TechScape: Apple, Google and Microsoft are about to make passwords a thing of the past | Technology | The Guardian

In this week’s newsletter: safer than two-factor authentication and easier than remembering dozens of codes, the ‘Fido’ system will make our digital lives smoother

What if you never had to type in a password again? Imagine. An international day of celebration. Children dancing in the streets. Soldiers laying down their arms and hugging tearfully across the battlefield.

Or, at least, a mild improvement in your daily life. That’s what Apple, Google and Microsoft are offering, with a fairly rare triple announcement that the three tech giants are all adopting the Fido standard and ushering in a passwordless future. The standard replaces usernames and passwords with ‘passkeys’, log-in information stored directly on your device and only uploaded to the website when matched with biometric authentication like a selfie or fingerprint. From Apple’s announcement:

Users will sign in through the same action that they take multiple times each day to unlock their devices, such as a simple verification of their fingerprint or face, or a device PIN. This new approach protects against phishing and sign-in will be radically more secure when compared to passwords and legacy multi-factor technologies such as one-time passcodes sent over SMS.

The three companies will roll out Fido support “over the course of the coming year”. The Fido2 standard is actually already public, and some companies support it already, largely for internal authentication. But the standard has long lacked the final step necessary for ubiquity: making it easy to get started. • Share

Essays of the Week

The best case and worst case scenarios for the VC market

By Walter FrickExecutive editor, Published May 11, 2022

Tech companies are having a rough month. Startups are announcing layoffs, valuations have dropped in both public and private markets, and venture capitalists are doing fewer deals.

So yes, the boom-time vibe is over, and tech Twitter is replete with tips on tightening the belt. But it’s easy to overstate the shift.

VCs still have an unprecedented amount of money to invest, and eventually they’ll get back to investing it. If there is a recession, it may well be a mild one — not a cataclysmic event like the global financial crisis of 2008. And the demand for tech from consumers and businesses remains strong. It’s easy enough to imagine a “soft landing” for tech rather than the historic downturn some observers are warning about.

The watchword in conversations with analysts and investors is uncertainty. Tech markets are resetting after a decade-long boom and a record-setting 2021 — and responding to inflation, higher interest rates, and the war in Ukraine. No one knows for sure what the rest of the year will hold.

The optimistic case

In the first quarter of this year, as startup investment was slowing, VCs continued to raise funds at a record-setting pace. The optimistic case for tech startups starts with the fact that, oversimplifying just a little, all that money has to go somewhere…… • Share

The Burn Multiple — Bottom Up by David Sacks

How Startups Should Think About Capital Efficiency

As the economic crisis deepens, capital efficiency becomes a more pressing issue for startups. Not only is it necessary to maximize runway, it also plays a larger role in how investors evaluate companies. While growth is always prized during good times or bad, investors increasingly scrutinize burn and margins during downturns. Startups whose burn is too high relative to their growth will find it hard to fundraise. Founders should be prepared for this shift in emphasis. This post provides a framework for how to think about capital efficiency.

How to Measure Capital Efficiency

Two simple ways to measure capital efficiency are the Hype Ratio and Bessemer’s Efficiency Score:

  1. Hype Ratio = Capital Raised (or Burned) / ARR
  2. Efficiency Score = Net New ARR / Net Burn

I think Bessemer has the right idea but I prefer to flip the numerator and denominator, so the ratio is an annualized version of the Hype Ratio. I call this the Burn Multiple:

Burn Multiple = Net Burn / Net New ARR

This puts the focus squarely on burn by evaluating it as a multiple of revenue growth. In other words, how much is the startup burning in order to generate each incremental dollar of ARR?

The higher the Burn Multiple, the more the startup is burning to achieve each unit of growth. The lower the Burn Multiple, the more efficient the growth is.

For venture-stage startups, these are reasonably good rules of thumb:

I like this ratio because it’s an easy way to judge whether burn is too high in any given month, quarter, or year. • Share

Startup of the Week

Tweet of the Week