By Keith Teare • Issue #327
This week a whistleblower demonstrated how poor Twitter’s internal data controls are, mirroring previous proof that TikTok is similarly challenged. And politicians focused on TikTok
- Is TikTok’s Time Running Out?
- Meta Can Thank TikTok for its quiet day in Congress
- Twitter Whistleblower Testifies (video)
- OpenAI – Sam Altman and Reid Hoffman in conversation – Podcast and Transcript
- What you Learn from Hypergrowth – 3 years at Hopin
- Big Tech Revenue and Profits Breakdown
- Twillio Lays off 11%
- The Post Crash VC Market – Mark Suster
- A Bull Case for Fintech
- VC fundraising and the New Normal
- VC Secondary Bargain Hunters
- Northzone closes $1bn fund
- Venture Healthtech funding falls 42%
- A16Z is now a Landlord
- Fred Destin
This is the section of That Was The Week where I comment on the week’s content and often state opinions. Opinions are, of course, just that. And it is fair for readers to disagree. So, fair warning 🙂 – this week is going to be full of opinions.
My focus is the growing attacks on TikTok. These attacks come from many places. Elected officials, regulators of course. But increasingly from its competitors.
Facebook, as reported in the Washington Post, has paid GOP firm Targetted Victory to create a concerted media campaign against its competitor.
Employees with the firm, Targeted Victory, worked to undermine TikTok through a nationwide media and lobbying campaign portraying the fast-growing app, owned by the Beijing-based company ByteDance,as a danger to American children and society, according to internal emails shared with The Washington Post.
Reuters has a Factbox that charts the history of Facebook’s attempts to undermine TikTok. The excellent publication Protocol recently focused on Facebook and TikTok where it noted that Facebook is trying (and failing) to turn Instagram into a TikTok clone.
Facebook’s attempt to copy TikTok, and then its inability to win, is driving it to spend large sums to undermine the company. Protocol’s conclusion is that TikTok is in for a hard time with US politicians and regulators.
It’s not going to get any easier to be TikTok in D.C.
- Republicans, who are almost guaranteed to take over at least the House next year, if not also the Senate, are eager to delve into TikTok, including reports of Chinese owners having access to U.S. user data even when they’re not supposed to.
- As recently as Tuesday evening, GOP Sen. Marsha Blackburn explained to Fox Business what she sees as the need for kids’ privacy legislation that’s getting a bipartisan markuptoday, but not really by slamming Zuck-land by name.
- Instead, she said the bills were needed because of “dangerous platforms like TikTok” that will “try to blackmail today’s children when they’re adults.”
- It’s not just Republicans who want to probe TikTok, by the way — and Joe Rogan’s slamming TikTok right now too, if you were wondering where the popular narrative was going.
Recently FCC Commissioner Brendan Carr called on Apple and Google to remove TikTok from the app store, citing national security concerns.
Thus far no compulsory or legal action is being taken; the FCC commissioner is making a direct appeal to CEOs Tim Cook and Sundar Pichai to remove TikTok from their app stores voluntarily.
As readers will know, TikTok is the creation of Chinese investors ByteDance, based in Shanghai. It is super successful. Many believe it has eclipsed Instagram and Youtube and is unassailable as the most used app in the Apple and Google App Stores. There is reasonable grounds to believe that US-based social media companies have a strong commercial self-interest in sullying TikTok’s reputation.
And those efforts, while they may fail, are driven by widespread fear and suspicion of China and a belief that there is no difference between a commercial entity and the Chinese government.
Recent stories here have focused on former Chinese state employees now working at TikTok as evidence of this. The simple explanation – that working at TikTok is better than working at the “Workers Daily” seems to have been discarded in favor of a conspiracy that TikTok is really a government spying machine.
Interestingly, as a Brit, it occurred to me that former BBC employees joining Facebook are, rightly, not considered to be British agents but simply making career choices.
So at the bottom of all this, there are fallacies. The Chinese Government does not own and operate TikTok any more than the US Government owns and operates FaceBook. Both companies have to comply with local law – that much is true. But both do so in order to make money, not to spy.
TikTok’s success is admirable. As is China’s economic rise to soon be the world’s largest and fastest-growing behemoth.
The nationalism, racism, and fear-mongering by Facebook, politicians, and regulators is a poor disguise for a platform and nation trying to slow a competitor. I would advise you to see it in that light. But that, my friends, is just an opinion 😉
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Is TikTok Hatred Racist?
Ever since TikTok became the most-downloaded consumer app in the world, it’s been an open question when the ByteDance-owned service would face a level of scrutiny commensurate with its status. As of today, it seems clear that moment is now.
At a hearing in front of the US Senate’s Committee on Homeland Security and Governmental Affairs, TikTok COO Vanessa Pappas faced stern questioning from lawmakers. They had pointed questions about the company’s relationship with its parent, with the Chinese government, and the potential for Americans’ data to be misused. And while on one level it was simply the latest chance for our Senate to grandstand about the tech industry while doing nothing to regulate it, the hearing also showcased the growing momentum to take more definitive action against the company.
“Are there members of the Chinese Communist Party employed by TikTok or ByteDance, or no?” snarled the insurrectionist Josh Hawley of Missouri, who has fashioned himself as an anti-tech crusader.
Pappas answered that no person who “makes a strategic decision at this platform” is a CCP member. But with respect to the rest of the app’s staff, she said the company does not vet its employees based on their political affiliations. She noted that no other tech platform present at the hearing asks its employees what political parties they belong to.
TikTok made a rare appearance before Congress on Wednesday afternoon. Specifically, TikTok COO Vanessa Pappas testified on a panel alongside high-ranking executives from YouTube, Meta and Twitter. The group appeared before the Senate Homeland Security and Governmental Affairs Committee to answer questions about how their respective platforms could be used to promote extremism and civil unrest.
In her opening remarks, Pappas assured the committee that TikTok had adequate data security measures in place to protect U.S. users. Even then, Pappas noted that some China-based employees could access U.S. user data “subject to a series of robust cybersecurity controls and authorization approval protocols overseen by our U.S.-based security team.”
Pappas was repeatedly asked about the BuzzFeed report that found engineers in China had access to nonpublic U.S. user data. She called the reports “not found” and specifically denied the claim that a master administrator account gave at least one Beijing engineer access to virtually all platform data.
In a heated exchange with Sen. Josh Hawley, Pappas also denied ever sharing data with the Chinese government or the Chinese Communist Party. The two then engaged in a long back-and-forth over whether any ByteDance employees held CCP affiliations.
“We have thousands of people that work at the company, so I’m not going to vouch on the political affiliation of any particular individual,” Pappas said of China-based employees with potential CCP ties.
“You have no way to assure me that they don’t have access to our citizens’ data, and you won’t answer my question in a straightforward way about whether a CCP member has ever gained access,” Hawley retorted.
This exchange is indicative of the kind of charges Pappas and TikTok faced throughout the hearing. Even to kick things off, Sen. Rob Portman expressed concerns over TikTok operating in the U.S. since “Chinese law requires all companies operating under its jurisdiction to in essence allow the CCP to access every piece of data collected.”
Essays of the Week
Twitter’s former head of security testified before Congress on Tuesday, telling a Senate committee the company had failed to protect users and had put profit ahead of data security. WSJ social-media reporter Alexa Corse joins host Zoe Thomas to discuss how Peiter Zatko’s testimony could affect Twitter and legislative efforts to rein in social-media companies. https://www.wsj.com/articles/twitter-whistleblower-heads-to-congress-ahead-of-shareholder-vote-on-elon-musks-44-billion-takeover-bid-11663061403?st=5vmdr8jib1osc22&reflink=desktopwebshare_permalink Photo: Eric Lee/Bloomberg News For more episodes of WSJ’s Tech News Briefing: https://link.chtbl.com/WSJTechNewsBriefing Visit the WSJ Podcast Center: https://on.wsj.com/3zTcL89 More from the Wall Street Journal: Visit WSJ.com:
Visit the WSJ Video Center: https://wsj.com/video On Facebook: https://www.facebook.com/pg/wsj/videos/ On Twitter: https://twitter.com/WSJ On Snapchat: https://on.wsj.com/2ratjSM#Twitter #DataPrivacy #WSJ
Greylock general partner Reid Hoffman interviews OpenAI CEO Sam Altman. The AI research and deployment company’s primary mission is to develop and promote AI technology that benefits humanity. Founded in 2015, the company has most recently been noted for its generative transformer model GPT – 3, which uses deep learning to produce human-like text, and its image-creation platform DALL-E. This interview took place during Greylock’s Intelligent Future event, a day-long summit featuring experts and entrepreneurs from some of today’s leading artificial intelligence organizations. You can watch the video of this interview on our You can read a transcript of this interview here: https://greylock.com/greymatter/sam-altman-ai-for-the-next-era/
Play OpenAI CEO Sam Altman | AI for the Next Era by Greymatter by Greylock on desktop and mobile. Play over 265 million tracks for free on SoundCloud.
Greylock general partner Reid Hoffman interviews OpenAI CEO Sam Altman. The AI research and deployment company’s primary mission is to develop and promote AI technology that benefits humanity. Founded in 2015, the company has most recently been noted for its generative transformer model GPT – 3, which uses deep learning to produce human-like text, and its image-creation platform DALL-E.
This is my third long-form update on the story of the software company Hopin and the lessons I’ve learned as its first full-time team member. This week I celebrated three years at the company.
If you haven’t read the first two posts, you can find the links below. I cover how I met founder Johnny Boufarhat, how the company started in 2019, what the early days were like, what it was like when the pandemic hit, what hyperscaling feels like, and more.
This update is different from the first two as it picks up where the last one left off, telling the Hopin story from 2021 up to now, September 2022.
The Hopin Rocketship
For anyone who knows of Hopin, you’ve probably heard words like “rocketship” and “Hopin speed” to describe the company’s journey to date. There’s a reason for that.
In 2020, we are in the thick of the pandemic. A fully remote company, we hire hundreds of employees at an unprecedented velocity in a matter of months from over 45 countries.
We are called Europe’s fastest-growing startup of all time. Johnny fundraised close to a billion dollars in a little more than a year. Customers pour in from the world’s most renowned brands, including Wall Street Journal, TechCrunch, The United Nations, Dell, Amazon, and the list goes on.
We acquired five companies in our first two years.
In 2021, our company culture grew like wildfire, fueled by untamed ambition and seemingly limitless demand from a pandemic-stricken events industry. We gobble up market share and jaw-drop investors with our growth rates, and delight customers with the speed of our feature releases and service.
We were unstoppable.
Or so we thought.
In the media and public discourse, companies like Alphabet, Apple, and Microsoft are often lumped together into the same “Big Tech” category. After all, they constitute the world’s largest companies by market capitalization.
And because of this, it’s easy to assume they’re in direct competition with each other, fiercely battling for a bigger piece of the “Big Tech” pie. But while there is certainly competition between the world’s tech giants, it’s a lot less drastic than you might imagine.
This is apparent when you look into their various revenue streams, and this series of graphics by Truman Du provides a revenue breakdown of Alphabet, Amazon, Apple, and Microsoft.
How Big Tech Companies Generate Revenue
So how does each big tech firm make money? Let’s explore using data from each company’s June 2022 quarterly income statements.
View the full-size infographic
News of the Week
Twilio today announced that it will lay off 11% of its workforce — between 800 and 900 people across its staff of over 7,800 — as the customer engagement platform looks to rein in costs during the broader economic downturn. In a message to staff, CEO Jeff Lawson called the layoffs “wise and necessary,” blaming them partially on Twilio’s rapid growth over the last several years and “[lack of focus]” on key priorities.
“I take responsibility for those decisions, as well as the difficult decision to do this layoff,” Lawson wrote in a letter sent internally and published to Twilio’s blog. “Twilio has always been a growth company. And as you know, we’re committed to being a profitable growth company. At our scale, being profitable will make us stronger … We ultimately found that some investments no longer make sense and identified areas where we can be more efficient. ”
According to Lawson, the cuts will mostly impact “areas of go-to-market,” R&D and Twilio’s general and administrative departments. Employees affected — who were notified this morning — will receive at least 12 weeks of pay, as well as one week for every year of service at Twilio, in addition to the value of Twilio’s next stock vest.
At our mid-year offsite our partnership at Upfront Ventures was discussing what the future of venture capital and the startup ecosystem looked like. From 2019 to May 2022, the market was down considerably with public valuations down 53–79% across the four sectors we were reviewing (it is since down even further).
Our conclusion was that this isn’t a temporary blip that will swiftly trend-back up in a V-shaped recovery of valuations but rather represented a new normal on how the market will price these companies somewhat permanently. We drew this conclusion after a meeting we had with Morgan Stanley where they showed us historical 15 & 20 year valuation trends and we all discussed what we thought this meant.
Should SaaS companies trade at a 24x Enterprise Value (EV) to Next Twelve Month (NTM) Revenue multiple as they did in November 2021? Probably not and we think 10x (May 2022) seems more in line with the historical trend (actually 10x is still high).
What You Can Learn From Public Markets
It doesn’t really take a genius to realize that what happens in the public markets is highly likely to filter back to the private markets because the ultimate exit of these companies is either an IPO or an acquisition (often by a public company whose valuation is fixed daily by the market).
This happens slowly because while public markets trade daily and prices then adjust instantly, private markets don’t get reset until follow-on financing rounds happen which can take 6–24 months. Even then private market investors can paper over valuation changes by investing at the same price but with more structure so it’s hard to understand the “headline valuation.”
‘Tourist investors’ may well be exiting the fintech venture capital market but many still expect to see long-term returns from startups innovating banking and finance.
The longest bull market in history began in March 2009 and, roughly, ended 13 years later at the start of 2022.
While this primarily refers to public equity markets which soared year after year following the financial crisis’ c.50 per cent plunge in 2008, a tandem ever-surging phenomenon of venture capital financing of private startups accompanied it. No category benefited from this explosion of cheap money more than fintech.
With the world in the grip of rising interest rates, soaring inflation and an array of geopolitical strife, is the party over?
The latest data suggest a big slow down. In the first six months of 2022 venture capital investment in UK fintech companies fell to $9.6bn, a reduction of two-thirds compared with the same period in 2021, according to data from KPMG.
For fintech, a long-term secular growth story, however, may well still play out.
The argument is fintech could become, as biotech did for pharmaceutical and healthcare companies in the 1980s and 1990s, and still is today, an outsourced innovation market as well as a platform for new businesses to grow very quickly and supersede creaking and inefficient incumbents.
This would mean a dual role in providing regular M&A targets for banks and other financial institutions, as well as stock market listings for stand-out success stories.
- H1 fundraising is on track with $210bn raised globally in 2021 but number of funds has dropped off
- Recent entrants and crossover funds are retrenching and LPs face denominator effect
- Long-term allocation trend to VC remains positive once market stabilises
After raising record levels of venture capital last year, the number of funds doing so this year looks set to plummet.
In Q2, global VC fundraising was down year-on-year and the number of funds closed was the lowest seen in the past five years once the Covid-19 panic months of Q2 2020 are excluded, according to Preqin data.
With only 560 fund closes in H1, even if the same number return during the second half of the year, the 2022 total would be a staggering fall from last year’s peak of 1,790 funds closing.
A survey by Private Equity Wire during July found that 85% of respondents believe the industry is in a “more challenging” fundraising environment than a year earlier. The findings were explored in the latest Insight Report ‘Silicon Valley Blues: How VCs are adapting to a down market’.
Fundraising momentum has continued from 2021 into 2022 with major closes announced by Lightspeed Ventures, Index Ventures and Andreessen Horowitz, but H2 is likely to see a drop-off in activity, for two reasons
A London-based startup which hosts venture capital funds has begun to enter into partnerships with wealth managers who want to give their clients access to a broader array of assets.
Sprout, an investment platform which launched just over a year ago, wants to eventually become the go-to place for people investing in private markets.
While some firms are talking to Sprout on an informal basis, allowing individual advisers to choose whether or not they want to use the platform, others – generally bigger wealth managers across the UK and abroad – are considering more formal relationships with the platform.
London-headquartered Northzone has closed on 1 billion euros ($1 billion), its largest fund to date and one of the largest funds raised in Europe this year. This fund is double the size of its previous fund of $500 million announced in 2018.
We spoke with partners Michiel Kotting, based in Amsterdam, and Wendy Xiao Schadeck from New York on the latest fund. The increased fund size for the early-stage venture capital firm signals an intent to move into the growth stages as well, said Kotting.
“The market is coming into maturity in Europe,” Kotting said. The new fund allows Northzone to support “top entrepreneurs all the way through their life cycle.”
Venture capital (VC) financing within healthtech has fallen 41.2% compared to the same time last year. The Asia-Pacific region had the largest year-on-year decrease (-64.8%), followed by Europe (-45.8%), and North America (-38.7%). In contrast, funding for the Middle East and Africa, and South and Central America markets grew by 158.7% and 16.4%, respectively. North America remains the largest funding market, accounting for approximately 70% of all VC deals in healthtech.
The global fall in VC activity follows a surge in investment in the years before and amid the pandemic, which saw the total deal value grow by 132% from 2015 to 2020.
The top five themes within the healthtech sector, as identified by GlobalData’s Deal Database, include artificial intelligence (AI), big data, digital media, digitalisation, and the Internet of Things (IoT).
The Covid funding boom
Investment in life science had been steadily increasing over several years; however, the Covid-19 pandemic brought it to the forefront of the political, economic, and social conversation. Healthtech companies benefited from this new-found public interest, experiencing a 48.5% uptick in VC funding in H1 of 2021, compared to the same period of the previous year. Medical Device Network
Adam Neumann’s new rental-apartment startup recently received a $350 million investment from venture-capital firm Andreessen Horowitz. That big check came with an unusual catch.
Mr. Neumann, the co-founder and former chief executive of WeWork Inc., agreed to effectively hand over part of his vast real-estate holdings in return for the money, according to people familiar with the matter.
Since leaving WeWork in late 2019, Mr. Neumann has bought stakes in thousands of apartments, largely in the Sunbelt. These stakes are now held by his new company Flow, according to people familiar with the matter.
By investing in Flow, Andreessen Horowitz also acquired stakes in the buildings. For a venture-capital firm to receive in effect a stake in thousands of apartments in return for an investment is very rare, in part because there are so few venture-funded firms that own real estate.
The structure of the funding raises the stakes for Mr. Neumann, who walked away with a more than $1 billion exit package in cash and loans when he left WeWork even as his efforts to pull off a big initial public offering floundered and his biggest investor lost billions.
Now, if his new company were to fail, he stands to lose part of a real-estate mini-empire that he has spent more than two years assembling and that people familiar with the matter say is valued at hundreds of millions of dollars.
Andreessen Horowitz’s investment—the largest individual commitment it has ever made in a round of funding—also turns one of Silicon Valley’s best-known venture-capital firms into a de facto apartment-building landlord.The Wall Street Journal
Startup of the Week
Today, Adobe announced its intention to acquire Figma for $20b, valuing the business at 50x current ARR, the highest multiple paid for any software company of scale. Congratulations to team Figma on building their impressive business.
After the correction earlier this year, public valuation multiples had reset to those of 2017. That year, Cisco acquired AppDynamics for 17x trailing revenue. If we assume a company recognizes about 2/3 of its ARR as revenue, then I estimate the Adobe/Figma deal at roughly 75x trailing revenue.
That’s not a bear market multiple. Doubly true when the median public company today is trading at 6.3x.
Not too long before the public market correction, high-growth startups routinely commanded 100x ARR multiples. If an acquirer is willing to pay 50x, shouldn’t a VC be ready to buy shares at 100x at a much earlier stage? Doesn’t this acquisition reset the market price despite this year’s 70% correction?
The answer is likely not. While Adobe’s acquisition may set a high-water mark, it’s a single transaction. The environment hasn’t changed much.
Before this announcement, US venture-backed software M&A was tracking to its worst year since 2017, at about $7b, down from $71b last year.