💼 Step up or step out

Author

Anuj
March 23, 2023

Good morning! It’s Thursday, March 23rd. If you’re receiving this, you’re on the Boardroom alpha. We’re 20 people strong.

I’d love to learn how you ‘get in the know’ for your job. Up to chat with me? Here’s my calendly. 

Now here’s what other vc-backed CEOs are talking about.
-Anuj

Time to throw in the towel?

  • What happened: Big voices — including Gokul Rajaram and Elad Gil — are offering reassurances that there’s no shame in shutting down, paying severance, and returning capital.

  • Who’s this relevant to? Startups that raised over $10M, still have money in the bank, but haven’t obtained product-market fit are going through an excruciating psychological journey, Rajaram tweeted.

  • Why this matters: Many of us got over our skis in 2021, when VCs clamored for deals and we raised immense capital at hefty valuations. That induced high expectations too much for some. In an informal Twitter poll, 40% of founders said they want to close up shop.

  • What should you do? If you’re starting to feel like your heart’s not in it, don’t be afraid to have these discussions. It should be normalized. As Gokul notes “chasing endless pivots trying to find PMF is a bridge to nowhere.” Plus, according to Elad, it’s not going to get easier over the next two years.

It’s going down

  • What to know: AngelList claims that VC lags nine to 18 months behind the public markets. Given the Nasdaq has gotten off to a poor start in 2023, AngelList notes venture markets are likely going to stay the same until at least 2024.

  • Why this matters: Given most of us raise new rounds of financing at least every two years, it’s now the norm to take at least one flat or down round.

  • What should you do? Swallow your pride and be transparent with your team. One VC reported a company that did a down round hit all-time high employee NPS. Honesty is paramount.

  • The kicker: Public markets look to be choppy for 2024 as of now: The Federal Reserve announced a .25% rate increase yesterday and doesn't see rate cuts this year, on top of likely credit tightening that makes loans harder to get.

Show me the incentive, I’ll show you the outcome

  • What happened: Part of what triggered the collapse of Silicon Valley Bank was the incentive metric for its executives: a short-term return on equity (ROE).

  • Why this matters: “It seems so simple, but I think management had an incentives problem,” according to the Nongaap Investing newsletter. They were measured on a short-term metric, without a countermeasure on the long-term.

  • What’s the problem? In the low-interest rate environment, SVB saw a rapid growth of non-interest-bearing deposits. SVB execs pumped up ROE by buying longer-term bonds that paid more (as they took on more risk). Management was incentivized to do it!

  • What’s the kicker? SVB didn’t have a Chief Risk Officer for much of 2022.

Revenue per employee is back in vogue

  • What’s happening: Big Tech and VC-backed startups alike are reviving a decades-old metric: revenue per employee.

  • What’s being said?: "The major expense at all these companies is mainly people," Founders Fund’s Keith Rabois told Insider. "If you want profits, the only thing you can really do is cut people."

  • What we hear: CEOs told me they are reorganizing, laying off, and pausing hiring. They are also finding success renegotiating cloud spend. B2B orgs are all hands on deck on securing their bigger deals.

  • What should you do? Silicon Valley has gotten lucky in the last few years when “missing plan.” I heard that’s not what to expect now. If you need to fundraise again, hold yourself to high-performance standards and tighten your headcount where possible.

Deel’s deal

  • What’s happening: Deel, a global HR and payroll company, grew to a $12B valuation in four years and boasts that it’s the fastest-growing SaaS startup in history. How’d it do it? A secret ingredient is hiring about half of its workforce as contractors, including its CEO.

  • Why this matters: The contractor model allowed Deel to hire at a breakneck pace. Compared to full-time employee models, hiring contractors sidesteps bureaucracy and makes for quicker hiring (and firing).

  • The implication: The most noble mission-driven high-growth startups often have the most intense cultures (e.g. , Tesla, SpaceX, and even Deel). If you have product-market fit, it can be worth it for companies to treat employees like this. If not, it’s one big legal risk.

  • My kicker: I had the chance to invest in Deel at YC Demo Day. They gave me 20 minutes to decide, and I couldn’t get a hold of Justin in time. Bringing up Deel is a sore spot. My biggest miss as an early-stage investor! #salty #deelspeed

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You’re all caught up.

See you tomorrow & make yourself proud today! 👊🏽