Protocol Labs is laying off 21% of staff (89 people)
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For others some will scramble to get acquired in an M&A / acqu-hire frenzy to try and save being wiped out completely. Investors here are usually just looking to make back some of their investment to avoid a total loss. Many other startups will simply implode and turn into total losses for investors.
The M&A scenario is where you hear about a startup getting acquired for a billion $ and employees are popping corks only to find out that they get nothing (despite all those options/shares) and are now an employee of some other shop that has them on a short list to be axed to realize “synergies” created by the deal.
Companies are scrambling to extend runways via these layoffs, but for those in that position this is at best a temporary patch on a gaping hole. The above options become inevitable unless something drastically changes with the company’s product, market adoption and financial fundamentals.
One can debate whether "force" is the right word, but 100%, absolutely the goal of low interest rates was to force savers into riskier assets, when banks and bonds were returning close to 0. So many companies never would have funded in a normalized rate environment.
I agree that can be a consequence (although it isn't necessarily so; many people just leave their savings be), but I don't believe it ever was a goal.
And regardless, I think it's a big leap from "some savers wanted higher returns" to "let's throw a lot of money into things without due diligence or a coherent success story". Which unarguably happened lately. E.g., all the "smart" money invested in FTX, which we now know to be an absolute clown show. Other, better choices were possible. Including the supposed experts saying, "Sorry, we can't deploy this capital for you, as we don't think there are good opportunities in the current market conditions."
They do this by suppressing interest because parked money loses value to inflation in such an environment.
In reality, the better solution is probably to raise taxes, but none of our politicians have the will.
During a recession, they decided that rather than lose some value to inflation, they wanted to risk losing all of their investment in hopes of a higher long-term return.
This is called a choice. They made it. Nobody owes them a guaranteed safe rate of return just because they're rich.
Realistically, an environment was purposefully created that would make the average actor move a certain way. Sure, the individual may have had the option to just eat the losses.
Returning to my original point, forest fires are about a natural phenomenon. Fire doesn't want anything and doesn't make choices.
But startup founders and venture capitalists and limited partners are all morally competent actors who get to make choices. No matter how much money is available, nobody is forced to put together a startup. Nobody is forced to invest in it regardless of its chances of success.
Language that makes their bad choices the fault of government or whomever is something that is very convenient for preserving their egos and keeping the game going. But it is not factually correct, and I am not obliged to swallow my objections to it just because some find it an uncomfortable truth.
3 : to make or cause especially through natural or logical necessity
"forced to admit my error"
8 : to induce (a particular bid or play by another player) in a card game by some conventional act, play, bid, or responseIn the US, we can only go by their stated goals, dual mandate from congress: keep inflation and unemployment low. https://www.stlouisfed.org/in-plain-english/the-fed-and-the-...
So what are the mechanisms that they can keep unemployment low (create jobs)? They lower interest rates, which causes people to sell assets that don't create jobs (treasury bills) and buy ones that do (corporate bonds, VC funds, etc) in attempt to get a return on capital (however, with more risk).
It's not some secret that lowering / raising interest rates affects all investors risk curve.
And although they are affecting incentives, people are not robotically obliged to follow them. VCs cannot be simultaneously such brilliant investors that they deserve to be wildly rich and also so without agency that a drop in the federal funds rate forces them to waste money on bad startups.
Or, to put it differently, some savers didn't want to pay the bank for holding their money and suffer 10% inflation. Of course that'll push them into funds and shares. Is it a goal? Possibly not, but it's a known and unavoidable side-effect, like having to poop at some point after you eat things.
As for the terms of investment being better for companies: that's just supply and demand. Everyone wants to invest their money, so the deals get worse.
> that's just supply and demand. Everyone wants to invest their money, so the deals get worse.
If people would rather lose money in a bad investment than due to overall inflation, that is a choice they can make. But that doesn't force the creation of bad investments. Some people create the bad companies, and others, ones who nominally should know better, put other people's money into them.
Since there isn't an unlimited amount of low-risk deals that you can bid on and pay more to be a part of, accepting higher risk is the only other option that still has a chance at being better than keeping the money in a bank and losing 10+% per year.
Other people make different choices. Which can be quite good ones! US inflation in 2022 was 6.5%, but the NASDAQ lost something like 30%.
Might VCs choose a spray-and-pray approach when money is abundant? Sure. Might LPs choose to give money to those VCs? Yes. But my point here is this is not mean old Jerome Powell ordering around robots or slaves or whatever. VCs can just not invest if there isn't something good. They can return the money or not take it.
Heck, even startups are not compelled to take the money. The last time I did one we eventually decided we had dug a dry hole, so we gave back the remainder of they money to investors. We were not compelled to spend it past the point we thought it was actually a good investment.
But we weren't in a recession when they made those investments, we had negative rates, 6-10% inflation and low unemployment in many countries (and certainly in the US). It's hard to argue that we're in a recession even now, since inflation is still high and unemployment is still low, these layoffs are publicized, but they're not moving the needle much.
> They can return the money or not take it.
What do investors do with the money instead? Yes, they can pass it on to the bank and have a 100% chance of the value going down 6-10% a year. How is that a choice, do pension funds just say "sorry, folks, we didn't see any good opportunities while the fed injected money, so your pensions will be 50% lower than expected"?
But yes, part of fiduciary duty is acting for the benefit of the person whose money you are holding. That obliges them to get the best return possible, no more and no less. If a lack of good opportunities means that the best actual return is a lower one than people hoped, that's the job. Because it's not like the people whose pension money went into FTX are going to do particularly well on the deal either.
What a given central bank is up to depends on the central bank. But the Fed is pretty clear about its goals. E.g.: https://www.stlouisfed.org/in-plain-english/the-fed-and-the-...
I agree it's true that they change interest rates as a way of influencing investment rates as they pursue their goals. But I believe they have very interest in influencing the average individual saver in any particular direction, let alone having that as a goal. And I absolutely disagree that "force" and "encourage or discourage" mean the same thing.
My broad point here is that the Fed, using pretty blunt instruments, tries to keep us from both recession and inflation, but that does not "force" rich people to do anything. Those investing in startups have enough money that they have incredible agency in what they do with that money.
I can believe that VCs feel compelled to invest so they can keep up their reputations and their fat checks. But if so, they are compelled by prestige and greed, not by Jerome Powell.
Now sure, we can say that’s just the “dual mandate” at work, since they tie this concern to inflation. But still, I wouldn’t take a public statement like this as gospel.
I suppose it is true that no one person is forced to do anything, but if you create strong incentives to do one thing and disincentives to do another then I don’t think the difference is that meaningful in the aggregate.
And I'd say the difference is absolutely meaningful, because people have moral agency. People have "incentives" to do all sorts of harmful things. But we can still expect them to make good choices, and to own it when they make bad ones.
As an example, take FTX and Sam Bankman-Fried. He clearly had plenty of incentives to do what he did. That doesn't make what he did any less wrong. Indeed, morals that only applied when one had no incentive to act against them would be meaningless. It's exactly when the incentives favor harmful actions that morals most matter.
From the article: I(r) represents business investment decreasing as a function of the real interest rate
Businesses invest less as the rate increases. That's equivalent to businesses save less as the rate decreases.
“If you look at P/Es they’re historically high, but in a world where the risk-free rate is going to be low for a sustained period, the equity premium, which is really the reward you get for taking equity risk, would be what you’d look at,” Powell said.
As you may know, this statement was made after Powell famously reversed course on his 2018 unwind of Yellen’s put after asset prices started to fall.
https://www.hindustantimes.com/world-news/powell-busts-out-f...
What you have is at best an acknowledgement of a typical consequence of one kind of Fed intervention, but I don't think that's at all evidence of a goal.
E.g., when interest rates drop, so do auto loan rates. But even if you can now suddenly afford a Hummer, you still get to decide whether or not that is a good choice for you. And if it turns out it wasn't, you don't get to blame the Federal Reserve for your choice.
The problem in a low interest environment is that parked cash loses value to inflation so it is forced to flow.
Cash isn't forced to do anything. It's not an actor here. People are. Those people make choices with their money. They choose more risk during a recession rather than a predictable loss.
Our question here is whether wealthy investors should invest their capital into VCs or interest-linked instruments. The whole point is that your analogy of the buying the Hummer is useless because a Hummer isn't an investment but an expense so there's no point in using your analogy.
My point is that easy money does not cause choices. People choose. Jerome Powell did not make anybody buy a Hummer, even if that was a predictable outcome of a drop in interest rates. Investment in bad startups may be a predictable outcome of easy money, but specific people still specifically chose those specific bad startups when they could have made better choices.
It’s good for forest ecology, which depends on fire, and it’s good for people, since we generally don’t like crazy forest fires.
Are VCs borrowing heavily?
For some reason I imagined that wasn’t the case generally.
When interest rates are low and you have piles of money, you seek higher risk investments with higher returns because low risk investments have virtually no returns on interest (if you factor in inflation, you've lost money over time in a low interest environment).
Think about this way: you wouldn't put $10,000 into a cash deposit for risk free 0.1% annualized return, but you might for 5%. So the shift in interest has changed the favorability of different investment vehicles.
If you are a VC, you might fund 100 companies and only 2-3 will be super profitable and generate the majority of your returns. Those returns in aggregate need to be greater than what could be achieved by parking the money in lower risk instruments. Easy in 2020 when interest was nearly 0. Now? Those lower risk instruments are much higher performing than they were 3 years ago. So if a VC portfolio had returns of 5% previously and now I can just park my $1m in a CD and get 4% RISK FREE, that VC suddenly has to perform at a higher level to compete. Otherwise if I'm a wealthy investor, why not just park my money in bonds or other investments that benefit from higher interest?
While it's the extreme comparison, Blackrock have 8.5 trillion worth of assets under management.
So it would seem to me that relatively small changes in risk appetite have the potential for huge changes to vc funding.. because it was always a tiny part of the wider market
Now, investors are getting a much better offer from the banks. Maybe they'll decide selling $10 taxi rides for $7 isn't something they want to continue funding.
Arguably some have found it beneficial to invest in bonds with negative yields, because then they'd at least know that their money was safe and exactly how much it would cost over a given period.
Can you explain this point a bit more?
If a company was acquired for billions, and they have a contract entitling them to shares of the company, why wouldn’t they have a nice exit?
If a startup issues options to you while the valuation is high (2021-2022, for example) and then the valuation falls, your options could have a negative value.
Follow-on investment rounds could come with liquidation preferences, meaning the most recent investors get paid first. This is commonly 1X, meaning most recent investors get 100% of their money back at minimum (if the money is there) before the remaining money can be paid into the rest of the preference stack. I've seen situations where liquidation preference can be 2X or more. It's also common for liquidation preferences to stack, so you as the employee are at the bottom of a stack of guaranteed payoffs for investors. You only get a share of what's left.
Remember the Eero WiFi routers that everyone loved? Amazon bought Eero for $100 million, but most of the employees ended up with worthless shares. Amazon sweetened the deal by giving the founders multi-million dollar acquisition bonuses, but employees got nothing. There are several stories about it if you want to read more: https://mashable.com/article/amazon-eero-wifi-router-sale
> If a company was acquired for billions, and they have a contract entitling them to shares of the company, why wouldn’t they have a nice exit?
Read the Eero article for a real-world example. Employees had shares, but they were issued at prices as high as $3.54 per share. By the time of acquisition and after all the other issues were sorted out, the shares were only worth $0.03. Exercising those options would have negative value. Employees who exercised early could have actually lost a lot of money on their shares.
Most investors get preferred shares that give them a “liquidation preference” which means they can get the money they put into the company back out (or some multiple of that money) off the top of the purchase price.
If the purchase price of the company isn’t greater than the money VCs put into the company, the common shares are typically worthless.
Sometimes preferred shareholders have to choose “exercise this preference” and then the shares go poof (“non-participating preferred”) and sometimes preferred shareholders can get this preference AND then also become common shareholders alongside everyone else and get to share what’s left after the preference is paid (“participating preferred”)
Common stockholders (including founders) are only entitled to a share of what's left over after investors are paid, as their equity rights are more junior -though often founders/execs will get large bonuses to make the deal happen even if their stock is worthless.
Now all is clear: there is no business model, there is simply a black box where there is less money coming out than there was coming in. It doesnt transform nature (what people call "adding value" or "providing utility") so it can't make money.
That sounds like it could be below-the-belt.
To me this sounds like these firing spirals have zero to do with results and revenue and the economy, and everything to do with conspiring against their own staff.
The diktat to fire people didn't sprung from the same org level that was tasked to do the firing.
Those who ordered X% to be fired didn't even bothered with freezing hiring.
In cases like Amazon, apparently they even forbade internal transfers.
Woefully under-utilized talent before the layoff, followed by a drastic headcount reduction.
Those affected ranged from “yea I can see why” to “complete footgun letting this person go, GG”
For me personally, being free and with time now feels amazing. I no longer feel like my skills are stagnating or my brain is curdling. In retrospect, I think the politics may have screwed me…
You can, of course, hire the same people back (assuming they are still willing to work there).
These arguments always presuppose that the reason companies exist is to keep people employed, and thus 'runway' assumes they can keep doing that is for N years.
But runway is a more or less meaningless piece of information unless you're looking at just a few months and have to close shop soon.
Whether a startup or a publicly traded company, you only invest because you think that runway most certainly ends in a massive reward for you. The claim that "hey we can keep existing for N months!" is not interesting to investors. Even if a startup has 10 years of cash on hand, if they aren't showing the potential for rapid growth, especially when investors are less interested in risk, they're still going to die.
I think the web already solves this problem. That's the larger issue I have with web3, trying to solve a problem that doesn't exist.
Please stop.
I am a little curious, though. I believe they raised something like 250 million a few years ago -- is there really not enough money to make due?
It's a little weird to me sometimes when the infinite wealth holders act like us non infinite wealth holders. Like, does OPEC say, "gosh the economy is tough this year we need to save some money" while sitting on billions of dollars? If Asana, whose Market Cap is $3 billion goes through issues, does their CEO, whose net worth is something like 10 billion, feel okay telling people he needs to lay them off?
Sometimes it feels like companies, like people, sometimes just do the things "companies do" because that's what they feel they're supposed to do.
What am I missing? Both seem to be getting less attention nowadays than they did a few years ago, and while I'd give IPFS that it actually works and seems usable for some things, as you say it doesn't pay the bills.
As far as I can tell, most (if not all) of "web3" is in what I would consider to be the pre-product-market-fit stage. These things have believers, of course, and the believers generate activity. But I'm not seeing a lot of real-world economic activity that could only be solved with "web3" approaches, or even ones where "web3" technologies provide significant cost reductions.
So what signs are there for people who don't go to crypto-church that there are functional businesses here?
What downturn?
I understand Amazon is reporting poor results, but they seem to be mostly due to reporting losses from past investments that didn't panned out yet, like Rivian.
But it's not like each and every tech turn in the world has invested in Rivian.
That would only explain drops in future investments, but we're seeing profitable companies with astronomical revenues from their cash cows diving into a massive firing spiral.
More importantly, growing interest rates is not exactly the definition of a downturn.
I don't think this is true at all. Central banks hike interest rates to limit and reign in inflation. It's the exact opposite of what you claimed.
That does not sound factual at all. Where did you picked that up? According to Variety, Alphabet's revenue on Q4 2022 was $76.05 billion and up 1% in spite of a 8% ad revenue drop.
https://variety.com/2023/digital/news/alphabet-google-q4-202...
Are 1% increases in a massive revenue of $76.05 billion now passed off as bad results?
Honest mistake. Happens to the best of us.
Still, regarding profit, I'm not sure that firing people in profitable companies effectively contributes to higher profits. Sure, you pay fewer salaries. However, that comes at a cost, such as supposedly cutting programs the company deemed valuable and eroding the company's ability to conduct their business.
Also, it seems Google's reaction to drops in profit was to fire 6% of their staff. Does that even register in Google's accounting? I mean, payroll is typically 20-30% of a healthy company's expenditure.
And would a hiring freeze not reach the same goal without causing any disruption? I mean, apparently Google is still hiring and has a large volume of job openings. If the amount of people in their payroll is too much as is then why are they hiring even more?
There are S3/Dropbox-like solutions on top of Filecoin. I’ve not deeply researched the economics of them, but some of them have competitive or better prices
When you look at services using IPFS, be sure to look for hard statements about reliability. One of the recurring weird aspects about IPFS is that people talk like it guarantees durable storage without needing to pay for redundant copies.
Every discussion that I can find about IPFS on Hacker News has revolved around it not being useful.
In March 2020, Filecoin was trading around $185. Today it’s under $6.
I don’t see either of those as extremely successful.
Moreover, I doubt there is enough buyer interest in Filecoin to support funding developer salaries with “Filecoin treasury.” I suspect that any significant sale of Filecoin would tank the coin’s value.
A solution perpetually and eternally locked in search of a problem.
We shall see more of these companies in the crypto sector shedding headcount and inevitably going bust.
If history is any indicator of past bubbles (South Sea Bubble, Tulip Mania, Beanie Babies), it is by fate that this will happen to crypto.
Content-based addressing has already been shoehorned into traditional web architecture (e.g. hashing your dependencies for CDN compatibility), so it’s refreshing to see tech built with it as a first class citizen.
Filecoin definitely seems like more of a moonshot, but compared to e.g. NFT marketplaces, it seems like a web3 project with a lot more substance
This is THE crowning example of why web3 has no usecase even though they have been 'building' and it is 'early days' for almost 15 years.
I don't know anyone using filecoin, but I can bet $100K the person next to me knows or has used ChatGPT.
It failed.
It’s trendy sure, but sparkling autocomplete has a limited number of use cases, and zero shipped products.
Who go so far as to never shut up about it.
And make me sit and watch them fumble with it for minutes in screen sharing codepair sessions as they construct lengthy prose descriptions of trivial code snippets to coerce it into being "helpful".
Even if we go back to other AI projects: (DALL-E, Stable Diffusion, GPT-3, LensaAI, etc) all of these projects have been used by hundreds of millions of real people, in a short space of time.
I have never seen a crypto project with a clear usecase ever go mainstream and we are still waiting for it.
Ethereum is extremely primitive at the moment. You reveal your address, and all of your transactions, to the entire world, when you use it. Scalability of L1 is limited to 30 transactions per second, while L2 is still in beta, with centralized coordinators.
With more development, people can conduct transactions while maintaining total privacy, and the public blockchain can, with the use of temporary data layers (EIP-4444 in Ethereum), sharding and Rollups, process 100,000 transactions per second while maintaining the decentralization, tamper-resistance and permissionless-ness characteristic of blockchains.
Ethereum’s had more time where it’s had global availability at much lower prices but it’s hard far less impact because it doesn’t solve problems almost any people have.
https://futurism.com/the-byte/ukraine-selling-nft-military
And to buy weapons/medical-supplies:
https://twitter.com/nicksvyaznoy/status/1605248783192887298
It's used by artists to make a living:
https://www.cnbc.com/2022/02/02/this-36-year-old-made-over-1...
And it's used to transact with over a hundred billion dollars worth of stablecoins, in countries like Argentina where the currency is unreliable:
https://cryptonews.com/news/stablecoins-lead-charge-as-crypt...
And this is when it's in a primitive state, with very limited scalability, and zero privacy. Once the technology is more developed, to allow something substantially greater than 30 transactions to be processed per second, and to allow people to conduct transactions on the blockchain without revealing their financial assets and activity to the world, it will likely gain more adoption, especially in the realm of stablecoins.
Similarly, the privacy things are both a huge change and something only needed due to having built the system on the wrong architecture. Solving that problem means very expensively reaching the point where its competitors started.
Adding privacy makes transactions on the order of 4X more computationally expensive.
Once Ethereum has EIP-4844 and EIP-4444, such a transaction would cost less than a penny in fees on a Rollup. Stablecoin payments would be substantially better than centralized e-wallet payments for many mainstream use-cases if Ethereum developers pull off these upgrades and if crypto advocates manage to convince the major powers to legalize the zk-proof cryptographic methods needed to provide blockchain transactions with privacy.
We are not in the 1960's anymore, 15 years for something that was made in 2008 and isn't used for its intended use case is not early days at all.
It is a failure.