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Prediction: LA's Startup Shakeout Will Continue Into 2023, Setting Survivors Up for Long-Term Success
Spencer Rascoff
Spencer Rascoff serves as executive chairman of dot.LA. He is an entrepreneur and company leader who co-founded Zillow, Hotwire, dot.LA, Pacaso and Supernova, and who served as Zillow's CEO for a decade. During Spencer's time as CEO, Zillow won dozens of "best places to work" awards as it grew to over 4,500 employees, $3 billion in revenue, and $10 billion in market capitalization. Prior to Zillow, Spencer co-founded and was VP Corporate Development of Hotwire, which was sold to Expedia for $685 million in 2003. Through his startup studio and venture capital firm, 75 & Sunny, Spencer is an active angel investor in over 100 companies and is incubating several more.
For years, the VC funding environment in Los Angeles and beyond has defied the laws of gravity. When it came to tech expansion, the unofficial ethos seemed to be: what goes up must stay up. But recent forces have conspired to paint a much different picture than we’re used to seeing, and the effects are being felt at every stage of the startup ecosystem.
My prediction: while the future funding forecast looks bleak and will stay that way for a while, it’s not without its bright spots, especially for those who are in it for the long run.
The Fed Effect
Here’s where it started: In the public equity markets, the tide began to turn as the Fed started raising interest rates in order to tame inflation. This jumpstarted a risk-off mentality, which happens when there’s increased uncertainty, even pessimism, about the economic outlook. Higher discount rates due to higher interest rates lead to growth stocks trading down.
It’s been a dazzling display of volatility. Market-wide, we’ve seen high-growth tech stocks decline significantly in the past six months— many tech stocks are down 50%-plus in the last year. 2022 was rough.
On the extreme end, Carvana shares have dropped 97%. Shopify stock is down 80% in 2022 and even Amazon, which to-date has seemed relatively bulletproof, lost more than 40% of its value since January 1. These are good examples of not only the problem at hand, but also the opportunity.
Crossover investors—those who do both public and private market investing—suddenly see public market opportunities again. They can now buy high-quality liquid assets in public markets at historically low multiples.
That’s the exact opposite of a few years ago when public equities were valued very highly. Then, crossover investors simply couldn’t find great returns in public markets, and chose instead to fish upstream into the private market investing tide pool to find viable prospects. That helped fuel the expansive L.A. (and elsewhere) startup success we’ve known to-date.
Stock-Induced Gridlock
Now that crossover investors have returned more to the public markets (or have stayed on the sidelines), and more traditional growth investors see a more difficult path for their companies to IPO, the local venture landscape has changed. Late-stage funding opportunities and the IPO markets have essentially shut down. Most companies that raised money at high valuations can’t go back because they can’t command such a high price in the public markets.
A year or two ago, it was typical to see a $5 million seed round at a $25 million valuation. Today, that’s an incredibly difficult hurdle to jump. I see numbers closer to $2 to $3 million at $10 to $15 million valuations, and even that feels like a significant success.
This is where the gridlock begins. This scenario forces late-stage private companies into a pretty undesirable corner. They essentially have two options: A) raise a flat or down round or B) cut expenses and extend runway. While neither are ideal, most companies who can are choosing the lesser of two business evils: option B.
This means that the majority of growth-stage companies raising now are only doing so because they’ve run out of cash and will shut down without additional funding. This reinforces the prevalence of down rounds in the market.
And at the end of the line? IPOs, the final step, simply aren't happening right now. It’s gridlock from start to finish.
Ripples, Then Rebound
One of the biggest implications of these market shifts is that not only do companies have less capital, but also less access to future capital. These days, cutting costs is tantamount to survival, and though necessary, it’s having a ripple effect throughout the tech industry. Hiring has slowed. Marketing expenditure has decreased. Expenditures overall are down. On top of these startup trends, consider the major layoffs happening at Meta, Snapchat and other large- and small-scale players, and it’s hard to see anything but a grim outlook ahead.
But my perspective: the long view isn’t all bad. Because companies are taking this chance to focus on unit profitability and sustainable growth, they’re setting themselves up for future success.
The L.A. market is particularly poised to weather this storm, in large part because it’s a hub for sectors that are standing strong mid-downturn.
Clean tech, a catchall name for everything from green energy to sustainable building materials to electric cars, is booming, and L.A. is benefiting. One of the pioneers of the space, Rivian, is based just outside L.A. in Irvine, and companies like Universal Hydrogen, Loop and EVGo are all based in the area.
The defense tech and aerospace industries are also on the uptick, and L.A. is home to some of the most innovative startups in those verticals. Take for instance Apex Space, a Culver City-based startup dedicated to producing better spacecraft at scale, and Relativity Space, which is building the first autonomous rocket factory and launch services for satellites. One of the largest venture rounds of the year was just announced for Anduril, a tech-enabled defense contractor based in Costa Mesa. SpaceX, one of the most highly valued private companies, is based in Hawthorne and continues to thrive. (Disclosure: my venture fund, 75 & Sunny Ventures, is an investor in Apex, Relativity and SpaceX.)
Mega rounds for powerhouse companies like Anduril and SpaceX during this down market have meant that, in contrast to most of the country, late-stage funding in L.A. has actually increased relative to early-stage funding. Still, early-stage startups in L.A. continue to thrive. In terms of deal count, seed and early-stage investments make up 75% of L.A.’s venture rounds, driving the flywheel that has made L.A. tech so dynamic over the past few years.
If you hated the last few months, as I have, remember that this too shall pass. The Fed will slow and eventually halt rate rises, and I’d bet the halt will be followed by rate declines (in late 2023?). My prediction: by late 2023 or 2024, the funding market will improve and the weather will turn. Maybe we won’t get completely back to “75 and Sunny” for a while, but the gruesome second half of 2022, which will continue in 2023, will subside late next year. 2023 will be a lost year, a year in which startups should focus on surviving not thriving. Those that make it to the other side of this downturn, like those which survived the 2008 and 2000 downturns, will become long-term winners and be stronger for having weathered this storm.
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Spencer Rascoff
Spencer Rascoff serves as executive chairman of dot.LA. He is an entrepreneur and company leader who co-founded Zillow, Hotwire, dot.LA, Pacaso and Supernova, and who served as Zillow's CEO for a decade. During Spencer's time as CEO, Zillow won dozens of "best places to work" awards as it grew to over 4,500 employees, $3 billion in revenue, and $10 billion in market capitalization. Prior to Zillow, Spencer co-founded and was VP Corporate Development of Hotwire, which was sold to Expedia for $685 million in 2003. Through his startup studio and venture capital firm, 75 & Sunny, Spencer is an active angel investor in over 100 companies and is incubating several more.
https://twitter.com/spencerrascoff
https://www.linkedin.com/in/spencerrascoff/
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🤫 The Secret to Staying Fit at Your Desk: 6 Essential Under-Desk Exercise Machines
06:26 PM | July 24, 2024
Health experts are sounding the alarm: our sedentary jobs are slowly killing us, yet we can't abandon our desks if we want to keep the lights on. It feels like we're caught between a rock and a hard place. Enter under-desk exercise machines – the overlooked heroes (albeit kind of goofy looking) of the modern workspace. These devices let tech professionals stay active, enhance their health, and increase their productivity, all without stepping away from their screens. Here are 6 fantastic options that will enhance the way you work and workout simultaneously.
DeskCycle Under Desk Bike Pedal Exerciser
This bike has nearly ten thousand five-star reviews on amazon. It works with nearly any desk/chair setup. It is quiet, sturdy and allows up to 40 pounds of resistance. If you are looking for an under-desk bike this is a fantastic option.
Type: Under-Desk Bike
Price: $180 - $200Sunny Health & Fitness Dual Function Under Desk Pedal Exerciser
This under-desk bike is extremely quiet due to the magnetic resistance making it an ideal option if you work in a shared space. It doesn’t slip, has eight levels of resistance, and the option to work legs and arms. It’s about half the price of the DeskCycle bike making it a solid mid-range option for those looking to increase their daily activity.
Type: Under-Desk Bike
Price: $100 - $110Sunny Health & Fitness Sitting Under Desk Elliptical
This under-desk elliptical comes in multiple colors if you really want to underscore that you are a quirky individual, in case an under-desk elliptical isn’t enough. This model is a bit heavy (very sturdy), has eight different resistance levels, and has more than nine thousand 5-star reviews.
Type: Under-Desk Elliptical
Price: $120 - $230
DeskCycle Ellipse Leg Exerciser
This under-desk elliptical is another great option. It is a bit pricey but it’s quiet, well-made and has eight resistance levels. It also syncs with your apple watch or fitbit which is a very large perk for those office-wide “step” challenges. Get ready to win.
Type: Under-Desk Elliptical
Price: $220 - $230Daeyegim Quiet LED Remote Treadmill
If you have a standing desk and are looking to walk and work this is a fantastic option. This walking-only treadmill allows you to walk between 0.5 to 5 mph (or jog unless you have the stride length of an NBA forward). It is very quiet, which is perfect if you want to use it near others or during a meeting. You can’t change the incline or fold it in half but it is great for simply getting in some extra steps during the work day.
Type: Under-Desk Treadmill
Price: $220 - $230Sunny Health & Fitness Foldable Manual Treadmill
This under-desk treadmill isn’t the most premium model but it is affordable and has an impressive array of features. It is a manual treadmill meaning it doesn’t need to be plugged in; it is foldable and offers an incline up to 13%. I personally can’t imagine working and walking up a 13% incline but if that sounds like your cup of tea, then I truly respect the hustle.
Type: Under-Desk Treadmill
Price: $150 - $200Read moreShow less
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