"There is a Money Grab Going On" Should Startups Apply for Taxpayer-Funded Aid?

Ben Bergman

Ben Bergman is the newsroom's senior finance reporter. Previously he was a senior business reporter and host at KPCC, a senior producer at Gimlet Media, a producer at NPR's Morning Edition, and produced two investigative documentaries for KCET. He has been a frequent on-air contributor to business coverage on NPR and Marketplace and has written for The New York Times and Columbia Journalism Review. Ben was a 2017-2018 Knight-Bagehot Fellow in Economic and Business Journalism at Columbia Business School. In his free time, he enjoys skiing, playing poker, and cheering on The Seattle Seahawks.

"There is a Money Grab Going On" Should Startups Apply for Taxpayer-Funded Aid?

There is still considerable confusion about whether venture-backed startups are eligible to apply for the $349 billion in forgivable loans being furiously doled out by the Small Business Administration. But there's also another more complicated ethical question being debated on social media and within the startup community: Should they apply?

"VC backed companies already have so many advantages over bootstrapped [small businesses]...they don't need another one paid for by taxpayers," tweeted David Jackson, founder and CEO of FullStack Labs, a Sacramento-based software consultancy. "VC's own these companies...time for them to put their money into their companies."

As one might imagine, Jackson's company is not venture funded. But it's not just those on the outside that are posing the question.

"There is a money grab going on right now by some venture-backed startups that this program absolutely should exclude," wrote Albert Wenger, a partner at Union Square Ventures (USV), a New York-based early stage VC firm focused on investing in disruptive networks. "I urge everyone who is running a venture backed company with a lot of money in the bank and limited COVID-19 impact to think twice about applying for PPP. In the end this is obviously a difficult decision but we are in a crisis where true leadership means thinking beyond one's own concerns."

On the one hand, many VC's and startups argue that businesses are businesses and it should not matter how a company is funded. And even if startups get more capital from VC's, companies may very well not use that money to retain employees, which is a requirement for taking the stimulus money.

Those opposed to venture-backed startups getting aid argue that the government is only giving out finite amount of money, so it's unfair for companies with much easier access to capital be taking funds that could go to struggling mom-and-pop businesses. They also argue that since VC's are in the business of funding risky enterprises and reap a big reward when a company does succeed, it is unfair to expect a taxpayer-funded loan with things go south. Some have mocked what they see as startups trying to contort themselves to be eligible for help:

Mark Suster, the most prominent VC in Los Angeles in his capacity as managing partner of Upfront Ventures, has been urging startups to use discretion when applying.

"The PPP is meant for companies under duress," tweeted Suster. "If you're early stage, doing remote development and not really impacted - it's NOT intended for you. Just taking a hand-out of 'public money' intended for people who need it is wrong."

Asked whether he was advising Upfront companies to apply, Suster texted: "I am not advising anybody to apply" and he said he was urging companies to go through a checklist he posted online assessing whether they are in financial trouble, have to lay off employees, and if they qualify.

"It's not 'free money' and should only be taken if truly needed and if you truly qualify," Suster said. "But if you believe it to be the case then apply quickly because it's 'first come, first served.'"

Brian Garrett is co-founder and managing director of CrossCut Ventures.

Courtesy Crosscut Ventures

Brian Garrett, co-founder and managing director of the early-stage fund, CrossCut Ventures, said he is still working through the qualification criteria with his bankers and lawyers but he anticipates most of his portfolio will seek aid.

"We expect that a very large percentage of our companies, and all startups, will apply for PPP loans to protect their teams and their businesses," he said.

The original wording of the Payroll Protection Program, which was part of the $2 trillion stimulus package designed to keep the economy afloat during the coronavirus, included an "affiliation rule" that would require startups to count all the employees of other startups that their VC investor has backed, likely putting many startups over the 500-employee threshold, even if the companies are completely separate.

The National Venture Capital Association, an industry trade group, has lobbied vigorously for a change to the rules. "Startups are as vulnerable as other small businesses to this economic crisis," NVCA President and CEO Bobby Franklin wrote in a letter to the Treasury Department urging new guidelines.

But Jackson, the CEO who opposes venture-backed startups from applying, says the requirements are not an oversight and that if Congress intended to include venture-backed startups, it would have done so. "The intent of the law is clear," he said.

Jackson said when he thinks about companies that should qualify it is the idled cleaning service or window washers with only a few employees that would normally be servicing his offices.

"The cleaning company doesn't have access to investors," said Jackson. "They don't have any other options. In my view, those are companies that this bill is meant to protect."

He has not decided yet whether his company, which is bootstrapped, will apply for aid. But he's concerned by what he sees as venture-backed companies trying to circumvent the affiliate requirements by rewriting their charters.

"It feels a little funny to me," he said. "There are people who deserve the money and people who don't."


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Genies Wants To Help Creators Build ‘Avatar Ecosystems’

Christian Hetrick

Christian Hetrick is dot.LA's Entertainment Tech Reporter. He was formerly a business reporter for the Philadelphia Inquirer and reported on New Jersey politics for the Observer and the Press of Atlantic City.

Genies Wants To Help Creators Build ‘Avatar Ecosystems’

When avatar startup Genies raised $150 million in April, the company released an unusual message to the public: “Farewell.”

The Marina del Rey-based unicorn, which makes cartoon-like avatars for celebrities and aims to “build an avatar for every single person on Earth,” didn’t go under. Rather, Genies announced it would stay quiet for a while to focus on building avatar-creation products.

Genies representatives told dot.LA that the firm is now seeking more creators to try its creation tools for 3D avatars, digital fashion items and virtual experiences. On Thursday, the startup launched a three-week program called DIY Collective, which will mentor and financially support up-and-coming creatives.

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Here's What To Expect At LA Tech Week

Christian Hetrick

Christian Hetrick is dot.LA's Entertainment Tech Reporter. He was formerly a business reporter for the Philadelphia Inquirer and reported on New Jersey politics for the Observer and the Press of Atlantic City.

Here's What To Expect At LA Tech Week

LA Tech Week—a weeklong showcase of the region’s growing startup ecosystem—is coming this August.

The seven-day series of events, from Aug. 15 through Aug. 21, is a chance for the Los Angeles startup community to network, share insights and pitch themselves to investors. It comes a year after hundreds of people gathered for a similar event that allowed the L.A. tech community—often in the shadow of Silicon Valley—to flex its muscles.

From fireside chats with prominent founders to a panel on aerospace, here are some highlights from the roughly 30 events happening during LA Tech Week, including one hosted by dot.LA.

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PCH Driven: Director Jason Wise Talks Wine, Documentaries, and His New Indie Streaming Service SOMMTV

Jamie Williams
­Jamie Williams is the host of the “PCH Driven” podcast, a show about Southern California entrepreneurs, innovators and its driven leaders on their road to success. The series celebrates and reveals the wonders of the human spirit and explores the motivations behind what drives us.
Jason Wise holding wine glass
Image courtesy of Jason Wise

Jason Wise may still consider himself a little kid, but the 33-year-old filmmaker is building an IMDB page that rivals colleagues twice his age.

As the director behind SOMM, SOMM2, SOMM3, and the upcoming SOMM4, Wise has made a career producing award-winning documentary films that peer deep into the wine industry in Southern California and around the world.

On this episode of the PCH Driven podcast, he talks about life growing up in Cleveland as a horrible student, filmmaking, Los Angeles and his latest entrepreneurial endeavor: A streaming service called SOMMTV that features–what else?–documentaries about wine.

The conversation covers some serious ground, but the themes of wine and film work to anchor the discussion, and Wise dispenses bits of sage filmmaking advice.

“With a documentary you can just start filming right now,” he says. “That’s how SOMM came about. I got tossed into that world during the frustration of trying to make a different film, and I just started filming it, because no one could stop me because I was paying for it myself. That’s the thing with docs,” or “The good thing about SOMM is that you can explain it in one sentence: ‘The hardest test in the world is about wine, and you’ve never heard about it.’”

…Or at least maybe you hadn’t before he made his first film. Now with three SOMM documentaries under his belt, Wise is nearing completion of “SOMM4: Cup of Salvation,” which examines the history of wine’s relationship with religion. Wise says it’s “a wild film,” that spans multiple countries, the Vatican and even an active warzone. As he puts it, the idea is to show that “wine is about every subject,” rather than “every subject is about wine.”

For Wise, the transition to launching his own streaming service came out of his frustration with existing platforms holding too much power over the value of the content he produces.

“Do we want Netflix to tell us what our projects are worth or do we want the audience to do that?” he asks.

But unlike giants in the space, SOMMTV has adopted a gradual approach of just adding small bits of content as they develop. Without the need to license 500 or 1,000 hours of programming, Wise has been able to basically bootstrap SOMMTV and provide short form content and other more experimental offerings that typically get passed over by the Hulus and Disneys of the world.

So far, he says, the experiment is working, and now Wise is looking to raise some serious capital to keep up with the voracious appetites of his subscribers.

“Send those VCs my way,” Wise jokes.

Subscribe to PCH Driven on Apple, Stitcher, Spotify, iHeart, Google or wherever you get your podcasts.

dot.LA reporter David Shultz contributed to this report.