Which Startups Qualify For Emergency Federal Assistance? It May Depend on Their Investors
Baffled by the restrictions and sensing a race against the clock until they run out of cash or the program does, small businesses are scrambling to apply for government-backed loans to keep their companies afloat.
The requirements are especially confusing for venture-backed companies, many of which could be excluded from help under the original working of the $2 trillion stimulus package signed into law last week in response to the Covid-19 pandemic.
"The stress of this is just tremendous because the money will be gone in a flash," said the owner of a company in downtown L.A. who preferred to remain anonymous because he did not want to alarm his employees. "No one knows what the rules are and this could mean the difference in my firm having to lay people off and not."
Friday is the first day businesses with fewer than 500 employees can apply for loans of up to $10 million under the Small Business Administration's Paycheck Protection Program.
Anxious startup founders received the news they were hoping to hear Thursday when House Minority Leader Kevin McCarthy (R-Calif.) told Axios it was his expectation that the Treasury Department would issue new guidance in the next "day or two" that makes startups eligible for relief.
"I just got off the phone with Treasury Secretary Mnuchin and this is going to be solved," McCarthy said.
But lawyers following the daily twists and turns of interpreting the hastily written legislation say it is too early for startups to breathe a sigh of relief.
"This remains an extremely fluid situation with new information being released daily," said Michael Avent, a partner at Perkins Coie LLP. "It is my hope that we will have clarity on these issues before the SBA begins accepting applications, but that is far from certain at the moment."
Startup founders are eager for a resolution, worrying if they act too soon the rules won't be solidified and if they wait the program, or their business, might run out of money.
"I'm hopeful we will qualify but I'm not counting on it," said Sofya Polyakov, CEO & Co-Founder of the Noun Project. "I'm in daily communication with our legal team but there's still not enough clarity on whether we would qualify."
The uncertainty stems from 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 hard part is you have to look at affiliates and what it means to be an affiliate," said Avent.
In general, he said companies with a long roster of angel investors will have an easier time qualifying, which are usually early-stage startups. But Avent cautioned, "there are certainly companies that are very young and received venture funding at a very early stage," which could be problematic.
"The less likely that you have one investor that exercises control the better your chances of escaping affiliation," he added.
Another issue, especially for startups in expensive cities like Los Angeles, is that salaries are only covered up to $100,000, which leaves out most tech workers.
Christine Outram, CEO of Everydae, a seed stage digital tutor for high school students, estimates that the payroll protection would only cover two of her six employees.
"I don't want to lay anyone off, " said Outram. "I want to pay people."
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Snap shares soared after CEO Evan Spiegel touted the company's highest Q3 growth rate since 2017. The outspoken executive used Tuesday's earnings call to highlight the social media platform's efforts to engage users "following the murders of George Floyd, Ahmaud Arbery and Breonna Taylor."
The upbeat earnings report sent its stock soaring 20% in after-hours trading.
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VENN leveled up in its quest to become the 24/7 streaming network for gaming on Tuesday, announcing it has closed a $26 million Series A financing round. The Playa Vista-based company has also turbocharged its leadership and distribution network.
The Videogame Entertainment and News Network launched in August with $17 million in seed funding. That round was led by Bay Area gaming fund BITKRAFT, which also co-led the Series A — this time with Nexstar Media Group, a NASDAQ-listed telecoms company headquartered in Irving, Texas.
- L.A.-based Genies is expanding beyond creating and managing avatars for celebrities; consumers can now create their own avatars on partner platforms that use Genies' software development kit.
- Initial partners are Gucci and Giphy, with more expected in the coming months.
- Genies' pivot is an effort to capitalize on the 'digital goods economy' and the ascendance of the metaverse.
Justin Bieber made Crocs cool again earlier this month, when he partnered with the footwear company, known more for function than fashion, to release a limited edition pair that reportedly sold out in 90 minutes.
Imagine now that those shoes were meant to be worn not on human feet, but on the pixels of a consumer's digital avatar.
This is the vision of L.A.-based Genies, which announced Tuesday it is now integrating its avatar-creation technology into other companies' digital platforms via an updated software development kit (SDK).
Genies CEO Akash Nigam.
Courtesy of Genies
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