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Venture Deals in LA Are Slowing Down, And Other Takeaways From Our Quarterly VC Survey
It looks like venture deals are stagnating in Los Angeles.
That’s according to dot.LA’s most recent quarterly VC sentiment survey, in which we asked L.A.-based venture capitalists for their take on the current state of the market. This time, roughly 83% of respondents reported that the number of deals they made in L.A. either stayed the same or declined in the first quarter of 2022 (58% said they stayed the same compared to the fourth quarter of 2021, while 25% said they decreased).
That’s not hugely surprising given the sluggish dynamics gripping the venture capital world at large these days, due to macroeconomic factors including the ongoing stock market correction, inflation and Russia’s invasion of Ukraine. While startups and VC investors haven’t been hit as hard as public companies, it looks like the ripple effects are beginning to bleed into the private capital markets.
Image courtesy of Hagan Blount
In addition to slowing deal volumes, most investors said they’re seeing startup valuations lose momentum, as well: Roughly 81% said valuations either stayed the same or decreased from the previous quarter, with nearly 39% noting a decline.
Should that sentiment continue moving forward, it could spell bad news for startups as far as raising the money they need for growth, investors said.
“If I was a startup right now, I would be making sure I have plenty of runway,” said Krisztina ‘Z’ Holly, a venture partner at Good Growth Capital. “When it looks like there's some potential challenges ahead in the market, it’s good to fill your war chest.”
Among VC respondents, about 86% said they believed that valuations in the first quarter were too high—one potential reason why deals slowed down in the first quarter, according to TenOneTen Ventures partner Minnie Ingersoll. She noted that L.A.’s growing startup scene features more early-stage ventures, whose valuations haven’t come down the way later-stage startup valuations have.
“I would say we are just more cautious about taking meetings where the valuations are at pre-correction levels,” Ingersoll said. “We didn’t take meetings because their valuations weren’t in line with where we thought the market was.”
While most respondents said the Russia-Ukraine war didn’t have much impact on their investment strategies, some 22% said it did have an effect—with one VC noting they had to pass on a deal in Russia that they liked.
Is There a Flight Out of Los Angeles?
Los Angeles was heralded as the third-largest startup ecosystem in the U.S. at the beginning of the year, behind only San Francisco and New York. Yet nearly one-third (31%) of VC respondents said that at least one of their portfolio companies had left L.A. within the past year. It won’t come as a huge surprise that the city of Austin, Texas has been one of the prime beneficiaries of this shift—with roughly half of those who reported that a portfolio company had left L.A. identifying Austin as the destination.
The tech industry’s much-hyped “exodus” from California has been widely reported on, especially as more companies have embraced the work-from-home lifestyle and also opted to move their operations to lower-cost cities and states. Most notably, Elon Musk has recently moved two of his companies, electric automaker Tesla and tunnel infrastructure startup The Boring Company, from California to Texas (with both of those firms moving in and around Austin).
“In today's competitive market with lots of capital to invest, we think the next generation of successful VCs are going to be diverse in markets (not just Silicon Valley)... [and] have access to undiscovered founders from everywhere,” said one survey respondent.
NFTs Aren’t Popular With VCs—But Web 3 Is
“It’s the future,” according to one respondent. “Buckle up and get on board.”
Are NFTs...
More than 71% of VC survey respondents said they were bullish on Web3—the new blockchain-enabled iteration of the internet, which promises decentralization and a whole range of applications involving cryptocurrencies, NFTs, DeFi and more. It’s the same sentiment informing Santa Monica-based VC firm M13’s new $400 million fund, which considers Web3 a core piece of its investment thesis.
In Q2 2022, do you expect your portfolio companies to:
L.A. is home to an ever-growing cadre of Web3-focused startups operating across the realms of finance, entertainment and other industries. But while local investors are willing to pour money into blockchain-related ventures, one segment of the space continues to evoke skepticism: Only 18% of respondents would describe NFTs as “a good investment,” while 33% thought they were “bad” investments and 39% said they were unsure.
As in our last survey several months ago, it appears that NFTs continue to divide opinion, with respondents expressing differing perspectives on their value and utility. One referred to them as “get rich quick schemes,” but added that the art pieces and social communities that emerge from them may be valuable. Another said that “NFTs as a digital medium are a legitimate thing”—but noted the vast majority are “awful investments with no intrinsic value.”
Graphics courtesy of Hagan Blount.
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Sebastian Miño-Bucheli
What Data Does Snapchat Collect?
Snapchat, their primary application, collects a myriad of data on its roughly 363 million daily active users, from basics like device information to detailed location tracking. "From day one, we’ve embraced data minimization, and believed that the best way to protect user privacy is to not store data at all, and if we do have to store it, to do so for a short and fixed period of time," Snap spokesman Pete Boogaard told dot.LA.
As such, like most tech companies’ privacy policies and terms of service, the verbiage is intentionally vague or full of legalese designed to make the user gloss over and click “agree.” But Snapchat does have to provide its users some details of how it collects, stores, and uses the data it gains from interacting with the app.
Bill Budington, a senior staff technologist at the Electronic Frontier Foundation, told dot.LA that the common phrase, “necessary to provide service,” is particularly concerning.
“These are very vague ways to basically give a green light to very permissive practices in terms of your data,” Budington explained. He pointed out the ambiguous nature of the word “necessary,” adding, “[tech companies] can deem all sorts of things necessary, [including] using your location at every moment to better tailor their services to your life.”
While Snapchat’s terms of service haven’t changed since last November, the company most recently updated its privacy policy on July 29. Let’s dive into the various types of data Snapchat collects, how it stores it (and for how long), and perhaps most importantly, how Snapchat says it’s used.
Why Does Snapchat Collect Your Location Data?
Snapchat is very invested in collecting users’ precise location data, if users allow it. Its Snap Maps feature launched in 2017 lets users opt-in to showing their Bitmoji avatar on a map corresponding to their location and also allows them to track other friends who have opted in. It’s not dissimilar to Apple’s FindMy app.
In the past, the feature has raised concerns for its ability to make it easier for bullies and stalkers to find targets. Snap Map location, however, isn’t public information. Snapchat says location on Snap Maps will disappear after 24 hours, or when a user deliberately goes into “ghost mode” to hide from friends – but that doesn’t mean the app still isn’t tracking their movements. The company noted that unless you opt-in to live location sharing, the Snap Map won’t update with your location when you’re not actively using it.
Boogaard told dot.LA that while many of Snapchat’s core features do require location tracking, “location-sharing is off by default for all users” and “Snapchatters have complete control over their location sharing.” Snapchat added that there is no option to share your location with any user you aren’t friends with and that users have to individually select friends to share their location with.
Snapchat clarified that it does use location data to provide its Geofilters – custom photo and video filters often themed around specific places or events – and show people what’s nearby (also useful for ad purposes).
“We don’t share personal data about the users of the Snapchat app with data analytics providers,” Boogaard said.
Snapchat employees can also allegedly access all this information, and more – in 2019 Motherboard reported on a tool called SnapLion that it claimed was abused by employees to “spy on users.” In response to the report, Boogaard told dot.LA, “Any perception that employees might be spying on our community is highly troubling, and wholly inaccurate." Boogaard added, "Protecting privacy is paramount at Snap. We keep very little user data, and we have robust policies and controls to limit internal access to the data we do have, including data within tools designed to support law enforcement. Unauthorized access of any kind is a clear violation of the company's standards of business conduct and, if detected, results in immediate termination."
How Does Snapchat Use Your Content?
Snapchat can see the snaps you send, who is receiving them, and how often you’re online, as well as the metadata in each image.
Snapchat’s Streak feature (which tracks how long you and friends have regularly been sending and opening each other’s content) is one reason why the app also collects data on how often you and your friends open messages or capture screenshots.
It also tracks and scans the content users upload to its Memories feature. This is to train its AI to recognize the content of user images. In its privacy policy Snapchat notes that “if there’s a dog in your photo, it may be searchable in Memories by the term ‘dog,’” as part of its goal to make image search more accessible.
Snap’s policy also dictates that any public content a user generates on Snapchat is also fair game for the company to share though it doesn’t say how it will share this content.
What Data Does Snapchat Collect From Accessing Your Camera?
Besides the typical use for taking pictures, Snapchat can also access information from Apple’s TrueDepth camera – the front-facing, high-powered cameras that Apple’s iPhone X uses to record Face ID and Memoji data.
Snapchat says it uses this data “to improve the quality of Lenses”—its filter and augmented reality feature. But it also said it doesn’t collect biometric information, much less store the data on its servers or give it to any third parties.
Still, that’s a practice that’s come under scrutiny recently. In August, Snap was sued, accused of violating Illinois’ Biometric Information Privacy Act by collecting and storing users’ biometric data without their consent. That $35 million case is expected to head to settlement next week, after a judge couldn’t rule in favor of either party. "Snap continues to vehemently deny that Lenses violate BIPA, which was designed to require notice and consent before collecting biometric information used to identify people," Boogaard told dot.LA.
How Does Snapchat Use Your Data?
Now that we know all the information Snapchat collects, what is the company doing with it?
The main use case is advertising. Snapchat has a myriad of advertisers on its platform and they are all eager to turn users into sales by showing them the most relevant ads. Ad pricing starts at a modest $5 per day, so theoretically anyone with a marketing budget and the right connections could use Snap’s tools to market to its growing audience of Gen Z and Millennials.
Snapchat promises advertisers “advanced targeting capabilities,” and the benefit of finding a target audience using its location, demographics, interest and device data.
But who’s getting this information? That’s where things get vague. Snapchat doesn’t have to tell users specifically which companies are getting access to their data. The company notes it may share information with service providers that it contracts for services like ad analytics or payments. The company also says it might share user information with “business partners that provide services and functionality” for Snapchat, but again, doesn’t elaborate any further.
Snapchat also says it will share information about users if it could help “detect and resolve any fraud or security concerns, comply with any investigations, legal processes or regulations and to investigate potential terms of service violations.”
Snapchat doesn’t have to tell users when it turns over this data, though. In fact, most apps don’t.
How Does Snapchat Store Your Data?
Snap’s Support site notes Snapchat servers are designed to delete all Snaps automatically after they’ve been viewed by every recipient; the app’s trademark fleeting quality. The servers will delete unopened Snaps between two people after 31 days, and unopened Snaps sent to a group chat after 7 days. Snaps sent to your story are wiped from the servers 24 hours after posting.
Snapchat also says that when you delete a Snap in chat, it deletes it from its servers and will “make our best attempt” to wipe it from your friends’ devices.
If you post a Snap to Memories, though, Snapchat’s servers will back them up forever – unless you delete them, in which case they’ll be erased ASAP.
So what’s the safest way to protect your personal information on Snapchat? Well, Budington recommends an easy fix: simply don’t use it. But for people who are determined to keep their account but want to access what Snapchat collects, there are ways to download your Snapchat data.
You can also opt-out of audience and activity-based ads and third-party ad networks. This will mean the ads on your Snapchat will be less relevant, but the trade-off is that the app will use less of your personal data for marketing purposes.Snap is an investor in dot.LA.
Correction: An earlier version of this article incorrectly described Snap Map's location tracking feature. The feature needs to be enabled first, and Snapchat offers the ability to turn off the feature in Map settings.
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