Have we reached the tipping point?

Limited partners or  LPs  — the pension funds, the university endowments, the family offices that largely provide venture firms with their spending money — are receiving a lot of attention from venture capitalists, some of it unwanted. VCs have begun knocking down their doors with requests for fresh capital commitments so they’ll have money to invest if the market cools down.

The problem is, many of these LPs are already over-allocated. LPs traditionally invest in many asset classes, such as public equities, and they allocate a small percentage of their portfolio to venture capital. Suddenly, they’re finding they’ve forked over more than they’d intended to VCs.

There are several reasons for this situation. First, VCs are returning to them ever faster for more capital  — sometimes in less than two years’ time  — because they are in vesting at such a furious pace.

Compounding the problem, not all LPs have received returns from their VC investments that they can recycle into new venture capital allocations. In some cases, this capital is still tied up in startups that are raising much more money than in the past and staying private longer. “We have some large exposures to blue chip names where IPOs have been rumored to be coming for a long time already, and now it’s maybe 2021, maybe 2022,” says one endowment manager who asked not to be named. In other cases where startups have gone public, falling prices have prompted VCs to hang on to their shares instead of distribute them.

The result is that LPs are having to cut back on the number of managers they can fund, and that could mean bad news for venture capitalists and startups alike. These LPs don’t have much choice. As the LP explains it, “We have a pretty structured allocation process, and we’re really trying to be creative,” she says. One venture manager who reappeared too quickly for more money was  “easy to walk away from,” says this person. “Others, we’re having to do financial backflips for them to remain strong partners.”

Either way, this LP adds, “We can’t add any new relationships right now,” meaning new venture teams in particular are out of luck. “When [VCs] shorten their fundraising cycle by nine months to a year, you can only squeeze the balloon so much.”

Backing up the truck

SoftBank’s $100 billion “Vision Fund” is one big reason LPs find themselves in their current predicament. From the moment SoftBank began waving money around several years ago, it launched a vicious cycle.  According to Chris Douvos, whose investment firm, Ahoy Capital, owns stakes in such venture funds as True Ventures and First Round Capital, “When Andreessen Horowitz hit the scene a decade ago, they changed the tempo of investing and everyone got more aggressive in their dealmaking as a response. Then SoftBank entered the picture in a big way, and it was like a16z on steroids.”

In order to compete with SoftBank’s money cannon, other funds supersized their own investment vehicles, and startup valuations soared. Uber and WeWork were prime examples. Uber went public, pricing below expectations, and its shares have been falling ever since. WeWork and its unconventional S-1 filing never made it past the starting gate.

Competitors are enjoying some schadenfreude: they can’t help but delight in SoftBank’s pain. But WeWork’s slow-motion implosion comes at an uncertain moment in time. If a second massive Vision Fund doesn’t come together — and that seems more than likely at this point — it would mean a sharp drop-off in startup funding. That alone might be fine. It might even be healthy for the ecosystem. But the world is also grappling with a U.S. administration that appears increasingly unhinged. More, a recession that seemed far away as recently as early July but could be around the corner.

Collectively, these elements could change the picture dramatically for LPs. Specifically, if LPs aren’t getting enough money back from VCs and their public holdings fall in value because the markets hit the skids, their commitments to venture funds could become even larger as a percentage basis of their overall portfolio. That would create even more imbalance in their asset allocation. Which would mean even less money for new funds. Which would translate into less money for startups. 

It’s a vicious cycle of another kind, in short.

Maybe it won’t happen. We aren’t there yet. But VCs of all sizes would be wise to take a lesson from their entrepreneurs and perfect their pitches. As is becoming clear, LPs can’t dole out capital at the same pace forever, especially without more money coming back to them. If VCs want to continue raising new funds, or raising funds as fast, they’d better have a very good story to tell.

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WeWork confirms an up to $8 billion lifeline from SoftBank Group; names new executive chairman

Confirming earlier reports, The We Company and SoftBank Group agreed to a new capital infusion which will see SoftBank committing $5 billion in new financing and issuing a tender offer for another $3 billion in buybacks for shareholders.

The company also said it would accelerate an existing commitment to put $1.5 billion into the short-term real estate rental company.

Under the specific terms of the deal, WeWork will receive $1.5 billion committed from SoftBank’s April 2020 cash infusion into the company at $11.60 per share. With that money expected to come in seven days after the deal is signed (subject to shareholder approval).

There’s also the tender offer for up to $3 billion worth of non-SoftBank owned shares at a price of $19.19 per share, which will begin in the fourth quarter of this year, with closing subject to regulatory approvals.

Finally there’s a joint venture share swap where all of SoftBank Vision Fund’s interests in regional joint ventures outside of Japan will be exchanged for WeWork shares at a price of $11.60 per share’ and a debt facility consisting of $1.1 billion in senior secured notes, $2.2 billion in unsecured notes, and a $1.75 billion letter of credit facility, which will occur after the tender offer is completed.

After the closing and the tender offer, SoftBank will own approximately 80 percent of the We Company, according to a statement.

But SoftBank will not actually will not hold a majority of voting rights at any stockholder or board of directors meeting,  thanks to WeWork’s convoluted ownership structure. Therefore, even with its 80 percent stake in the business, WeWork isn’t a subsidiary, but an “associate” of SoftBank.

As part of the agreement, the company confirmed that Adam Neumann will become a board observer and Marcelo Claure, the chief operating officer of SoftBank Group will assume the position of executive chairman of the board of directors of WeWork — as soon as the company receives its $1.5 billion payment from SoftBank.

“SoftBank is a firm believer that the world is undergoing a massive transformation in the way people work. WeWork is at the forefront of this revolution. It is not unusual for the world’s leading technology disruptors to experience growth challenges as the one WeWork just faced,” said Masayoshi Son, chairman and chief executive of SoftBank Group Corp, in a statement. “Since the vision remains unchanged, SoftBank has decided to double down on the company by providing a significant capital infusion and operational support. We remain committed to WeWork, its employees, its member customers and landlords.” 

The vision may remain unchanged, but the story that SoftBank will have to tell about its new “associate”. Under Neumann’s stewardship,  We Company was a cash-burning, globe-spanning, all-encompassing community developer that would usher in a new kind of capitalism, operating under the banner of “We”.

Now, the company is more like a struggling purveyor of temporary office space, which has a mountain of leases it owns and is looking down the barrel of a potential cash crunch — even with the SoftBank lifeline. 

Still, SoftBank’s executives and WeWork’s new leadership are standing by their rhetoric for what the company is… and can be.

“WeWork is redefining the nature of work by creating meaningful experiences through integrating design, technology and community. The new capital SoftBank is providing will restore momentum to the company and I am committed to delivering profitability and positive free cash flow,” said Claure in a statement. “As important as the financial implications, this investment demonstrates our confidence in WeWork and its ability to continue to lead in disrupting the commercial real estate market by delivering flexible, collaborative and productive work environments to our customers.”

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Salesforce Ventures’s John Somorjai warns N.C.’s politics could dampen its tech hub potential

North Carolina has been rising as an entrepreneurial hub. It’s now home to massive deals, like IBM buying Red Hat for $34 billion and Fortnite maker Epic Games raising a landmark $1.25 billion, both which helped to put the state — and the Triangle region, in particular — on the map. And now it’s just minted another unicorn with Pendo’s last fundraise. But its tech hub potential can still be threatened by the state’s political swings, said Salesforce Ventures head John Somorjai, who spoke today at a tech event in Durham.

On a panel at Bull City Venture Partners’ Entrepreneurs’ Series 2019, Somorjai reminded the audience that investment in the state follows the talent. And a state can’t attract talent when it’s not “welcoming to all people,” he said.

North Carolina has had a difficult history on this front, if you recall.

In 2016, PayPal canceled plans to open a global operations center in Charlotte after N.C. passed the controversial (“bathroom bill”) law that prevented cities from creating non-discrimination policies based on gender identity. The state lost 400 potential jobs, as a result. Over 100 other companies, including Apple, Google, Twitter, Facebook, eBay, Uber, and others also asked the state to repeal the law after its passing.

N.C. eventually revised the law, then reached a settlement this summer that allows transgender people to use certain bathrooms matching their gender identity. But in some cases, it was too late to woo the tech companies back.

These sorts of issues have a broader effect on the state’s ability to attract tech and business investment at a time when investors are often now looking outside the Valley (and its obscene valuations) to find companies that are more focused on profitability.

Image from iOS 6

Salesforce Ventures, a strategic investor who keeps its stake below 15%, isn’t hesitant to fund companies beyond Silicon Valley — it has five investments in N.C. and 15 overall in the larger region, for example. And 75% of its investments were made outside of California, Somorjai noted.

But when asked what North Carolina’s biggest challenge was, in terms of becoming home to a startup community, he alluded to the state’s politics and its divisive laws.

“Before the last election, there was an environment here that wasn’t really welcoming to all people,” Somorjai said. “One of [Salesforce’s] core tenants — our core values — is equality. And there’s really sound business sense behind that,” he explained. “If you have discriminatory policies, people don’t feel welcome. If they don’t feel welcome, they’re not going to want to work there. And you will never be able to attract the best talent.”

“Money flows to where the talent is,” he added.

He also suggested to the event’s audience — a group of some 450 entrepreneurs and hundreds more working in the area’s startup ecosystem — that local community leaders should remain vigilant about these sorts of problems.

“If you’re complacent, it can happen again,” he added.

Despite the concerns, Somorjai was generally positive about the ability for strong startups to arise in N.C. Salesforce Ventures itself invested in two N.C. area unicorns — Pendo and nCino — and it just acquired Charlotte-based MapAnything, which gives it some 200 new employees in the Tar Heel state. Elsewhere in N.C., startups AvidXchange, Red Ventures, and Tresata all have unicorn valuations.

“One thing we’ve been so excited about is — you have these tremendous universities that are putting out great engineers every year. And you have a growing group of investors that are investing in this area. There’s also now so much talent here that you’re attracting investors from all over the country,” he told the audience. “I think that’s great.”

Image credit, top: SeanPavonePhoto/Getty Images

 

 

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Verizon is giving its customers 12 free months of Disney+

On November 12 Verizon will begin offering 12 months of Disney+ to all of its new and existing 4gLTE and 5G unlimited wireless customers, the companies said today in a joint statement.

It’s a great way for Disney to juice its early subscriber numbers and for Verizon to add a tantalizing perk as competition heats up for both streaming media companies and telecoms whose media strategy still seems a little… muddled.

While Comcast and AT&T each have their own successful media properties, Verizon (which owns Verizon Media Group, which owns TechCrunch) has seen its fortunes in the media landscape wane as much of the investment thesis behind buying Aol… then Yahoo… then merging them into Oath… then rebranding them as Verizon Media Group… fizzled.

Tying itself to Disney+ — even just promotionally — makes good business sense.

Through the agreement Verizon customers get access to everything Disney+ has to offer, including the highly anticipated Star Wars television series, “The Mandalorian” and another 25 original films and documentaries. Watch the over three hour-long teaser trailer below for an exhaustive look at every. single. Disney. piece. of. content. coming. to. the. service.

 

“Giving Verizon customers an unprecedented offer and access to Disney+ on the platform of their choice is yet another example of our commitment to provide the best premium content available through key partnerships on behalf of our customers,” said Verizon Chairman and CEO Hans Vestberg, in a statement. “Our work with Disney extends beyond Disney+ as we bring the power of 5G Ultra Wideband technology to the entertainment industry through exciting initiatives with Disney Innovation Studios and in the parks,” he added.

Here’s the deal: At launch, Verizon becomes the exclusive wireless carrier to offer 12 months of Disney+ for itsnew and existing customers. The offer also extends to its new Fios Home Internet and 5G Home Internet customers.

Folks can activate their Disney+ subscription and start streaming on devices including game consoles,  streaming media players and smart televisions.

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Somehow, ‘Dark Fate’ got me excited about the Terminator again

The release of a new Terminator sequel has become a familiar ritual: The new filmmakers acknowledge the greatness of the first two movies, then mumble awkwardly about the other sequels — which are inevitably ignored, because they assure us that this time, they’ve created the sequel we’ve been waiting for.

I can’t tell you whether “Rise of the Machines,” “Salvation” or “Genisys” deserves to be dismissed like this, because I haven’t seen any of them. (I did watch the TV spinoff, “The Sarah Connor Chronicles,” which was pretty good.) But I can say that the latest installment, “Terminator: Dark Fate,” delivers on the promise of a worthy sequel.

It helps, of course, to see the return of some familiar names — not just Arnold Schwarzenegger, but also Linda Hamilton, who takes up the role of Sarah Connor for the first time since “Terminator 2.” And then there’s franchise creator James Cameron, who was apparently too busy with his “Avatar” sequels to direct (“Dark Fate” was helmed by “Deadpool” director Tim Miller instead), but who stayed involved as a producer and story writer.

Not that the story is really the selling point: The big emotional moments can feel clumsy and rushed, and some of the dialogue is genuinely groan-worthy.

All the script really needs to do, though, is give us a reason for those familiar faces to be back on-screen together, and to convince us that it’s not totally pointless to watch another Terminator movie. In that, it succeeds — with a few nods towards the changing technological and political landscape thrown in for good measure.

Terminator Dark Fate

In the film’s opening minutes, we learn that our heroes’ efforts at the end of “Terminator 2: Judgment Day” have succeeded in averting a nuclear apocalypse. However, for reasons that only become clear later, those pesky terminators keep showing up.

The story proper kicks off in Mexico City, where a young woman named Dani Ramos (played by Natalia Reyes) becomes the latest target of a cyborg assassin. Her pursuer (Gabriel Luna) is an advanced model whose skin and skeleton can function as two separate bodies, and she gets not one but two protectors — Sarah Connor, along with cybernetically enhanced soldier named Grace (Mackenzie Davis), as well as the late-film addition of an old-model terminator (Schwarzenegger, naturally).

There are more revelations as the story unfolds, but one of the best things about “Dark Fate” is the simplicity of its plot. There’s a killer cyborg, an innocent target and an overmatched guardian; mayhem ensues.

It’s in the depiction of that mayhem that “Dark Fate” excels. The film has plenty of CGI (I’d argue too much), but it feels very different from the weightless, super-powered battles that have become the big-screen norm, and even from the balletic killing sprees of the “John Wick” movies.

Instead, “Dark Fate”‘s action feels like a throwback the ’80s and early ’90s, specifically in those Cameron-directed Terminator movies — where a great deal of thought and ingenuity was devoted to coming up with all the different ways that a relentless murder machine might wreak havoc.

Hamilton, by the way, seems completely at-home in these scenes. And although Schwarzenegger’s performance was gratifyingly funny and loose, “Dark Fate” is absolutely her film.

Meanwhile, I’m still a little fuzzy on the details of how Luna’s Rev-9 actually works works, but it makes for a striking and unsettling visual. The finale, in particular, offers a masterful escalation of jeopardy and destruction, as Rev-9 tears through one environment after another — almost convincing you that this time, the Terminator really might be unstoppable.

I don’t want to overstate the case here: “Dark Fate” doesn’t quite replicate the perfect mix of terror, violence and melancholy that made those first two Terminator films so memorable. But it can hold its own in a fight.

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