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This Week In Tech
Greetings and welcome to our tech newsletter, your go-to source for the latest and greatest in the world of technology. We'll be sharing insights, news, and updates from the tech industry, covering everything from gadgets to software, AI, and beyond. So, let's dive in!
Startup Up Panic
Tech startups and investors have had a tumultuous few months, with the crypto meltdown, the collapse of Silicon Valley Bank, and the economic fallout. Kate's article reported that several private tech companies backed by Y Combinator were pissed off by the fund's decision to back away from later-stage investing without any consultation or chance to provide feedback. The founders are worried about cost cutting and raising money at lower prices, and are venting their frustrations at Y Combinator. This shows how the founders feel regarding their own fates. The crypto sector is facing a number of challenges, including the difficulty of raising money and the fact that 43% of adults who have invested in cryptocurrencies are not confident in the technology's safety or reliability.
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Additionally, the proportion of U.S. adults that have ever traded, invested in or used cryptocurrency has increased by just 1 percentage point to 17%. This suggests that crypto adoption, which is the main goal of blockchain startups, is not getting any higher and may stay that way for a while.
Reduced Crypto VC Funding
Crypto and blockchain startups raised just $900 million in the first quarter, down 87% from the same period in 2022. FTX Ventures is no longer active, and venture capitalists are focused on technology that helps power blockchains, scale transactions and store crypto. The biggest deals announced in the first quarter included $108 million for Ledger, $65 million for digital asset infrastructure firm Taurus and $60 million for blockchain development firm QuickNode. Andreessen Horowitz only invested in a handful of crypto startups during the first quarter of 2023. Sequoia has made multiple investments in crypto companies since the fall of FTX, including small rounds in Caldera, TurnKey and TipLink.
Despite regulatory crackdowns and the collapse of two crypto-friendly banks, crypto fans are optimistic about the price of bitcoin, the Ethereum blockchain, and the Ripple Labs case. However, there are still plenty of crypto skeptics. The Pew Research Center survey found that 43% of Americans are not confident in the safety and reliability of crypto, compared to 17% in 2022. Gemini co-founders loaned $100 million to fund operations, Bitkraft raised $221 million, Sei Labs raised $30 million, CryptoGPT raised $10 million, and Vishal Gupta is leaving Coinbase. Stephen Cheng has been named as Wyre's permanent CEO.
Chia Network’s IPO Pitch
Chia Network, Inc. is a blockchain development company that is gearing up to go public. It has filed IPO paperwork with the U.S. Securities and Exchange Commission, but its setup is a bit of a head scratcher. Chia Network is a blockchain with a cryptocurrency, XCH, that already trades on crypto exchanges. It allocates itself 21 million XCH tokens, representing 75% of outstanding XCH tokens.
Chia is a software development company that helps customers build and maintain applications on the Chia blockchain, charging fees to set them up and maintain them. Venture investors valued the company at $500 million when it raised $61 million in 2021, but it's hard to tell what it's worth now. Hoffman compares Chia to Red Hat, which went public in 1999 and IBM bought it for $34 billion. The SEC has been going after crypto companies for dealing in unregistered securities, but Hoffman thinks Chia will get a pass because XCH is mined like bitcoin. Aidan Ryan reports that Chia has raised $59 million.
The trading volume for FTT, the now-infamous exchange token of FTX, doubled in price on Thursday due to FTX's announcement of a plan to restart the exchange. SEC Chair Gary Gensler believes AI is transformative and needs new procedures to address how it could change investment advice and stock trading, while crypto needs to follow existing laws.
SeatGeek, Chia Network Inc., Instacart, Reddit, Navan, and Rippling are among the companies waiting for the right moment to go public. The Nasdaq is up 16% year to date and many of the stocks beaten up last year have recovered a little. Valuations have come down over the past 12 months, reducing the risk of overpriced IPOs. Investors in likely IPO candidates have already felt the pain, with Instacart raising money at a valuation of $39 billion and Reddit at a valuation of $4.9 billion. SeatGeek was valued at around $1 billion in a funding round last year and two publicly traded ticket-selling firms are trading at an average forward sales multiple of around 2.
Tesla's price cuts eroded its gross margin on cars from just below 30% to a little over 18% in the past 12 months, leading to a fall in profits. The Information's Generative AI Panel at the end of March brought together a cohort of executives in the generative AI space to talk about what's coming up next.
Netflix Is Now a Real TV Firm
Netflix is looking more and more like an old-fashioned television company. In other words, it’s growing slowly but producing lots of cash. The video-streaming giant reported what can only be described as anemic growth in the first quarter. Revenue rose 3.7%, which is the kind of growth rate we associate with traditional TV firms like Fox Corp. or Paramount Global. Its subscriber count expanded 4.9% globally, although growth in North America was basically nonexistent. The good news is that Netflix’s free cash flow—the most accurate measure of profitability—surged to $2.1 billion in the quarter compared with $802 million a year ago. Netflix even started buying back stock in the quarter!
If you were a conspiracy theorist, you might imagine Netflix was trying to distract us from its unimpressive revenue and subscriber growth numbers with news today that “later this year” it would shut down its DVD mail-order business, just as it shifted the focus of its fourth-quarter earnings away from that period’s tepid numbers to the news that co-CEO Reed Hastings was stepping down. Let’s not get distracted—DVD revenues last year were 0.5% of Netflix’s total, so who cares? The first-quarter revenue numbers were a tad worse than Netflix had projected for this quarter, and it forecast even weaker second-quarter growth. Netflix upgraded the amount of free cash flow it expects to generate this year, though, which means it’s more profitable than it expected. Still, the weak top-line growth suggests Netflix’s introduction of advertising isn’t having much impact yet.
To be fair, Netflix executives hinted in January that the ad business would take a while to develop. And the slowdown in growth is what one would expect given the proliferation of competing streaming services, combined with Netflix’s steady price increases. Let’s not forget that the company is otherwise in fine shape. Not only does it have enough scale now to be solidly profitable, unlike most other streaming services, but it also faces competitors who are cutting back on programming and pivoting away from their all-in focus on streaming back toward their older TV businesses. That shift in strategy on the part of its rivals speaks well of Netflix’s ability to retain its edge.
It probably makes sense, then, that Netflix stock still trades at a big premium to older TV companies despite its slowdown. Netflix shares are trading at 4.6 times forward sales, compared with 2.6 and 1.9 times for Disney and Warner Bros. Discovery, respectively, according to Koyfin data. Those rivals’ historically bountiful free cash flow has been squeezed lately by their streaming expansions, while their older cable TV businesses are slowly shrinking. Netflix may not be growing fast, but its prospects are arguably healthier than most.
What’s the best-performing tech stock so far this year? One strong candidate for the crown would have to be Nvidia, maker of a specialized chip that is vital in artificial intelligence software. Its shares have jumped 89% so far in 2023, according to Koyfin. Yes, Coinbase is up a tad more, by 90%, while cloud software firm Fastly and C3 AI are both up just over 100%. But it’s a good bet that Nvidia shareholders are happier than investors in those three companies.
Of the group, Nvidia’s stock is the closest to where it was trading in November 2021 when the stock market peaked before starting to fall as interest rates rose. The Nasdaq overall is down 24% from that point. Nvidia is off 16%, but Coinbase is down about 80%. So yes, Coinbase shares have recovered from the worst point of last year, but that doesn’t mean much. The same is true, to a lesser extent, for Fastly and C3 AI.
Of course, there is one stock that has done even better since early November 2021, and that’s Apple, which is up slightly from that point. But Nvidia’s stock has been a better performer generally since at least 2020. The chipmaker is now one of the most valuable tech firms by market capitalization, worth $681 billion—more than either Meta Platforms or Tesla. Nvidia’s business is so strong that one of its big customers, Microsoft, is developing its own AI chip so it doesn’t have to buy as many of Nvidia’s, Nvidia isn’t a household name, but it probably should be.
Creators And Social Media
The Information's Creator Economy Summit
The Information's Creator Economy Summit will have two sets of 45-minute breakout sessions. Gen Z and the Creator Economy (1:30 p.m. PT) explores the value of brands mobilizing creators, culture, and commerce to engage communities and consumers at scale. How to Build a Strong Personal Brand (1:30 p.m. PT) discusses how emerging creators can differentiate themselves by using tools and techniques to design standout content, develop compelling stories, and find a narrow niche. Skyelar Garcia, Goldie Chan, and Laura Mandaro will discuss what's next for social commerce in the U.S., with executives from Deloitte, LTK, and beauty subscription service IPSY. They will also talk to executives from Visa, Linktree, and Marqeta on their innovative creator-focused payments offerings.
For more information, read here.
The Waning Clout of Social Media Verification
The significance of the checkmark on Instagram has been going through a major upheaval due to Elon Musk's acquisition of Twitter. LinkedIn has introduced three new options to verify users' identity and where they work, such as providing a work email address or government ID and phone number. Instagram parent company Meta Platforms introduced Meta Verified in the U.S., offering subscribers a blue checkmark, extra protection from imposters and customer support for an $11.99 monthly or $14.99 on mobile. Dalton Smiley, a creator with 636,000 TikTok and 160,000 Instagram followers, believes that Instagram should differentiate between those paid for verification and those who have been verified for being a notable figure. Meta plans to explore additional ways to signal when a verified account is from a well-known person. The original purpose of verifying accounts on social media was to show users that the account legitimately belonged to that person or organization, but it has morphed into a signifier of clout.
After TikTok, What's Next?
The U.S. has given TikTok a choice: either sell it or face a federal ban. Congress is currently working on a legislative fix, the Restrict Act, which has bipartisan support and the endorsement of the Biden administration. It would mean a shift in the way Americans relate to the internet and vice versa, and a future where no platform was truly safe. The question of whether data from TikTok is accessible in China is at the heart of the current push to ban it. TikTok is the fourth most popular social network in the U.S., with around a billion monthly active users globally.
It has had a tremendous impact on the music industry, with viral TikTok clips upending the way the U.S. discovers new artists. Other countries have attempted to block TikTok, such as India, Pakistan, Russia, and Hong Kong. However, the feeling persists that those creators could have built bigger, more engaged audiences if they had still been allowed on TikTok. Vine, the short-form video app that laid the groundwork for TikTok's success, shut down in 2016 after its creators organized a walkout. Musical.ly was eventually absorbed and relaunched as TikTok, but it took years for TikTok to break through and become a true Vine replacement.
The U.S. is not the top country on TikTok, but Thailand is. If Americans were to lose access to TikTok, Vietnam, Mexico and Brazil would vie for the U.S.'s No. 2 spot. If TikTok stays relevant, it would signal a shift in global web culture, where Americans are no longer at the forefront of internet happenings. The Restrict Act does not address the fact that users can easily download TikTok videos and upload them to other platforms, making it unclear if it's worth altering the legal architecture of the U.S. internet just for TikTok.
Twitter Chaos And Creator Economy Deals
The Creator Economy Database tracks more than 350 private companies in the U.S. and overseas in the sector, offering everything from software to virtual-shopping storefronts to multiplayer games. U.S. startups raised $37 billion in the first quarter, down 55% year over year. Creator startups followed that trajectory, raising 86% to $123.1 million, the seventh straight quarter of year-over-year decline. Investors also backed new social media startups, including T2 Social and Spill, and Bluesky Social, a decentralized social network backed by Twitter co-founder Jack Dorsey. Creative Fabrica raised $61 million in a Series B round led by Alven.
Electrify Video Partners raised $50 million in a growth-stage funding round. Superplastic raised $20 million in a $20 million Series A extension. Two crypto startups raised funds in the first three months of this year, with Andreessen Horowitz being the most active investor. The firm led two creator economy deals, funding a $10 million Series A round for Createra and a $14 million Series A round for Wingspan. The total number of startups in the database includes one that shut down in the first quarter of this year and two that sold to other companies.
Five have shut down since The Information started tracking them, and nine have sold to other companies. Angela Simaan, senior communications director for Obviously, credits these changes to investor concerns about a looming recession.
Creator Database Surpasses 350 Mark Despite Slowdown in Deals
The Creator Economy Database reported that 15 U.S.-based creator startups raised money in the first quarter of this year, all of which were early-stage funding rounds. Mogl, Rivet, Follow, and T2 Social were the most popular startups, with Mogl raising $2.6 million in a seed round and Rivet raising $500,000 in a pre-seed round. T2 Social was founded by former Twitter employees and Spill was a more culture-focused competitor. Big, late-stage funding rounds were nowhere to be seen, with Tilia's $22 million deal being the largest fundraising deal by a U.S. creator startup.
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