This week WeWork included a warning in its quarterly results report:

[A]s a result of the Company’s losses and projected cash needs, combined with increased member churn and current liquidity levels, substantial doubt exists about the Company’s ability to continue as a going concern.

Translation: WeWork is struggling to survive. It may or may not make it through a rough patch. To turn things around over the next 12 months, management has a plan that includes the following elements:

• Reducing rent by renegotiating lease terms
• Increasing new sales and reducing churn
• Scrutinizing expenses and capital expenditures
• Raising capital by taking on debt, selling equity, or selling assets

Crunchbase says that the company has raised over $22 billion in equity and debt financing over the years. Its valuation peaked in 2019, when it raised a reported $6 billion from Softbank at a $47 billion valuation. As of Wednesday, August 9, 2023, its public market capitalization (i.e., valuation) is $272 million. Dropping from $47 billion to $272 million is about a 99.5% reduction in valuation in roughly four years.

I’m not sure what the future holds for the company, but its fall from grace is stunning. I’m curious to see what impact WeWork’s struggles will have on start-ups who depend on it for office space and on the owners of office buildings that house WeWork’s locations.

I was at a social event where aggressiveness in deal negotiations was discussed. The main questions being asked were how aggressive should a party be in negotiations and when have they taken it too far.

This gathering was attended by founders (early-stage and mature), VC investors, people in the start-up ecosystem, people not involved in start-ups, and a few non-start-up lawyers. The perspectives were diverse, which made for an interesting conversation.

After a while, people mostly ended up in one of two camps:

• There’s a point in deal negotiations where you can be too aggressive and jeopardize the long-term viability of a deal. Negotiate to that point but don’t take it further (even if you have the leverage to do so), because it will have negative consequences down the road.
• Deal negotiating is an example of what has applied to humans for a long time: survival of the fittest. You must fiercely negotiate for your best interest in any deal. Not doing so leaves an opening for others to take advantage of you. Negotiate like your survival depends on it.

The conversation was much more involved than that, but I’ve tried to simplify it. I really enjoyed hearing the different perspectives. At the end of the conversation, most agreed that how people thought about aggressiveness was influenced by their upbringing and professional experiences.

I don’t think there’s a right or wrong way to think about aggressiveness. I’ve come to believe that the answer to how aggressive one should be in negotiations is it depends. It depends on the dynamics at the time, on what you’re negotiating, on what leverage you have, and on the parties you’re negotiating with.

One thing holds true in all negotiations. Be mindful of this when deciding how aggressive to be: no one will look out for your interest more than you will. If you don’t look out for yourself, don’t expect the other party to do so.

In April, Apple launched its savings account product. A few weeks later, a Forbes article reported that Apple saw inflows of almost $1 billion in the first four days after the launch. At the time, I wrote that it was a sign of a huge unmet need and perfect timing (right after the Silicon Valley Bank failure).

This week, Apple shared that its savings account product has reached $10 billion in deposits. An astonishing amount in just four months—especially when you consider that the savings product is available only to people who have an Apple Card. I wonder what the deposits would look like if the account were available to iPhone users who don’t have an Apple Card.

This product is off to a strong start, and I can’t wait to see how it does over time and what Apple’s next banking move will be.

iBank coming soon?

Some founders take the approach of shielding their teams from the realities their start-up faces. They want the team focused on building a great solution and serving customers. I caught up with an early-stage founder who recently updated his small team on strategic direction and the state of the company during a team meeting. He decided to leave their current runway out of his update because he didn’t want them to worry.

They didn’t let that slide, though. One of the first questions was how much runway they had to execute what they’d just heard. Having been asked, the founder answered candidly: four or five months to make it happen.

The founder wasn’t sure how the team would respond to such a short runway. He assumed some would worry. Their responses surprised him:

• “Thank you for being transparent.”
• “I was giving 100%, but now I’m going to give 120%.”
• “I did the calculation on my equity, and if this works like we think it will, I’ll make a lot of money, so I’m going to do all I can to make it work.”

This founder learned that he doesn’t have to shield his team from the unpleasant realities of working at a start-up. People don’t expect everything to be roses. They know start-ups will have ups and downs. They want to be kept in the loop, good or bad. Sometimes, sharing the bad can energize the team to push harder to make the impossible happen.

Over the past few months, I’ve listened to a few early-stage founders pitch marketplace start-ups. Their pitch begins with a focus on connecting buyers and sellers. During the pitch they also say they have tools to help sellers, who are small businesses, manage their operations. They’re building marketplaces with workflow management embedded in V1 of their solutions.

This approach gives me pause because I struggle to understand the core problem they’re solving. Are they solving the inability of buyers and sellers to connect? Or are they helping small sellers manage their business operations?

Many of these founders point to large marketplaces (Airbnb, Etsy, etc.) as having inspired them. These mature marketplaces offer workflow management tools to sellers, so the early-stage founders believe they should build these features too. But mature marketplaces didn’t offer workflow management to sellers from the get-go. They solved their core problem (connecting buyers and sellers) first. After they achieved product–market fit and looked at scaling the platform, they added workflow management features. If they had done both at the same time, I’m not sure they would have had the same level of success.

Building a marketplace and achieving product–market fit is really hard. Getting the supply and demand dynamics to work is no small task. Early-stage founders should be crystal clear on the core problem they’re solving and allocate resources to build the best possible solution to solve that problem before building additional features that don’t solve the core problem.

Fred Wilson is a well-known VC and general partner at Union Square Ventures, which he cofounded in 2003. Earlier this year, he shared his predictions for 2023, which I recapped in this post. This week, he shared his updated thoughts on the venture capital sector.

Here are a few takeaways:

• Venture capital has been in a downturn for roughly eighteen months.
• The NASDAQ peaked at ~16,000 in November 2021.
• The NASDAQ was down ~33% by June 2022 and ended 2022 at ~10,500.
• As of July 14, the NASDAQ was at 14,113—up ~36%.
• Interest rates and inflation are driving the NASDAQ.
• The Fed raised rates aggressively in 2022 because of post-pandemic inflation, causing asset prices to decline.
• Inflation is down now, which means rates may have peaked.
• Expectations drive markets, and inflation and interest expectations have settled down.
• Venture capital lags public markets by a few quarters.
• Venture capital will likely respond to the NASDAQ’s strong 2023 quarters.
• Venture capital may be through its downturn.

Taking a company public has historically been a popular way for investors, founders, and employees of venture-backed companies to get liquidity for their company shares. It makes sense that public markets heavily influence venture capital.

I can’t predict the future, but as Fred said, in the next few quarters we’ll have a better idea of where things are headed.

I always like to support hometown Atlanta founders. I recently listened to an interview of Ben Chestnut, founder of Mailchimp. In 2021, Mailchimp was acquired for $12 billion. I was curious to hear what Ben had to say post acquisition.

Ben shared lots of great information about his childhood and various other topics. He explained what made him go from “we’re never selling” to being acquired. He also said something about the origin of Mailchimp that caught my attention.

Ben was running a web design agency that was struggling to grow. One day, his wife was watching the Opera Winfrey Show; Rich Dad Poor Dad author Robert Kiyosaki was the guest. Kiyosaki talked about passive income and recurring revenue. Ben heard some of this and was inspired. He began searching for a recurring-revenue business, only to realize that he already had one—Mailchimp. Keep in mind that this was three or four years after the Mailchimp product had launched, but it was more of a side project that had received little attention from Ben or his cofounder, Dan.

They looked deep into the revenue of the Mailchimp product versus the revenue of the web design agency and realized that Mailchimp was growing despite being ignored. They decided to focus on Mailchimp. The rest is history.

Given the current interest rate environment, there’s been a lot of focus on fast-growing companies trying to reach breakeven or profitability. Many fueled their growth with losses when capital was cheap. Those days are likely over, and these companies are now concentrating on generating cash instead of consuming it. All of them won’t survive, but the ones that are solving painful problems and that have strong leadership teams have a higher probability of becoming profitable.

There’s another segment of companies that I haven’t heard discussed as much that I’m curious about: companies with recurring-revenue business models that grew rapidly because of COVID tailwinds and that generate material free cash flow, but that saw their growth rates slow or flatline. These companies can be cash registers. If they retain their current customers, they will generate cash on a recurring basis.

The recurring cash generation of these companies is key. They have cash from customers they can use to experiment with growth activities and ideas. The recurring-revenue nature of their business model means that cash will be replenished. They can keep experimenting. Learnings from failed experiments can be applied to new experiments. Hopefully, compounding learnings from experimentation will lead to the growth engine being restarted.

To be fair, restarting growth is hard—especially for a large company. It often involves retooling entire functions, such as sales and marketing. These efforts can be painful and take time to bear fruit. This isn’t something all management teams are able to achieve. But if they are successful, the rewards could be enormous when these companies are revalued.

I’m curious to see which cash-flow-positive, recurring-revenue companies can restart their growth and what impact it will have on their valuation multiples.

I chatted with a founder about a seed fundraise he’s considering. He wants to raise $2 million. We talked through his thinking, and I realized two things: he didn’t have a great grasp on current market valuations, and he didn’t realize how raising that much capital at today’s lower valuations would dilute his ownership, especially if he continued to raise capital.

I did some back-of-the-envelope math regarding his future round and a few hypothetical rounds after that. It was eye opening to him. He realized that dilution by early and subsequent rounds would have a material impact on his ownership as founder and materially reduce his proceeds if his company were to be sold.

Raising capital is hard right now for early founders. Even if you can raise the amount you desire, it’s worth thinking through how much you need, the current market valuation of your company, and how dilution will affect you. Tools that can help founders understand the dilution impact of fundraising rounds are out there (645 ventures built one). Spending time with one of these tools can help founders quantify the impact of dilution.

Every month I get email updates from several early-stage founders. They usually include what’s going well and not so well with the business, along with the latest company metrics. In 2022 and the first half of 2023, the tone of these updates wasn’t optimistic. The fundraising environment wasn’t great, and founders were reducing expenses to extend their runway.

Over the last two or so months, I’ve been seeing more optimism in these emails. The fundraising environment is still tough. But founders are sharing more signs of being closer to product–market fit. Metrics are improving, and for some of them, revenue and customer growth are beginning to accelerate materially.

This is anecdotal, of course, and not representative of all early-stage founders, but it feels like founders got the message and may have been able to right the ship. I hope so. I look forward to seeing if this is confirmed in the remaining 2023 updates.