Category: UNCATEGORIZED

30 Mar 2020

WTF is the denominator effect?

The last few weeks have just been dreadful for asset managers. Not only have the markets tanked the past few weeks (if slightly recovered from their lows since the signing of the U.S. stimulus bill), but the daily volatility of different assets is making it very hard to keep portfolios balanced. As an example, the key benchmark for oil is under $20 a barrel in the United States, a lot not seen in almost two decades.

So let’s talk about something that is quite stressful for a lot of VCs in this context: the so-called denominator effect.

Before we get to what the denominator effect portends for VCs, let’s define it. In the limited partner world, LPs are allocators of capital, which just means that they invest money in a collection of assets following a strategy. For instance, these LPs might have strategy of something like: “I want 60% equities, and 40% bonds” or perhaps something like “40% equities, 30% bonds, 10% VC, 10% hedge funds, and 10% natural resources.”

Every fund has its own goals. Some funds need more immediate liquidity to pay for operations (i.e. college endowments) while others focus much more on the future and don’t mind long hold periods on their assets (i.e. sovereign wealth funds). The role of a portfolio manager is to invest in assets in such a way as to match these objectives.

As part of operating any portfolio, a fund manager regularly rebalances it to make sure that the underlying assets align with the chosen strategy. If you personally use a modern asset management service like Wealthfront, then you are already familiar with this: every period (which could be months, quarters, years, etc.), the service transfers money between your assets to reset your portfolio back to its original strategy. So if you want 60% stocks, but your portfolio is at 70% right now, the service will automatically sell 10% of those assets in order to invest in other assets.

The primary fraction here is (the capital within an asset class) divided by (the total capital of the portfolio). Yes, it’s really simple math.

Here’s where it starts to get complicated though. Let’s say for illustration that you are managing a $1 million portfolio, and you have 70% ($700,000) invested in NASDAQ, which is relatively liquid, and the other 30% ($300,000) is invested in VC funds, which are highly illiquid since they can take ten years or more to be returned to you.

Let’s say your fund was balanced as of February 19, when the NASDAQ hit an all-time high close of 9,817.18. Since that time, NASDAQ has lost 20.57% in value according to Yahoo Finance. That means your overall portfolio is now worth about $856,010, or $556,010 for equities and still $300,000 for VC.

Even though you haven’t increased or decreased your investment in VC, your portfolio is now heavily skewed toward that asset class. Equities represent $556,010 / $856,010 = ~65% of your portfolio, while VC now represents ~35%, up from the intended 30% in your original strategy.

Given that skew, you should rebalance … but you can’t. Since VC funds have a ten-year fund cycle (if not longer), you can’t simply sell some VC assets and buy equities to rebalance your portfolio. The portfolio manager is effectively stuck.

That’s the “denominator effect” — a decline in the value of one asset should result in other assets being sold to properly rebalance a portfolio, but many assets like venture capital, private equity, real estate, natural resources and others can be quite hard to sell in the short-to-medium term.

Fractional ownership

That’s the outline of what the denominator effect is, but what does it mean in practice for VCs and ultimately for founders?

For VCs, the big challenge today is that many of their LPs are precisely in the situation described above, with over-investment in VC as an asset class and a huge liquidity crunch that they have to work through. LPs want (or in some cases, must) scale down their VC investments in order to make their funds function. Not only will they cut back investments in new funds, they don’t even want to invest in the funds they have already committed to.

The irony here is that given the declining valuations for a lot of startups, this is precisely the time to invest more. That’s the fundamental tension of the denominator effect — it isn’t about psychology or investor reticence driven by fear, but rather strategic considerations that are rational for a fund’s key objectives.

LPs have a couple of strategies on how to cope. One is that they sometimes have a bit of flexibility with their general partners to wait out the storm, since they can push them to slow down the pace of investing in order to reduce the volume of capital calls. In addition, they can halt the number of new funds they invest in or just stretch out the time it takes to make a new investment in order to spread their investments more evenly.

And then there is the secondary market, in which LPs sell their VC fund stakes in order to secure liquidity — a sliver of a market, but one that is quite interesting nonetheless. My colleague Connie Loizos talked a bit more about this angle last week, finding that these transactions will take some time to be consummated while the market discovers what startups are currently worth.

In short, due to the denominator effect, LPs are going to do whatever they need to do to rebalance their portfolios in the coming months. If the markets happen to rapidly recover, they might quickly reopen their investments in VC and other alternative assets. But if the markets stay sour for longer, then expect further downward gravitational pull on the VC asset class as portfolio managers reset their portfolios to where they need them. It’s the tyranny of fifth grade mathematics and a complex financial system.

30 Mar 2020

Rebecca Minkoff has some advice for e-commerce companies right now

When Rebecca Minkoff first moved to New York City, the then-18-year-old was making $4.75 an hour.

“I just kept working for this designer and someone was telling me what to do every day. I just didn’t like that. And I thought if I’m going to work as hard, it’s going to be for myself and I want to call my own shots,” she said. “I didn’t want to be told what to do, frankly.”

Self-employment for Minkoff turned out just fine; in 2001, she redesigned the iconic “I Love New York” shirt and it appeared on The Tonight Show. After a shout-out from Jay Leno, Minkoff spent the next eight months making T-shirts on the floor of her apartment and quit her job to start designing full time.

We caught up with Minkoff to learn more about how she grew her brand into a global fashion company with the help of her brother, her problem with the unicorn mentality and why she thinks the “invisible barrier” is the future of retail tech.

This interview was edited for brevity and clarity.

TechCrunch: What gave you the energy and drive to become an entrepreneur?

Rebecca Minkoff: Long story. My mom would sell these cast covers, like decorative covers for people with broken arms at the flea market. And I was like, I am going to have a booth here. So I made all these tie-dye shirts and no one bought anything but it was just this idea of like, I can make something I can sell. My mom always taught that. When I wanted a dress, she taught me how to sew a dress instead of buying the dress. And so, I just got this bug for creating things out of nothing.

The constant thread was, “I’m not going to pay for this. You’re going to learn how to do it.”

30 Mar 2020

Facebook Messenger preps Auto Status location type sharing

Facebook Messenger could soon automatically tell your closest friends you’re at the gym, driving, or in Tokyo. Messenger has been spotted prototyping a ported version of the Instagram close friends-only Threads app’s Auto Status option that launched in October.

The unreleased Messenger feature would use your location, accelerometer, and battery life to determine what you’re up to and share it with a specific subset of your friends. But instead of sharing your exact coordinates, it overlays an emoji on your Messenger profile pic to indicate that you’re at the movies, biking, at the airport, or charging your phone.

It’s unclear if or when Messenger might launch Auto Status. But if released, the feature could become Facebook’s version of the AOL Away Message, allowing people to stay in closer touch without the creepiness of exact location sharing. It might also help people coordinate online or offline meetups by revealing what friends are up to. Auto Status creates an ice breaker, so if it says a close friend is “at a cafe”, or “chilling” you could ask to hang out.

Facebook has been experimenting in this space since at least early 2018, when its manual Emoji Status was spotted. That allowed you to append an emoji of your choosing to your Messenger profile pic. Then in October Facebook introduced Auto Status, but only in the Instagram side-app Threads.

Some users were initially creeped out by the idea of Facebook relaying battery status. But Instagram director of Product Management Robby Stein explained to me that since you might not respond to a message if your phone goes dead or is left on the charger, it’s useful info to relay to friends who might be wondering what you’re doing.

Then earlier this month, reverse engineering master and constant TechCrunch tipster Jane Manchun Wong revealed a new, unreleased version of Emoji Status hidden in Messenger’s Android code. Then today, Wong showed off how she similarly spotted Facebook trying to port Auto Status to Messenger. That would bring the feature to over one billion monthly users compared to the relatively small base for Threads.

With Auto Status, you can “Let specific freidns see what you’re up to as you go about your day. Share location info, weather, and more, even when you’re not in the app.” Auto Status is only visible to a special list of friends you can change at any time, similar to Instagram Close Friends. And the feature shares “no addresses or place names. Just types of locations, like “at a cafe”. Movement (driving, biking, walking), venue (at the movies, airport), cities  (in Tokyo), and battery status (low battery, charging), are some of categories of what Auto Status shares.

A Facebook Messenger communications representative confirmed to TechCrunch that the Auto Status feature was being prototyped by Messenger, noting that “We’re always exploring new features to improve your Messenger experience. This feature is still in early development and not externally testing.” The company also tweeted the statement.

One of the biggest unsolved problems in social networking and messaging remains knowing whether friends are free to chat or hang out without having to ask them directly. Reaching out at the wrong time only to be ignored or rejected can feel awkward, intimidating, and discourage connection later. But if you have a vague idea of what a close friend is up to, you can more deftly plan when to message them, and be more likely to get to spend time together in person or just online.

That could be a cure to the loneliness that endless feed scrolling by ourselves can leave us feeling.

30 Mar 2020

Want $100,000? Apply to Startup Battlefield at Disrupt SF 2020

Imagine what a $100,000 cash infusion could do for your startup. Now add global media attention and intense investor interest into the mix. That powerful triad can potentially be yours. All you need to do is apply to compete in Startup Battlefield, the legendary pitch competition at TechCrunch Disrupt San Francisco 2020.

We know COVID-19 has many created challenges, but Disrupt SF is still on schedule (keep tabs on our updates here). Like startup founders everywhere we know how to pivot, and we’ll adapt as needed. Case in point, check out our new Disrupt Digital Pass option.

It won’t cost you a dime to apply or to compete in Startup Battlefield, and TechCrunch does not take any equity. Applying is easy, but our editorial team has exacting standards, and they’ll pour over each application looking for startups they feel have the potential to take flight. They’ll choose approximately 20 startups to pitch on the Main Stage at Disrupt SF 2020.

Now let’s talk about what you have to gain by competing — regardless of the final outcome. All competing teams receive weeks of intensive (and free) pitch training from the TechCrunch Battlefield-savvy editorial team. You’ll come out of that with a razor-sharp business model, expanded presentation skills and a refined live demo.

Startup Battlefield is the crown jewel of Disrupt, and the event draws a huge audience — thousands of people on site and streamed live to tens of thousands more around the world. Your startup will stand in that bright spotlight with avid investors, hundreds of media outlets and other tech movers and shakers anxious to learn more about your company.

Your team will have six minutes to pitch, demo and impress a panel of judges comprised leading VCs and technologists. Then they’ll put you through a six-minute Q&A. The judges winnow the field to approximately five startups for the finals. Those teams repeat the process in front of a new panel of judges.

When all is said and done, one startup will rise above the rest to claim the Disrupt Cup, the $100,000 cash prize and the title of Startup Battlefield champion. It’s a glorious, fast-paced, chaotic competition that can absolutely change your life.

Fresh from the “but wait there’s more” file, Battlefield competitors enjoy a VIP experience at Disrupt. That includes exhibiting in Startup Alley for all three days of the show and attending the Startup Battlefield Reception. You also receive four complimentary event tickets and access to CrunchMatch, TC’s investor-founder networking platform. You also get a complimentary ticket to all future TC events and free subscriptions to Extra Crunch.

Let’s review. Startup Battlefield takes place at Disrupt San Francisco 2020 on Sept. 14 – 16. It’s free to apply, free to compete and includes free pitch coaching. Opportunity galore, maximum exposure on a global stage, and a shot at $100,000. This is an early-stage startup no-brainer. Apply to compete in Startup Battlefield today.

TechCrunch is mindful of the COVID-19 issue and its impact on live events. You can follow our updates here.

Is your company interested in sponsoring or exhibiting at Disrupt San Francisco 2020? Contact our sponsorship sales team by filling out this form.

30 Mar 2020

Niantic is updating Pokémon Go and other titles to support indoor gaming

Niantic, the development company behind popular AR mobile games Pokémon Go and Harry Potter: Wizards Unite, is adapting its titles to support at-home gaming in response to the COVID-19 pandemic. Typically, Niantic’s games have encouraged people to go outdoors, explore their world, and connect with others in real life as they played. But with government lockdowns and home quarantines under way, it’s no longer safe to play these games as originally intended. 

The company says it will now prioritize making changes to its AR titles to allow people to play inside and around their own homes.

For example, Niantic’s Adventure Sync function will now track your indoor steps as you do things like run on a treadmill, clean your house, or make other indoor movements and activities. It’s also enhancing the games’ social features to allow friends to stay in touch virtually, and soon take on Raid Battles together while staying at home.

Instead of discouraging virtual movement inside the game, as Niantic has in the past, players will be able to virtually visit and share memories about their favorite real-world places. And this summer, Niantic will re-imagine its plans for live events to allow players to participate without having to leave home.

These updates aren’t just those made for the consideration of players’ needs during this time of crisis — they’re also necessary changes to ensure Niantic continues to operate both during the pandemic and beyond.

Niantic’s live events have driven big business to the cities that hosted them — nearly $250 million in tourism revenue in 2019, it once said. It also served as a mechanism to drive its own revenues and keep players engaged over time. The plan had worked — Pokémon Go has continued to grow, even though it’s not the hyped-up global phenomenon it was at launch. Last year was its highest-grossing year ever, a report from Sensor Tower found, as the game pulled in nearly $900 million in player spending in 2019. Much of the revenue was due to the game’s significant updates and real-world events, the report noted.

These latest updates aren’t the first changes Niantic has made in response to the COVID-19 outbreak. It had already modified gameplay in Pokémon Go to encourage users to stay inside — including by rewarding players who caught their Pokémon while inside, for example. It also just launched a new form of gameplay called the GO Battle League that can be played from home, reduced walking requirements, and discounted select items so players wouldn’t have to walk as far to catch Pokémon, among other things.

In Harry Potter: Wizards Unite, the company increased the amount of content that’s near players on the map, so they could progress in the game without traveling far. Potions were also tuned to support people playing from home.

And in both titles, gifts were adjusted to include more helpful content throughout each day.

In Niantic’s first game, Ingress, it has made a few changes, too. Ingress Portals are now tuned to encourage at-home play and it’s reduced the need to interact with multiple Portals. Several other changes make it easier to play the game without having to walk around as much.

Niantic has not yet gone so far as to fully eliminate the use of outdoor walks as a means of gameplay, however. Instead, it still encourages people to get outside — in areas where it’s permitted by local authorities to go for walks.

Though Niantic had made earlier changes to its games due to the outbreak, today’s announcement represents a more formal strategy for its business. It also lays out a detailed roadmap of what Niantic has in store. Not all its new features are live. Instead, Niantic says they’ll roll out in the “coming days and weeks,” without committing to an exact time frame.

“We created Niantic with a mission to help people get outside, exercise, and explore the world, with the ultimate goal of helping people connect with others. Today we support a global community of hundreds of millions of people who look to our games for regular entertainment and an opportunity to get outside and connect with friends,” said Niantic founder and CEO John Hanke, on the company blog.

“We have always believed that our games can include elements of indoor play that complement the outdoor, exercise and explore DNA of what we build. Now is the time for us to prioritize this work, with the key challenge of making playing indoors as exciting and innovative as our outdoor gameplay,” he added.

30 Mar 2020

Niantic is updating Pokémon Go and other titles to support indoor gaming

Niantic, the development company behind popular AR mobile games Pokémon Go and Harry Potter: Wizards Unite, is adapting its titles to support at-home gaming in response to the COVID-19 pandemic. Typically, Niantic’s games have encouraged people to go outdoors, explore their world, and connect with others in real life as they played. But with government lockdowns and home quarantines under way, it’s no longer safe to play these games as originally intended. 

The company says it will now prioritize making changes to its AR titles to allow people to play inside and around their own homes.

For example, Niantic’s Adventure Sync function will now track your indoor steps as you do things like run on a treadmill, clean your house, or make other indoor movements and activities. It’s also enhancing the games’ social features to allow friends to stay in touch virtually, and soon take on Raid Battles together while staying at home.

Instead of discouraging virtual movement inside the game, as Niantic has in the past, players will be able to virtually visit and share memories about their favorite real-world places. And this summer, Niantic will re-imagine its plans for live events to allow players to participate without having to leave home.

These updates aren’t just those made for the consideration of players’ needs during this time of crisis — they’re also necessary changes to ensure Niantic continues to operate both during the pandemic and beyond.

Niantic’s live events have driven big business to the cities that hosted them — nearly $250 million in tourism revenue in 2019, it once said. It also served as a mechanism to drive its own revenues and keep players engaged over time. The plan had worked — Pokémon Go has continued to grow, even though it’s not the hyped-up global phenomenon it was at launch. Last year was its highest-grossing year ever, a report from Sensor Tower found, as the game pulled in nearly $900 million in player spending in 2019. Much of the revenue was due to the game’s significant updates and real-world events, the report noted.

These latest updates aren’t the first changes Niantic has made in response to the COVID-19 outbreak. It had already modified gameplay in Pokémon Go to encourage users to stay inside — including by rewarding players who caught their Pokémon while inside, for example. It also just launched a new form of gameplay called the GO Battle League that can be played from home, reduced walking requirements, and discounted select items so players wouldn’t have to walk as far to catch Pokémon, among other things.

In Harry Potter: Wizards Unite, the company increased the amount of content that’s near players on the map, so they could progress in the game without traveling far. Potions were also tuned to support people playing from home.

And in both titles, gifts were adjusted to include more helpful content throughout each day.

In Niantic’s first game, Ingress, it has made a few changes, too. Ingress Portals are now tuned to encourage at-home play and it’s reduced the need to interact with multiple Portals. Several other changes make it easier to play the game without having to walk around as much.

Niantic has not yet gone so far as to fully eliminate the use of outdoor walks as a means of gameplay, however. Instead, it still encourages people to get outside — in areas where it’s permitted by local authorities to go for walks.

Though Niantic had made earlier changes to its games due to the outbreak, today’s announcement represents a more formal strategy for its business. It also lays out a detailed roadmap of what Niantic has in store. Not all its new features are live. Instead, Niantic says they’ll roll out in the “coming days and weeks,” without committing to an exact time frame.

“We created Niantic with a mission to help people get outside, exercise, and explore the world, with the ultimate goal of helping people connect with others. Today we support a global community of hundreds of millions of people who look to our games for regular entertainment and an opportunity to get outside and connect with friends,” said Niantic founder and CEO John Hanke, on the company blog.

“We have always believed that our games can include elements of indoor play that complement the outdoor, exercise and explore DNA of what we build. Now is the time for us to prioritize this work, with the key challenge of making playing indoors as exciting and innovative as our outdoor gameplay,” he added.

30 Mar 2020

Amazon warehouse workers are walking out and Whole Foods workers are striking

Amazon, the e-commerce giant that has fared well financially amid the COVID-19 pandemic, is facing a bevy of worker strikes. Today, warehouse workers on Staten Island in New York walked off the job in protest of Amazon’s treatment amid the crisis.

“Like all businesses grappling with the ongoing coronavirus pandemic, we are working hard to keep employees safe while serving communities and the most vulnerable,” an Amazon spokesperson told TechCrunch. “We have taken extreme measures to keep people safe, tripling down on deep cleaning, procuring safety supplies that are available, and changing processes to ensure those in our buildings are keeping safe distances. The truth is the vast majority of employees continue to show up and do the heroic work of delivering for customers every day.”

In solidarity with warehouse workers, tech workers at Amazon are demanding the company provide fully paid family leave for people who miss work, provide fully paid leave to all Amazon workers, close facilities immediately following contamination, ensure full paid leave for workers whose jobs are impacted by such closures and ensure everyone has unlimited time to take care of their health.

“Recognizing the urgency of the moment, tech workers are going beyond asking Amazon to take action and are pledging not to work for Amazon if it fails to act,” the DC Tech Workers Coalition wrote in a petition. “We also pledge to ask organizations in our communities such as universities and conferences to not accept Amazon as a sponsor or participant in events.”

Meanwhile, workers at Whole Foods, which is owned by Amazon, are organizing a “sick out” strike tomorrow to demand better protections on the job, Vice reports.

According to Vice, Whole Foods workers will call in sick tomorrow and demand paid sick leave for those who stay at home or self-quarantine during the pandemic. They will also demand free coronavirus testing for employees and hazard pay.

Led by group Whole Worker, the sick-out was originally planned for May 1, but was moved up in response to reports that workers have started getting sick and testing positive for COVID-19.

“As this situation has progressed, our fundamental needs as workers have become more urgent,” the group wrote on its campaign page. “COVID-19 poses a very real threat to the safety of our workforce and our customers. We cannot wait for politicians, institutions, or our own management to step in to protect us.”

This action will come one day after Instacart workers are refusing to shop and deliver groceries until the company meets their demands. Shoppers’ current demands are offering hazard pay of $5 extra per order, changing the default tip to 10%, and extending the sick pay policy to those who have a doctor’s note for a pre-existing condition that may make them more susceptible to contracting the virus.

“For the sake of public health and worker safety, every non-union grocery worker must speak out,” United Fodo and Commercial Workers International Union President Marc Perrone said in a statement. “If Amazon, Instacart, and Whole Foods are unwilling to do what is right to protect their workers and our communities, the UFCW is ready to listen and do all we can to help protect these brave workers from irresponsible employers who are ignoring the serious threat posed by the rapidly growing coronavirus outbreak.”

30 Mar 2020

Amid concerns that startups could be left out of COVID-19 bailout, investors step up lobbying

The massive bailout package that the U.S. government passed last week to stave off an economic collapse from measures put in place to mitigate the spread of the COVID-19 epidemic is giving out billions to American small businesses. But startups that received venture capital money could be left out.

So the nation’s investment organizations and lobbying firms are stepping up their efforts to get clarification around the specifics of the loan programs established under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Their efforts could mean the difference between some of those billions in loans for small businesses going to startup companies or a whole swath of companies left falling through the cracks.

There appear to be two issues for startup entrepreneurs with the different types of loans that companies can receive.

The first is the “Affiliation Rules” that the Small Business Administration (SBA) uses to determine who is eligible for loans. Under the rules, companies could be required to count all of the employees at every company their investors have backed as part of their employee count — pushing the individual companies above the employee size threshold.

“Regardless of the purpose of these rules for traditional 7(a) loans, allowing the rules to exclude some of our country’s most innovative startups in this new loan program is manifestly contrary to the intent of the legislation: to help small businesses keep their lights on and their employees working despite the double financial squeeze created by the economic and financial market downturns,” according to a letter sent to Treasury Secretary Steve Mnuchin and SBA Administrator Jovita Carranza by the NVCA and other startup investment organizations. “Without clear guidance enabling startups and small businesses supported by equity investment to access the loan facility, many of these startups may be rendered ineligible.”

These issues around affiliation and 7(a) loans aren’t the only ones that startups may contend with. Startups could also be eligible for Economic Injury Disaster Loans (EIDL). These loans are part of a $10 billion program within the CARES Act that is also overseen by the SBA. However, these loans have to come with a personal guarantee if they’re over $200,000. And that requirement may be too onerous for startups. 

EIDLs less than $200,000 don’t require a personal guarantee nor do they require real estate as collateral and will take a general security interest in business property, according to an article in Forbes. Borrowers for EIDLs can take an emergency cash grant of $10,000 that can be forgiven if spent on things like paid leave, maintaining payroll, increased costs due to supply chain disruptions, mortgage or lease payments, or repaying obligations that cannot be met due to revenue loss, according to Forbes.

These loans apply to sole proprietors and independent contractors and employee stock ownership plans with fewer than 500 employees, Forbes wrote. The emergency loans are available to companies that don’t qualify for additional funds — and are based on self-certification and a basic credit score, Alex Contreras, Director of Preparedness, Communication, & Coordination at the Office of Disaster Assistance for the SBA told Forbes.

While the EIDLs may be interesting, the biggest issue is the lack of clarity around affiliation rules, Justin Field, NVCA’s senior vice president of government affairs, tells me.

“These rules will make it more difficult for small businesses with equity investors to even understand if they can access the program,” he says. “It’s a tough situation… If you have these non-bright-lined rules it’s going to be tough for anybody that has a company that has minority investors.”

There could be significant implications for the U.S. economy if these startups are ineligible for loans, the NVCA wrote. Companies backed by venture investors are involved in the development of technologies of strategic interest to the U.S. in the long term and are currently working on tools to diagnose, track, monitor and mitigate the spread of COVID-19 in the short term.

“Bottom line: not providing this critical support to startups now will cause both short-term pain and long-term consequences that linger for years,” the organizations wrote. “In 2019 alone, 2.27 million jobs were created in the U.S. by startups across our nation. According to the job site Indeed, 98 percent of firms have fewer than 100 employees and between small and medium sized companies, they jointly employ 55 percent of employees. When implementing the CARES Act, we urge the SBA to issue guidance that makes clear affiliation rules do not arbitrarily exclude our most innovative startups.”

30 Mar 2020

Amid concerns that startups could be left out of COVID-19 bailout, investors step up lobbying

The massive bailout package that the U.S. government passed last week to stave off an economic collapse from measures put in place to mitigate the spread of the COVID-19 epidemic is giving out billions to American small businesses. But startups that received venture capital money could be left out.

So the nation’s investment organizations and lobbying firms are stepping up their efforts to get clarification around the specifics of the loan programs established under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Their efforts could mean the difference between some of those billions in loans for small businesses going to startup companies or a whole swath of companies left falling through the cracks.

There appear to be two issues for startup entrepreneurs with the different types of loans that companies can receive.

The first is the “Affiliation Rules” that the Small Business Administration (SBA) uses to determine who is eligible for loans. Under the rules, companies could be required to count all of the employees at every company their investors have backed as part of their employee count — pushing the individual companies above the employee size threshold.

“Regardless of the purpose of these rules for traditional 7(a) loans, allowing the rules to exclude some of our country’s most innovative startups in this new loan program is manifestly contrary to the intent of the legislation: to help small businesses keep their lights on and their employees working despite the double financial squeeze created by the economic and financial market downturns,” according to a letter sent to Treasury Secretary Steve Mnuchin and SBA Administrator Jovita Carranza by the NVCA and other startup investment organizations. “Without clear guidance enabling startups and small businesses supported by equity investment to access the loan facility, many of these startups may be rendered ineligible.”

These issues around affiliation and 7(a) loans aren’t the only ones that startups may contend with. Startups could also be eligible for Economic Injury Disaster Loans (EIDL). These loans are part of a $10 billion program within the CARES Act that is also overseen by the SBA. However, these loans have to come with a personal guarantee if they’re over $200,000. And that requirement may be too onerous for startups. 

EIDLs less than $200,000 don’t require a personal guarantee nor do they require real estate as collateral and will take a general security interest in business property, according to an article in Forbes. Borrowers for EIDLs can take an emergency cash grant of $10,000 that can be forgiven if spent on things like paid leave, maintaining payroll, increased costs due to supply chain disruptions, mortgage or lease payments, or repaying obligations that cannot be met due to revenue loss, according to Forbes.

These loans apply to sole proprietors and independent contractors and employee stock ownership plans with fewer than 500 employees, Forbes wrote. The emergency loans are available to companies that don’t qualify for additional funds — and are based on self-certification and a basic credit score, Alex Contreras, Director of Preparedness, Communication, & Coordination at the Office of Disaster Assistance for the SBA told Forbes.

While the EIDLs may be interesting, the biggest issue is the lack of clarity around affiliation rules, Justin Field, NVCA’s senior vice president of government affairs, tells me.

“These rules will make it more difficult for small businesses with equity investors to even understand if they can access the program,” he says. “It’s a tough situation… If you have these non-bright-lined rules it’s going to be tough for anybody that has a company that has minority investors.”

There could be significant implications for the U.S. economy if these startups are ineligible for loans, the NVCA wrote. Companies backed by venture investors are involved in the development of technologies of strategic interest to the U.S. in the long term and are currently working on tools to diagnose, track, monitor and mitigate the spread of COVID-19 in the short term.

“Bottom line: not providing this critical support to startups now will cause both short-term pain and long-term consequences that linger for years,” the organizations wrote. “In 2019 alone, 2.27 million jobs were created in the U.S. by startups across our nation. According to the job site Indeed, 98 percent of firms have fewer than 100 employees and between small and medium sized companies, they jointly employ 55 percent of employees. When implementing the CARES Act, we urge the SBA to issue guidance that makes clear affiliation rules do not arbitrarily exclude our most innovative startups.”

30 Mar 2020

Experience Disrupt SF online with the Disrupt Digital Pro Pass

Earlier this month we announced the launch of the Disrupt Digital Pass for TechCrunch’s flagship Disrupt SF event (Sept. 14-16) as a way to help ensure that, no matter what, TechCrunch fans everywhere would be able to enjoy the big interviews at the show. We also hinted that we were working on a Pro edition of the Digital Pass for people who really want to engage as fully as possible with Disrupt SF, including all the programming on the four primary stages and lots of real time interaction with fellow attendees, founders in Startup Alley, engaging Q&A sessions, and our all important exhibitors and partners. That was trickier to figure out, but we’re there. 

Today we’re happy to unveil the Disrupt Digital Pro Pass that we’ve been working hard to finalize. Here’s what you get with your Disrupt Digital Pro pass starting at $245: 

  • Live stream and VOD (video-on-demand) from the Extra Crunch Stage. Live and on-demand access to TechCrunch editors’ discussions with top experts – growth marketers, lawyers, investors, technologists, recruiters – on topics critical to founders’ success. Pass holders, in-person and virtual, may submit questions in real-time to the moderator on stage.
  • Live stream and VOD from the Q&A Stage. Virtual pass holders can submit questions during live Q&A sessions with speakers after they have appeared with TechCrunch editors on the Disrupt and Extra Crunch stages. 
  • VOD from the Showcase Stage. Watch top founders exhibiting in Startup Alley pitch and take questions from TechCrunch editors. 
  • Interact with early-stage startups in Startup Alley virtually. Browse the hundreds of exhibiting startups, organized by category, and watch their product demos on demand. Digital Pro pass holders can arrange 1:1 meetings with founders whether they be virtual or exhibiting on the show floor in-person.
  • Video conference networking with CrunchMatch. TechCrunch’s hugely popular platform to connect like-minded attendees will be accessible to Digital Pro pass holders as well as in-person attendees. Find attendees, request a meeting, and connect via a private video conference. 
  • Virtual sponsor engagements. We love our sponsors, and they will be front and center for Digital Pro pass holders, whether that’s opportunities to set up 1:1 meetings virtually with sponsor reps or watch sponsors’ presentations. 

In addition, of course, Pro pass holders also have access to the features of the free Disrupt Digital Pass:

  • Live stream and VOD from the Disrupt Stage. Live and on-demand access to all the great interviews TechCrunch’s editors conduct with the biggest names in tech. 

You can expect to see the TechCrunch team at San Francisco’s Moscone center during Disrupt, but now attendees can join us in person and/or virtually

Innovator, Founder, Investor, and Startup Alley pass holders (except Expo Only passes) will also have access to all the Disrupt Digital Pro Pass features as well as the opportunity to be present with us in San Francisco. 

Sign up for Disrupt SF today. 2020 marks the 10th anniversary of Disrupt SF, and we hope you will join us to celebrate, online or at Moscone. We would love to have you either way.