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EquityZen's Blog On Startups and Their Economics

Flat is the new up. Or you can fire a bunch of people (it's just way less cool.)

Phil Haslett | November 10, 2016


"We're gonna bring in some entry-level graduates, farm some work out to Singapore, standard operating procedure."


Kudos to Postmates. Raising a $140M round in a crowded space (food delivery) right now is no easy task. Even at a flat price to last year's valuation, I still applaud CEO Bastian Lehmann's ability to get fresh capital (from a returning VC investor, no less) in the current fundraising environment.

“Flat is the new up,” co-founder and CEO Bastian Lehmann jokes in an interview with Fortune. 


But I think Postmates' flat round is a symbol of what's happening elsewhere in Startupland. There's a lot of cost-cutting going on. Hear me out.

Let's make one assumption about all late-stage, venture-backed startups:

Assumption #1: Startups are burning cash (costs are exceeding revenue)

If we assume ^^ is true, then you can do 1 of 2 things to avoid going extinct:

Option #1: Raise more money!
Option #2: Spend less

Bastian went with Option #1: raising money. In fact, it would appear he spent the better part of a year doing so. Here's a timeline.

November 2015.

Then April 2016.

 

Still, no money. Then in September 2016...could it be?!?!

 

 

And finally, in November 2016:


So if you asked Bastian to visualize his year at Postmates in 2016, he'd probably just show you this:


(Or maybe he took 101. Guess it depends on traffic.)

Bastian took the hard route. He pounded the pavement, showed investors that he has a way to turn a dollar into two (hopefully soon), and was willing to optimize for cash (before he ran out) over valuation. So that's Option #1.

Option #2 is to spend less. Which is happening a lot right now but it was waaaaaay less exciting to write about, or to read about.

Cost cutting is incredibly dull and unsensational. And yet so….pragmatic! Little costs add up (check out how HotelTonight saved $8,000 just by...asking nicely). And silly costs add up, too (just ask Dropbox about their LIFE-SIZE chrome panda that cost a cool $100K).


But chrome pandas ain't got sh*t on how expensive humans are. People are effing expensive. Know how I know? For one, I'm a founder (and I love our team to bits). For another, just look at all these well-established startups cutting headcount recently:

Now, you may be thinking "jeez, what a bunch of ruthless, good-for-nothing, entitled CEOs just taking away the livelihoods of those hard-working engineers/content-managers/SEO-wizards/support-ninjas*." And that's a very natural reaction to have.

But really you should be proud of them for firing people. For reducing their headcount. For making a really, really, really hard decision that will impact them emotionally (not all founders are robots). Layoffs don't increase the popularity of any CEOs, but they give companies a chance to survive, and to hopefully be 10x the size they are now, and to hopefully allow you to continue getting General Tso's chicken to your doorstep on Sundays when you're just not in the mood to walk.

So is "flat the new up"? No. But it's a good reminder that startups are taking action so that they can fight another day.

(* Side note: there are currently 76 Ninja job openings in the San Francisco Bay Area)

 

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