Tech News

W

elcome to Startups Weekly, a nuanced take on this week’s startup news and trends by Senior Reporter and Equity co-host Natasha Mascarenhas. To get this in your inbox, subscribe here.

If there’s one thing I can rely on every new year, it is that people will debate whether resolutions are an irrelevant, capitalistic waste of time, or if there’s something beautiful about the world collectively wanting to better themselves.

Longtime readers know that I’m a fan of resolutions because of the latter. There’s nothing quite like the renewed energy you get from a few days off, ready to be focused on better, bigger goals that 2022 just didn’t have room for. Am I re-energized after two weeks off? Yes. Am I worried that the news cycle will begin to spiral out of control within moments, taking us and our hot takes with it? Also, yes.

Alas, that’s where we are and if you have a resolution, I’m cheering for you. My journalistic one, beyond working more on my writing craft and perhaps getting started on this book dream I’ve had forever, is to do more follow-up stories.

The big themes that dominated 2022 news coverage were around layoffs, labor and venture capital incentives. But beyond singular workforce reductions, how has the reality check changed the way tech works? Are venture dollars getting more disciplined or was that just a fever tweet of the past 12 months? Doom and gloom is part of the story, always, but I think there’s also news to be found in the reinvention and reframing of tech.

So far, if I do say so myself, I’m not doing half bad. This week, I published a story looking into how laid-off talent is rethinking risk in today’s job market. Here’s the intro:

Tech isn’t as collegial as it used to be. Rocket ships are being unveiled as sputtering messes, mission-driven startups don’t feel so mission oriented when responding to investor pressure, and widespread layoffs offer a loud reminder that jobs are breakable contracts not sacrosanct vows.

Over the past few months, thousands of employees from Meta, Twitter, Stripe, Amazon, DoorDash and countless other companies that don’t have the privilege of being household names are back on the job market. A job market that includes hiring freezes, salary cuts and a general malaise that industry experts warn won’t be over this year.

So where does tech’s talent go from here?

The answer is complicated, and it’s too early to have definitive labor data. VCs want to fund the newest tech mafia startups before banks do, top MBA programs want laid-off workers to join so badly that they’re waiving standardized test score requirements, and the tech companies that are in a position to hire really want you to know it.

Keep reading to see how three laid-off employees are approaching their careers differently in 2023. As always, you can find me on Twitter, Substack and Instagram, where I publish more of my words and work. In the rest of this newsletter, we’ll talk about CES, crypto and Katrina Lake’s return as Stitch Fix CEO.

What you CES at Vegas, hopefully doesn’t stay in Vegas

It’s that time of the year. This week brought CES, the annual consumer electronics show that features a slew of creative gadgets likely to surprise. TechCrunch is on the ground covering these products as they debut, which range from texts from your dog to not-so-dorky AR glasses and “a stylish hiding spot for your unmentionables.”

Here’s why this is important: CES is starting to take robotics more seriously, according to TC’s hardware editor Brian Heater. In his newsletter, Actuator, Heater gave us early impressions of the show, which is less of a spectacle compared to its pre-pandemic days.

Here’s why he thinks there were more robots roaming around Vegas this past week:

The pandemic has accelerated the industry in general.

Automakers are getting serious about investing in and acquiring robotics startups or building these technologies in-house. See: Ford’s Agility investments, TRI’s research and Hyundai’s events post-Boston Dynamics acquisition.

Big firms like Amazon have been aggressively pushing consumer robotics.

Here’s a roundup of the top AI-powered products we saw at CES 2023
Today at CES: Baby wearables, texts from dogs and E-Ink cars
Stellantis launches new business unit to turn your vehicle data into cash
EcoFlow teases full-house battery backup coming later this year

The latest in crypto

I’ll be honest, this subhed sounds like a mandatory groan meets not-so-subtle hangover. I know you’re not interested, or really helped by, a listicle of all the crypto stories you may have missed while you were enjoying eggnog or catching up on books. Link roundups, even though they are at the end of this newsletter, only do so much!

Here’s why it’s important: We can’t just shrug off what happened in the final innings of 2022 and let fatigue win! So, let’s make a deal. I’m going to throw you to my brilliant colleague Jacquelyn Melinek’s newsletter, Chain Reaction, for the latest and greatest about what’s happening in the world of crypto. Her latest column certainly made me wake up: “Crypto is ringing in the New Year with new lawsuits and new chaos.”

Most recently, infamous FTX founder and former chief executive Sam Bankman-Fried pled not guilty to several federal fraud charges, a choice that some saw as a savvy response.
Coinbase reaches $100M settlement over background check failures
Despite the FTX mess, the crypto market looks to the future
And then, because ‘tis the season for follow-up stories, I’ll leave you with a checkup on Youtuber Jake Paul’s NFT project. (It is not thriving).

Stitch Fix up

While we often cover executive departures, it’s not every day that you see a founder return to their company as chief executive a year and a half after stepping down. Gold star if you guess who I’m talking about: Stitch Fix founder Katrina Lake is returning to the company she began as it struggles through the downturn.

Here’s why it’s important: Now that Lake is chief executive again, she is the bearer of bad news. As first reported by CNBC, Lake sent a companywide email to 1,700 salaried employees, indicating that 20% of them are getting cut.

As I spoke about on our latest episode of Equity, it’s clear that the 2022 tech layoff spree isn’t a wave anymore, it’s a reality. Just take a look at other headlines from this week:

Salesforce to cut workforce by 10% after hiring ‘too many people’ during the pandemic
Amazon to cut 18,000 jobs as tech layoffs continue
Indian fintech BharatPe CEO Suhail Sameer to leave top job
Yet another Zomato co-founder leaves the firm

A few notes

If you’re feeling nostalgic, here’s some of our 2022 year-end coverage

How we covered the creator economy in 2022
Here’s how you described the tech industry’s 2022 in a headline
Remembering the startups we lost in 2022
My top stories of the year
Previous Startups Weekly, “Tech’s latest controversy? The return of the five-day, in-person work week.”

TechCrunch is coming to Boston on April 20. I’ll be there with my favorite colleagues to interview top experts at a one-day founder summit. Book your pass ASAP!

Seen on TechCrunch

Two CEOs is better than one with Henrique Dubugras from Brex

There’s now an open source alternative to ChatGPT, but good luck running it

India set an ‘incredibly important precedent’ by banning TikTok, FCC Commissioner says

Doorstead closes on $21.5M to make sure you always have a tenant for your rental property

Remember how this whole working thing works?

Seen on TechCrunch+

Will record levels of dry powder trigger a delayed explosion of startup investment?

Black founders still raised just 1% of all VC funds in 2022

How global unrest will impact innovation in 2023

The year customer experience died

Toyota stumbled as Hyundai was stealing the successful Prius playbook

Whoops! Is generative AI already becoming a bubble?

With that, I am off to Baltimore to spend some time with some of my dearest childhood friends. If you have any coffee shop recommendations, send them my way! Otherwise, I’ll catch you next week.

Always,

N

Labor trends in 2023: Over-employment, fatigue and hope by Natasha Mascarenhas originally published on TechCrunch

Hot on the heels from its $15 million fundraise just a few months ago, Brelyon showed off its vision for what immersive visuals could look like. At CES in Las Vegas, we tried out the 8K fully immersive OLED display, which gives a VR headset-like experience without having to strap anything to your face.

“Brelyon Fusion allows the blending of light to scale field-of-view in a new way that achieves multiples of resolution,” explained Barmak Heshmat, CEO and founder of Brelyon in an interview with TechCrunch. “This kind of new lightfield expansion innovation really allows us to think of light as pieces of LEGO blocks that can computationally be built to create a more immersive screen.”

The tech is currently a prototype that won’t hit the market for a little while yet – the company guesses 3-4 years from now – but it’s deeply impressive nonetheless. The core technology is what the company calls Ultra Reality, usingprecise wavefront engineering to create a massive field of view with a profiled true optical depth. The upshot is a display that completely surrounds your field of view. It also adds spatial audio, and uses a series of cameras to track your head position, adjusting what the display is showing accordingly for maximum immersion.

So, er, who is it for?

“We see this as a parallel to a headset experience, without people having to put on any headsets. Of course, the Enterprise market is one of the early adopters. They are already buying some of our older models,” Heshmat explains. “This will be fantastic for gamers, anyone that uses multi-monitor setups, or wants to do something with headsets but doesn’t want to stand up and dance all the time. It is a very immersive desktop experience.”

The company points out that the market has spent tens of billions of dollars buying VR headsets, but that it believes that immersion shouldn’t equal headsets.

“There should be other solutions for people that don’t want to wear headsets, but still want to get immersed. What’s happening in the industry is that because headsets are becoming more mainstream, some of the elements that were used for headsets are now becoming lower-priced,” Heshmat says. “That allows us to create what we call ‘optical displays.’ They use a combination of optics and computational techniques to give you these virtual images without you having to wear goggles. We are the architect of these new categories of displays.”

If you like your videos with a bit of deep-trance music and music-video style fast edits, Brelyon has some more visuals for you:

At CES, this VR headset wears you by Haje Jan Kamps originally published on TechCrunch

W

elcome to the TechCrunch Exchange, a weekly startups-and-markets newsletter. It’s inspired by the daily TechCrunch+ column where it gets its name. Want it in your inbox every Saturday? Sign up here.

It is always nice to start a new year with a dose of optimism — as long as it is warranted. After reviewing PitchBook’s latest analysis, I am starting to reconsider my expectations for seed-stage dealmaking in 2023, and maybe you will, too. Let’s explore. — Anna

Upcoming pressure?

As 2022 came to a close, I tried to keep my expectations in check: If even Instacart was no longer ready to go public just yet, I had to gear up for the dearth of tech IPOs to continue in the first quarter or even the first half of 2023.

However, seed-stage venture capital activity was one of the things I felt reasonably optimistic about for the new year. Sure, public market woes had trickled down to private dealmaking. But while post-Series A deal count and deal volume were impacted, angel and seed-stage investment activity seemed pretty stable.

Let’s keep our seed activity expectations in check by Anna Heim originally published on TechCrunch

File this one under style over substance, but damn if these speakers don’t pack a whole lot of style into a small container. Under the amazing name Soul of Blackleaf, these stylish speakers use a magnetic fluid to visualize your music as its plays.

“This basically a Bluetooth speaker that we combined with the visual effects. We have our own patented sound detection technology, and every time you play a song, we create patterns based on the music. It is customized every time, giving a different visualization every time,” explains Chris Lam, the founder of the company making the speakers. “We started making this in Taiwan and are now starting mass production for the overseas markets.”

The $400 Bluetooth speaker might not be the best-sounding speaker we’ve heard at CES in Las Vegas this year, but it’s certainly one of the most stylish.

“I love music. There are so many Bluetooth speakers on the market, and We wanted to make something different. With the Soul of Blackleaf, you can watch and feel the music,” Lam concludes.

The Soul of Blackleaf brings analog visualization to your music experience by Haje Jan Kamps originally published on TechCrunch

It was the year of XR. But then, they all seem to be, these days. Strong presences from Meta, Magic Leap, Sony and HTC led the way at this year’s CES, with hundreds of startups picking up the rear. I was dazzled by a few demos, but ultimately left wondering what form a true mainstreaming of AR/VR might ultimately take – if it ever actually takes such a form at all.

There’s something about the technology that feels warm and welcoming, after a long day on your feet, gland handing your way across Las Vegas venues. Strap on a headset and feel the show floor slip away for a minute or two. I believe that most of the people who try these technologies in this context get it, but there are currently far too many barrier to getting these products on most people’s face.

Good VR is still prohibitively expense. Content is fairly limited as well. Both of these factors are moving in the right direction, certainly, but there’s a big, open question around whether they’re doing so at a fast enough clip to hit a critical mass in this iteration of the perennial hype cycle.

HTC’s approach is still baby steps. It’s the recognition that – in spite of years of hearing otherwise — true mainstream adoption is still some ways off. In the meantime, that means focusing on a core audience. It means being okay with remaining a relative niche – a far cry from the Taiwanese manufacture’s high-flying days as a phone maker – while chipping away as those big granite boulders standing between it and the general public.

For HTC, the Vive XR Elite was the star of the show. At $1,099, it’s a few hundred dollars less expensive than Meta’s Quest Pro, but still way too expensive to see it as some kind of breakthrough for the industry at large.

“This is for an audience that wants an upgraded experience,” Shen Ye, the company’s Senior Director, Global Head of Product said in an interview with TechCrunch. “Gamers and just people who want a good headset that is comfortable.”

At this point in the evolutionary process, it might be unfair to put the bar for success at an XR headset in every home. Leap Motion’s well-publicized struggles are a decent barometer here. Even more so the fact that the company made an outright pivot into enterprise. There’s a lot of money to be made selling product to businesses – certainly more than currently appears to be kicking around for pure consumer plays.

HTC has undoubtedly made some impressive gains here. I can’t say I spent a ton of time in the XR Elite, but the headset was as comfortable and engaging as advertised. It’s a piece of the puzzle that has long felt like an afterthought for manufactures. It’s a strange thing to overlook in a piece of hardware designed to sit on your face for long stretches.

Ye compares potential buyers to gamesr who have been patiently – and frustratingly – awaiting the arrival of a pro version of Nintendo’s popular convertible console

“To this day, people still want a Switch Pro,” he tells TechCrunch. “They want something portable, but they want something better. Mobile VR is currently like that. There isn’t a decent upgrade. People who want a good experience are stuck with these products that are racing to the bottom.”

The “race to the bottom” he’s referring to here is precisely that main talking point connected to mainstream adoption: price. The market has been flooded with low-cost VR solutions for years, from Google Cardboard/Daydream to Samsung Gear VR to thousands of products and companies you’ve never heard of. One can credibly make the argument that these things ultimately did more harm than good. They did a fine job getting some version of virtual reality into a lot of hands, but when that experience isn’t a particularly good one, it’s easy to image those people writing off paying a lot more money for VR in the future.

“I do think that one day there will be much cheaper headsets,” Ye says of HTC’s efforts. “But right now, our focus is on how we better drive the market to make it better, to be more inclusive, to have better experiences.”

One thing is for certain: HTC is committed to VR on a level few are. Vive hardware and related software/metaverse technologies are the company’s primary focus, as its phone business has slowed to a trickle (remember last year’s “metaverse” phone, the Desire 22 Pro?). The company’s future hinges on its ability to push VR/XR forward. It can be a tricky line to walk, being all in on a technology, while remaining pragmatic about the speed and scope of its potential growth.

Many in the industry are anticipating validation from Apple in particular. The hope is that the company will enter the AR or XR category with guns blazing, and the buzzwill be a tide that raises all boats.

“I think the nice thing about an Apple coming in is that they’re not a social media company,” says Ye. “The giants that are really trying to disrupt are on this race to the bottom, making cheap headsets that they’re losing money. At the end of the day, what’s the cost of your personal data? We’re not a social media company. Our business model doesn’t rely on advertising revenue, so it’s not something we’re doing. We want to build good hardware.”

HTC’s Global Head of Product on VR’s ‘race to the bottom’ by Brian Heater originally published on TechCrunch

Twitter’s demise might be overstated, but we still can’t unsee what we saw in 2022.

The newly Elon Musk-owned social network could continue zombie-shuffling for months or years for all we know if Elon Musk can scrape together enough advertising revenue to pay the bills — namely, the massive interest on the $13 billion in debt that he saddled the company with in order to buy it. Twitter could also declare bankruptcy and go poof — an outcome that Musk himself has said is very much on the table, and one that’s underlined by Twitter’s recent refusal to pay for everything from office rent to toilet paper.

Either way, the chaos has painted an uncertain future for one of the world’s most prominent and long-running social networks. It’s also presented an opportunity to reevaluate how the social media landscape could radically change in light of Twitter’s very tumultuous 2022.

Taylor Hatmaker, Amanda Silberling and Haje Jan Kamps offer up their own ideas of what they’d like to see in a potential post-Twitter world:

Taylor Hatmaker: Nothing lasts forever and that’s a good thing
Amanda Silberling: It’s time to get weird
Haje Jan Kamps: Bring back the good old days

Taylor Hatmaker: Nothing lasts forever and that’s a good thing

Elon Musk’s disastrous Twitter takeover showed that it just takes one person’s bad ideas to destabilize a social network that everyone assumed was a given.

3 views: What does the future of social media look like after Twitter? by Taylor Hatmaker originally published on TechCrunch

If you have a particular hatred for the microwave or prefer your food to be heated gently when you’re ready for lunch, Steambox is ready for your steamy lunch encounters. The company sold more than 500 of its device via Kickstarter at the end of 2019, and is finally ready to start shipping its device. We checked it out at CES in Las Vegas this week.

Between Kickstarter, Indiegogo, and its own pre-orders, the company tells me it has sold 1,300-1,400 Steamboxes to date.

“The Steambox is for every foodie in the world. It’s for everybody who wants to get out there, and be more flexible with the way they heat up their food,” explains Kevin de Krieger, the company’s co-founder and COO. He explains why he believes steaming is superior to microwaving. “Steam is very useful because it doesn’t dry out your food. It also ensures the food is heated up equally throughout. It also tastes way better. From our customers, we learned they love steam. The microwave basically kills your food, while with steam, it stays fresher, and it tastes almost like the first time you prepared your food. We love it, and our first customers do too.”

The company has produced around 3,000 units so far, and the company has stock in the US and in Europe, ready for buyers willing to part with the $270 to liberate themselves from the office microwave.

“In general, it takes 15 to 20 minutes to heat up your food to a hot meal. The battery capacity is for around 45 minutes, so you can use it 2-3 times on a single charge. After that, you need to charge it for two hours,” explains de Krieger.

The Bamboo-topped device looks incredibly sleek and has evolved a fair amount since its Kickstarter prototypes. One notable setback is that the Kickstarter campaign suggests the device can be charged with USB-C, but for the final design, the company opted to go back to a tip-and-sleeve style charger. A bit of a shame; it feels like if we can charge our high-end laptops from a 65W charger, the company could have found a way to charge the onboard batteries using USB-C as well.

“It will be easy to change to USB-C in the future,” de Krieger assures us. “But we haven’t been able to do it so far, because of how USB-C works. With the new regulations for USB-C in 2024, I believe they will upgrade the amount of voltage we can use. We are just waiting for them to make it work, and then we’ll definitely include it in the products.”

The company’s CEO prepared a video showing how the device works:

The steamer includes a 120W heating element, and measures 10.5 x 6.5 x 3.5 inches (27 x 16.5 x 9 cm). The food container is made of stainless steel and comes with a silicone lid. It can hold up to 25 oz (750 ml), and the whole device weighs around 4.4 lbs (1991g).

Available to buy now from the company’s website, it costs €249 / $269.

When it’s time for a steamy nooner, Steambox has you covered by Haje Jan Kamps originally published on TechCrunch

We’ve seen a lot of companies trying to turn the humble pen into something a little more digital, but few have been as elegantly successful as Nuwa. The company showed off its smart pen atCES in Las Vegas this week.

The smart pen uses three integrated cameras, along with motion and pressure-sensing electronics to take your ink scribbles, and digitizes them. The accompanying app keeps your notes safe, and it even manages to decipher your handwriting, making the notes searchable as well. The pen itself writes on any paper, and can keep notes in journals, notebooks, post-its… well, any paper, really.

We saw the pen in action, and it works fantastically well, capturing writing with speed and ease. Being able to search for “dinner” in the app and see the note where you reminded yourself where and when you’re eating this evening felt a lot like magic.

“Handwriting represents a deeply personal form of thinking, so it was important that we design Nuwa Pen so that we only process the ink and do that processing on-device,” says Marc Tuinier, one of the company’s co-founders. “Our end-to-end encryption solution for digital handwriting ensures that your thoughts are safe and secure the moment you start writing.”

Refreshing for a hardware startup, the Dutch compay isn’t selling its own cartridges, instead opting to support industry-standard D1 ink cartridges. You can pick up four of them for $12, and they are readily available in most stationery stores and online.

The pen comes with a case that charges the pen in 15 minutes. A full battery gives you about two hours of active writing time – after which it’s probably time for a 15-minute break anyway.

The Nuwa Pen app gives you access to your notes at any time. If you want your handwritten notes converted to typed text, the company offers Nuwa Pen+, €2,99 per month subscription.

As someone who is perma-glued to my phone and haven’t touched a pen other than to sign things in a very long time, I can’t really see myself using this. The price point is also interesting; for $280 you can buy the Nuwa pen, or you could go fully digital with a ReMarkable 2 tablet and pen combo. Just $10 more gets you Amazon’s Kindle Scribe, which is a fully functioning kindle you can write on with a stylus. In other words: The tech is awesome, but at this price point you’d have to do a lot of writing (or be a huge fan of being able to hand-write with a real pen over writing on a tablet) for it to truly make sense.

The Nuwa Pen will be available in August 2023 for $279, or can be pre-ordered today for $179. Nuwa will be available in Ebony (black) or Ivory (white).

The pen gets smarter as Nuwa shows off its smart ballpoint and app combo by Haje Jan Kamps originally published on TechCrunch

The visually impaired are getting a helping hand (or a helping belt, as it were) from Korean startup AI Guided. At CES in Las Vegas, the company was showing off some pretty neat tech that incorporates optical and Lidar technology along with AI-powered on-device computing to identify obstacles and help with navigation.

The company claims to be able to do advanced object identification to help keep walkers safe, in addition to using gentle haptic feedback to help with wayfinding. The whole system is carried on a belt, leaving the users hands-free.

The company is pretty early in its journey, starting the initial work on the product in January 2020, with the first prototypes being built mid-2021, and a planned ship date of October 2023. No word yet on pricing, but the company tells us it is hoping to be able to incorporate an 8-hour battery life, and full autonomy even in situations where Wi-Fi or cellular data isn’t available.

There’s not a huge amount of information or details available to date, but as soon as we saw the promo image the company has – with the guide dog giving its replacement the side-eye, we knew we had to share it as one of the weird and wonderful things we find as we traverse the show floors at the world’s largest consumer electronics show.

The company told TechCrunch it is planning to launch an Indiegogo campaign to bring Guidi to market later this month.

Guide dogs will be giving the side-eye to self-driving car tech coming for their jobs by Haje Jan Kamps originally published on TechCrunch

Over the last decade or so, many venture capitalists have built vast personal fortunes. Some of the money has been made through investments in companies that have outperformed. But much of their wealth traces to management fees that added up quickly as fund sizes — raised in faster succession than ever in history — ballooned to unprecedented levels.

Given that the market has changed — and will likely remain a tougher environment for everyone for at least the next year or two — an obvious question is what happens now. Will the industry’s limited partners — the “money behind the money” — demand better terms from their venture managers, just as VCs are right now demanding better terms from their founders?

If ever there was a moment for the institutions that fund VCs to use their leverage and push back — on how fast funds are raised, or the industry’s lack of diversity, or the hurdles that must be reached before profits can be divided — now would seemingly be the time. Yet in numerous conversations with LPs this week, the message to this editor was the same. LPs don’t dare rock the boat and put their allocation in so-called top tier funds at risk after years of solid returns.

They aren’t likely to make demands on poorer performers and emerging managers either. Why not? Because while the latter groups might be provided more time and capital in a go-go market, LPs are simply pulling back from them right now, given their own market-induced cash constraints. (“Markets like these exacerbate the divide between the haves and have-nots,” observed one LP. “When we add someone to our list of relationships,” added another, “we expect it’s going to be for at least two funds, but that doesn’t mean we can can live up to those expectations if the markets are really tough.”)

Some might find the feedback frustrating, particularly following so much talk in recent years about leveling the playing field by putting more investing capital in the hands of women and others who are underrepresented in the venture industry. Underscoring LPs’ precarious relationship with the VCs who manage their venture allocations, none wanted to speak on the record.

But what if they had more backbone? What if they could tell managers exactly what they think without fear of retribution? Here are half a dozen gripes that VCs might hear, based on our conversations with a handful of institutional investors, from a managing director at a major financial institution to a smaller fund of funds manager. Among the things they’d like to change, if they had their druthers:

Weird terms. According to one limited partner, in recent years, so-called “time and attention” standards — language in limited partner agreements meant to ensure that “key” persons will devote substantially all their business time to the fund they are raising — began to appear less and less frequently before vanishing almost completely. Part of the problem is that a growing number of general partners weren’t focusing all their attention on their funds; they had, and continue to have, other day jobs. “Basically,” says this individual, “GPs were saying, ‘Give us money and ask no questions.’”

Disappearing advisory boards. A limited partner says these have largely fallen by the wayside in recent years, particularly when it comes to smaller funds — and that it’s a disturbing development. Such board members “still serve a role in conflicts of interests,” observes the LP, “including provisions around that margins that have to do with governance,” such as “people who were taking aggressive positions that were sloppy from an LP perspective.”

Hyperfast fundraising. Many LPs were receiving routine distributions in recent years, but they were being asked to commit to new funds by their portfolio managers nearly as fast as they were cashing those checks. Indeed, as VCs compressed these fundraising cycles — instead of every four years, they were returning to LPs every 18 months and sometimes faster for new fund commitments — it created a lack of time diversity for their investors. “You’re investing these little slices into momentum markets and it just stinks,” says one manager, “because there’s no price environment diversification. Some VCs invested their whole fund in the second half of 2020 and the first half of 2021 and it’s like, ‘Geez, I wonder how that will turn out?’”

Bad attitudes. According to several LPs, a lot of arrogance crept into the equation. (“Certain [general partners] would be like: take it or leave it.”) The LPs argued that there’s much to be said for an even, measured pace for doing things, and that as pacing went out the window, so did mutual respect in some cases.

Opportunity funds. Boy do LPs hate opportunity funds! One of the first reasons they find these annoying is that they consider these vehicles — meant to back a fund manager’s “breakout” portfolio companies — as a sneaky way for a VC to navigate around his or her fund’s supposed size discipline.

A bigger issue is that there is “inherent conflict” with opportunity funds, as one LP describes it. Consider that as an LP, she can have a stake in a firm’s main fund and a different kind of security in the same company in the opportunity fund that may be in direct opposition with that first stake. (Think of a scenario in which the LP is offered preferred shares in the opportunity fund, meaning her institution’s shares in the early-stage fund get converted into common shares or otherwise “pushed down the preference stack.”)

Not last, the LPs with whom we spoke complained that in recent years, they have routinely been forced to invest in VCs’ opportunity funds in order to access their early-stage funds, even while the early-stage funds was all that interested them.

Being asked to support venture firms’ other vehicles. Numerous firm have rolled out new strategies that global in nature or see them investing more money in the public market. But LPs don’t love the sprawl (it makes diversifying their own portfolios more complicated). They’ve also grown uncomfortable with the expectation that they play along with this mission creep. Says one LP who is very happy with his allocation in one of the world’s most prominent venture outfits but who has also grown disillusioned with the firm’s newer areas of focus: “They’ve earned the right to do a lot of the things they’re doing, but there is a sense that you can’t just cherry pick the venture fund; they’d like you to support multiple funds.”

The LP said he goes along to get along. The venture firm told him that if its ancillary strategies weren’t a fit, it wouldn’t count the decision as a strike against him, but he doesn’t quite buy it, no pun intended.

Yet the limited partner and others who fund the venture industry might grow less timid over time. For example, in a separate conversation earlier this week with veteran VC Peter Wagner, Wagner observed that during the dot.com crash, a number of venture firms let their LPs off the hook by downsizing the size of their funds. Accel, where Wagner spent many years as a general partner, was among these outfits.

Wagner doubts the same will happen now. Accel was narrowly focused on early-stage investments at the time, whereas Accel and many other outfits today oversee multiple funds and multiple strategies into which they can deploy what they’ve raised.

But if their returns don’t hold up, LPs could get fed up and take action, Wagner suggested. “It takes quite a number of years to play out,” he noted, and years from now, “we might be in a different [better] economic environment.” Perhaps the moment will have passed, in short. If it hasn’t, however, if the current market drags on as is, he said, “I wouldn’t be surprised at all if [more favorable LP terms] were under discussion in the next year or two.”

VCs are pushing startups — will their investors tighten the thumbscrews, too? by Connie Loizos originally published on TechCrunch