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The Indicator from Planet Money : NPR





In 2018, after working at a series of startups, Amy Spurling took a leap and founded her own company. It’s called Compt, and it makes software for offering flexible employee perks.


Right. This was Amy’s big idea – the flexible perk. So, for instance, if an employee gets a stipend to use for wellness, maybe they don’t want to use that money for a gym membership. Maybe instead, they want to – I don’t know – fix a broken appliance.

AMY SPURLING: There was one person that said, hey, my dryer is broken, and can I get that done? Because it’s winter and if my clothes aren’t dry, I will get sick.

MA: And the HR department approved it.

SPURLING: So they, you know, took a very liberal approach to kind of how they thought about wellness.

WONG: Can we get that? Yeah.

MA: Can we have a liberal approach? I would like a toaster oven, please.

WONG: A couple of years later, Amy turned to venture capital to grow her business. She raised $1.5 million in her first round of funding for Compt. She had raised money before in her previous jobs, but getting that first check for the startup that she founded – that felt really special.

SPURLING: I mean, I literally cried. Like, it was pretty incredible.

MA: Well, that was a couple years ago. And then in April of this year, Amy enjoyed her biggest fundraising round yet – 13 million bucks. And while she was enjoying this latest round of venture capital funding, she knew it wasn’t going to last.

SPURLING: I’ve been waiting for it to fall off a cliff for two years. There’s, you know, companies out there that assumed that the market would continue going up, up, up. That’s not the way my brain works.

WONG: Well, party’s over for tech. Stocks are down. Big companies are putting the freeze on hiring. Startups are laying off workers.


MA: And I’m Adrian Ma.

WONG: When the flow of money starts slowing, what does that actually look like? Today on the show, we follow how venture capital gets from investor to founder and see how decision-makers at each link of the chain are approaching the rocky times ahead.


MA: Before we get to the doom and gloom, let’s revisit some of the high-flying times for tech.

NICOLE DETOMMASO: There were certain deals that were, quote, unquote, “hot deals.”

MA: Nicole DeTommaso is a senior associate at Harlem Capital. It’s a firm that specializes in early-stage funding for startups run by women and people of color. And Harlem Capital invested in Amy Spurling’s HR tech company in its first round, actually, a couple of years ago.

DETOMMASO: Valuations were through the roof. You know, people were getting 30 million valuations off of an idea. And we still wanted to be in with those great founders. We still wanted to play. You know, we couldn’t – you couldn’t sit out because, otherwise, you just wouldn’t be deploying.

WONG: Deploying is basically spending money. It’s what venture capitalists live to do because the sooner those funds go to work helping a company create the next bit of world-changing technology, the sooner they might see a return on that investment.

MA: And as it turns out, VCs have their own investors to answer to. Those investors are called limited partners, or LPs.

WONG: Do you feel like a lot of people who are maybe more casual observers of the scene don’t know about the existence of LPs?

BEEZER CLARKSON: A hundred percent.

MA: Beezer Clarkson is with a firm called Sapphire Partners, and Sapphire is a limited partner. It is putting money into venture funds in the U.S. and Europe and Israel.

CLARKSON: I think if you ask the average entrepreneur, they wouldn’t know necessarily if the VC just is going to an ATM to get their own money or raising it from somewhere else. It’s just not part of the discourse.

WONG: Limited partners are often wealthy individuals or institutions who spread their money around to lots of places, including VC funds. And one reason they’re called limited partners is because they don’t get involved in picking which startups to invest in.

MA: So to sum it up, startups get their money from venture capital firms, which get their money from limited partners. And Beezer says the latest period of high valuations and frenzy deal-making – it looked pretty frothy from her perspective.

WONG: Like, VC funds used to take 3 to 4 years to spend their money before coming back to LPs to fundraise. That shortened to 18 months, 12 months, even twice a year as all of these deals piled up. There were also more venture funds in the market – all trying to get LPs to invest with them.

CLARKSON: It was definitely signals of a different market that was occurring, and the question was, how long can that last?

MA: Yeah. As we have seen in the past few months, the answer is, not indefinitely. And so now it is time to follow that same flow of money that we talked about – the limited partner to the venture capital firm to the startup – and follow it in a down market. Nicole DeTommaso at Harlem Capital says the trouble started with that thing we’re all living with now – high inflation.

DETOMMASO: Honestly, it probably started kicking off when inflation rose to 40-year highs. Interest rates hiked. Once those hiked, the equity markets dropped.

WONG: Stock markets tend to fall when interest rates go up, and publicly traded tech companies set the expectations for how much private tech companies should be worth. So as public valuations fall, so do private ones, which means a startup that was maybe once poised to be the next Uber or Shopify now just looks like too risky of a bet.

MA: So now you have startup valuations falling, meaning venture capital firms aren’t getting the kind of returns on investment that they want.

WONG: And remember, venture capital firms are investing money they got from their limited partners – the people trusting them to make smart bets on startups. Now venture capital firms are returning less money to their LPs.

MA: Right. And when it comes time for venture capital firms to fundraise, their limited partners write smaller checks. And then the VC firms, they have less money to invest. And so they, in turn, write smaller checks to the startups.

WONG: Nicole says the advice she’s been hearing is that in this market, startups should have 18 to 24 months of cash on hand because they can’t count on being able to fundraise like they used to. For companies that don’t have this cushion, it’s time to start cutting costs.

DETOMMASO: It’s basically just, like, aggressive management on your burn rate.

WONG: Which sounds like a euphemism for, like, you might have to lay off people.

DETOMMASO: Yeah. Unfortunately – because, I mean, human capital is the biggest cost to startups, right? That’s usually the case. And so, unfortunately, yes, sometimes, that means you do have to lay off people. But I think something that you have to consider as a founder is, if you don’t lay off certain people, the whole business might go under, right? And then you’re laying off everyone.

MA: This is what happened during the 2000 dot-com bust. A lot of tech companies did fail. Beezer Clarkson from Sapphire Partners said it got so bad, venture capitalists were actually giving LPs their money back, saying, we don’t think we can get you a return on your investment.

CLARKSON: People really thought tech was over, and the internet was dead.

MA: Yeah. The internet, turns out, was still kicking.

CLARKSON: I don’t feel like today’s the same as March 2000 because there is no question about the importance of software in the world today.

WONG: So no one’s returning your money. You’re, like, watching for your refunds. No refunds coming into the bank account (laughter).

CLARKSON: No, we have not seen that yet.

MA: Beezer says today feels more like the 2008 downturn. And Amy Spurling, our startup founder from the top – at the time, she was chief financial officer of a different company.

SPURLING: 2008 was a pretty gnarly time to be a CFO. We had to do big layoffs to make sure that the company could survive. And there were people who had joined the company just a couple weeks before that got laid off. That really left an imprint on me. Everyone’s got a rent or a mortgage or a family or whatever, so it’s making sure that you’re doing right by your people and not just grow at all costs and assume that people are expendable. And hey, if we hit a bump in the road, we’ll just cut this team.

WONG: Amy was fortunate enough to have built up her war chest right before markets took a turn. She’s actually hiring right now – something she probably wouldn’t be doing if she hadn’t raised the money just in time. Her company, Compt, has 14 employees, and she’s hoping to double that this year.


MA: This episode was produced by Corey Bridges with engineering by James Willetts. It was fact-checked by Catherine Yang (ph). Our senior producer Viet Le edited this episode. Kate Concannon edits the show. And THE INDICATOR is a production of NPR.

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