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Loans Could Burn Start-Up Workers in Downturn

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SAN FRANCISCO — Last year, Bolt Financial, a payments start-up, began a new program for its employees. They owned stock options in the company, some worth millions of dollars on paper, but couldn’t touch that money until Bolt sold or went public. So Bolt began providing them with loans — some reaching hundreds of thousands of dollars — against the value of their stock.In May, Bolt laid off 200 workers. That set off a 90-day period for those who had taken out the loans to pay the money back. The company tried to help them figure out options for repayment, said a person with knowledge of the situation who spoke anonymously because the person was not authorized to speak publicly.Bolt’s program was the most extreme example of a burgeoning ecosystem of loans for workers at privately held tech start-ups. In recent years, companies such as Quid and Secfi have sprung up to offer loans or other forms of financing to start-up employees, using the value of their private company shares as a sort of collateral. These providers estimate that start-up employees around the world hold at least $1 trillion in equity to lend against.But as the start-up economy now deflates, buffeted by economic uncertainty, soaring inflation and rising interest rates, Bolt’s situation serves as a warning about the precariousness of these loans. While most of them are structured to be forgiven if a start-up fails, employees could still face a tax bill because the loan forgiveness is treated as taxable income. And in situations like Bolt’s, the loans may be difficult to repay on short notice.“No one’s been thinking about what happens when things go down,” said Rick Heitzmann, an investor at FirstMark Capital. “Everyone’s only thinking about the upside.”The proliferation of these loans has ignited a debate in Silicon Valley. Proponents said the loans were necessary for employees to participate in tech’s wealth-creation engine. But critics said the loans created needless risk in an already-risky industry and were reminiscent of the dot-com era in the early 2000s, when many tech workers were badly burned by loans related to their stock options.Ted Wang, a former start-up lawyer and an investor at Cowboy Ventures, was so alarmed by the loans that he published a blog post in 2014, “Playing With Fire,” advising against them for most people. Mr. Wang said he got a fresh round of calls about the loans anytime the market overheated and always felt obligated to explain the risks.“I’ve seen this go wrong, bad wrong,” he wrote in his blog post.Start-up loans stem from the way workers are typically paid. As part of their compensation, most employees at privately held tech companies receive stock options. The options must eventually be exercised, or bought at a set price, to own the stock. Once someone owns the shares, he or she cannot usually cash them out until the start-up goes public or sells.That’s where loans and other financing options come in. Start-up stock is used as a form of collateral for these cash advances. The loans vary in structure, but most providers charge interest and take a percentage of the worker’s stock when the company sells or goes public. Some are structured as contracts or investments. Unlike the loans offered by Bolt, most are known as “nonrecourse” loans, meaning employees are not on the hook to repay them if their stock loses its value.This lending industry has boomed in recent years. Many of the providers were created in the mid-2010s as hot start-ups like Uber and Airbnb put off initial public offerings of stock as long as they could, hitting private market valuations in the tens of billions of dollars.That meant many of their workers were bound by “golden handcuffs,” unable to leave their jobs because their stock options had become so valuable that they could not afford to pay the taxes, based on the current market value, on exercising them. Others became tired of sitting on the options while they waited for their companies to go public.The loans have given start-up employees cash to use in the meantime, including money to cover the costs of buying their stock options. Even so, many tech workers do not always understand the intricacies of equity compensation.“We work with supersmart Stanford computer science A.I. graduates, but no one explains it to them,” said Oren Barzilai, chief executive of Equitybee, a site that helps start-up workers find investors for their stock. Secfi, a provider of financing and other services, has now issued $700 million of cash financing to start-up workers since it opened in 2017. Quid has issued hundreds of millions’ worth of loans and other financing to hundreds of people since 2016. Its latest $320 million fund is backed by institutions, including Oaktree Capital Management, and it charges those who take out loans the origination fees and interest.So far, less than 2 percent of Quid’s loans have been underwater, meaning the market value of the stock has fallen below that of the loan, said Josh Berman, a founder of the company. Secfi said that 35 percent of its loans and financing had been fully paid back, and that its loss rate was 2 to 3 percent.But Frederik Mijnhardt, Secfi’s chief executive, predicted that the next six to 12 months could be difficult for tech workers if their stock options decline in value in a downturn but they had taken out loans at a higher value.“Employees could be facing a reckoning,” he said.Such loans have become more popular in recent years, said J.T. Forbus, an accountant at Bogdan & Frasco who works with start-up employees. A big reason is that traditional banks won’t lend against start-up equity. “There’s too much risk,” he said.Start-up employees pay $60 billion a year to exercise their stock options, Equitybee estimated. For various reasons, including an inability to afford them, more than half the options issued are never exercised, meaning the workers abandon part of their compensation. Mr. Forbus said he’d had to carefully explain the terms of such deals to his clients. “The contracts are very difficult to understand, and they don’t really play out the math,” he said. Some start-up workers regret taking the loans. Grant Lee, 39, spent five years working at Optimizely, a software start-up, accumulating stock options worth millions. When he left the company in 2018, he had a choice to buy his options or forfeit them. He decided to exercise them, taking out a $400,000 loan to help with the cost and taxes.In 2020, Optimizely was acquired by Episerver, a Swedish software company, for a price that was lower than its last private valuation of $1.1 billion. That meant the stock options held by employees at the higher valuation were worth less. For Mr. Lee, the value of his Optimizely stock fell below that of the loan he had taken out. While his loan was forgiven, he still owed around $15,000 in taxes since loan forgiveness counts as taxable income.“I got nothing, and on top of that, I had to pay taxes for getting nothing,” he said.The office of Envoy, a start-up that makes workplace software, in San Francisco. The company began a loan program in May.Lauren Segal for The New York TimesOther companies use the loans to give their workers more flexibility. In May, Envoy, a San Francisco start-up that makes workplace software, used Quid to offer nonrecourse loans to dozens of its employees so they could get cash then. Envoy, which was recently valued at $1.4 billion, did not encourage or discourage people from taking the loans, said Larry Gadea, the chief executive.“If people believe in the company and want to double down on it and see how much better they can do, this is a great option,” he said.In a downturn, loan terms may become more onerous. The I.P.O. market is frozen, pushing potential payoffs further into the future, and the depressed stock market means private start-up shares are probably worth less than they were during boom times, especially in the last two years.Quid is adding more underwriters to help find the proper value for the start-up stock it lends against. “We’re being more conservative than we have in the past,” Mr. Berman said.Bolt appears to be a rarity in that it offered high-risk personal recourse loans to all its employees. Ryan Breslow, Bolt’s founder, announced the program with a congratulatory flourish on Twitter in February, writing that it showed “we simply CARE more about our employees than most.”The company’s program was meant to help employees afford exercising their shares and cut down on taxes, he said.Bolt declined to comment on how many laid-off employees had been affected by the loan paybacks. It offered employees the choice of giving their start-up shares back to the company to repay their loans. Business Insider reported earlier on the offer.Mr. Breslow, who stepped down as Bolt’s chief executive in February, did not respond to a request for comment on the layoffs and loans.In recent months, he has helped found Prysm, a provider of nonrecourse loans for start-up equity. In pitch materials sent to investors that were viewed by The New York Times, Prysm, which did not respond to a request for comment, advertised Mr. Breslow as its first customer. Borrowing against the value of his stock in Bolt, the presentation said, Mr. Breslow took a loan for $100 million. More

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    Fear and Loathing Return to Tech Start-Ups

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    Workers are dumping their stock, companies are cutting costs, and layoffs abound as troubling economic forces hit tech start-ups.Start-up workers came into 2022 expecting another year of cash-gushing initial public offerings. Then the stock market tanked, Russia invaded Ukraine, inflation ballooned, and interest rates rose. Instead of going public, start-ups began cutting costs and laying off employees.People started dumping their start-up stock, too.The number of people and groups trying to unload their start-up shares doubled in the first three months of the year from late last year, said Phil Haslett, a founder of EquityZen, which helps private companies and their employees sell their stock. The share prices of some billion-dollar start-ups, known as “unicorns,” have plunged by 22 percent to 44 percent in recent months, he said.“It’s the first sustained pullback in the market that people have seen in legitimately 10 years,” he said.That’s a sign of how the start-up world’s easy-money ebullience of the last decade has faded. Each day, warnings of a coming downturn ricochet across social media between headlines about another round of start-up job cuts. And what was once seen as a sure path to immense riches — owning start-up stock — is now viewed as a liability.The turn has been swift. In the first three months of the year, venture funding in the United States fell 8 percent from a year earlier, to $71 billion, according to PitchBook, which tracks funding. At least 55 tech companies have announced layoffs or shut down since the beginning of the year, compared with 25 this time last year, according to Layoffs.fyi, which monitors layoffs. And I.P.O.s, the main way start-ups cash out, plummeted 80 percent from a year ago as of May 4, according to Renaissance Capital, which follows I.P.O.s.An Instacart shopper at a grocery store in Manhattan. The company slashed its valuation to $24 billion in March from $40 billion last year. Brittainy Newman/The New York TimesLast week, Cameo, a celebrity shout-out app; On Deck, a career-services company; and MainStreet, a financial technology start-up, all shed at least 20 percent of their employees. Fast, a payments start-up, and Halcyon Health, an online health care provider, abruptly shut down in the last month. And the grocery delivery company Instacart, one of the most highly valued start-ups of its generation, slashed its valuation to $24 billion in March from $40 billion last year.“Everything that has been true in the last two years is suddenly not true,” said Mathias Schilling, a venture capitalist at Headline. “Growth at any price is just not enough anymore.”The start-up market has weathered similar moments of fear and panic over the past decade. Each time, the market came roaring back and set records. And there is plenty of money to keep money-losing companies afloat: Venture capital funds raised a record $131 billion last year, according to PitchBook.But what’s different now is a collision of troubling economic forces combined with the sense that the start-up world’s frenzied behavior of the last few years is due for a reckoning. A decade-long run of low interest rates that enabled investors to take bigger risks on high-growth start-ups is over. The war in Ukraine is causing unpredictable macroeconomic ripples. Inflation seems unlikely to abate anytime soon. Even the big tech companies are faltering, with shares of Amazon and Netflix falling below their prepandemic levels.“Of all the times we said it feels like a bubble, I do think this time is a little different,” said Albert Wenger, an investor at Union Square Ventures.On social media, investors and founders have issued a steady drumbeat of dramatic warnings, comparing negative sentiment to that of the early 2000s dot-com crash and stressing that a pullback is “real.”Even Bill Gurley, a Silicon Valley venture capital investor who got so tired of warning start-ups about bubbly behavior over the last decade that he gave up, has returned to form. “The ‘unlearning’ process could be painful, surprising and unsettling to many,” he wrote in April.The uncertainty has caused some venture capital firms to pause deal making. D1 Capital Partners, which participated in roughly 70 start-up deals last year, told founders this year that it had stopped making new investments for six months. The firm said that any deals being announced had been struck before the moratorium, said two people with knowledge of the situation, who declined to be identified because they were not authorized to speak on the record.Other venture firms have lowered the value of their holdings to match the falling stock market. Sheel Mohnot, an investor at Better Tomorrow Ventures, said his firm had recently reduced the valuations of seven start-ups it invested in out of 88, the most it had ever done in a quarter. The shift was stark compared with just a few months ago, when investors were begging founders to take more money and spend it to grow even faster.That fact had not yet sunk in with some entrepreneurs, Mr. Mohnot said. “People don’t realize the scale of change that’s happened,” he said.Sean Black, the founder and chief executive of Knock. “You can’t fight this market momentum,” he said.Jeenah Moon for The New York TimesEntrepreneurs are experiencing whiplash. Knock, a home-buying start-up in Austin, Texas, expanded its operations from 14 cities to 75 in 2021. The company planned to go public via a special purpose acquisition company, or SPAC, valuing it at $2 billion. But as the stock market became rocky over the summer, Knock canceled those plans and entertained an offer to sell itself to a larger company, which it declined to disclose.In December, the acquirer’s stock price dropped by half and killed that deal as well. Knock eventually raised $70 million from its existing investors in March, laid off nearly half its 250 employees and added $150 million in debt in a deal that valued it at just over $1 billion.Throughout the roller-coaster year, Knock’s business continued to grow, said Sean Black, the founder and chief executive. But many of the investors he pitched didn’t care.“It’s frustrating as a company to know you’re crushing it, but they’re just reacting to whatever the ticker says today,” he said. “You have this amazing story, this amazing growth, and you can’t fight this market momentum.”Mr. Black said his experience was not unique. “Everyone is quietly, embarrassingly, shamefully going through this and not willing to talk about it,” he said.Matt Birnbaum, head of talent at the venture capital firm Pear VC, said companies would have to carefully manage worker expectations around the value of their start-up stock. He predicted a rude awakening for some.“If you’re 35 or under in tech, you’ve probably never seen a down market,” he said. “What you’re accustomed to is up and to the right your entire career.”Start-ups that went public amid the highs of the last two years are getting pummeled in the stock market, even more than the overall tech sector. Shares in Coinbase, the cryptocurrency exchange, have fallen 81 percent since its debut in April last year. Robinhood, the stock trading app that had explosive growth during the pandemic, is trading 75 percent below its I.P.O. price. Last month, the company laid off 9 percent of its staff, blaming overzealous “hypergrowth.”SPACs, which were a trendy way for very young companies to go public in recent years, have performed so poorly that some are now going private again. SOC Telemed, an online health care start-up, went public using such a vehicle in 2020, valuing it at $720 million. In February, Patient Square Capital, an investment firm, bought it for around $225 million, a 70 percent discount.Others are in danger of running out of cash. Canoo, an electric vehicle company that went public in late 2020, said on Tuesday that it had “substantial doubt” about its ability to stay in business.Baiju Bhatt, left, and Vlad Tenev, founders of Robinhood, at the New York Stock Exchange last year for the company’s initial public offering. Robinhood recently laid off 9 percent of its workers.Sasha Maslov for The New York TimesBlend Labs, a financial technology start-up focused on mortgages, was worth $3 billion in the private market. Since it went public last year, its value has sunk to $1 billion. Last month, it said it would cut 200 workers, or roughly 10 percent of its staff.Tim Mayopoulos, Blend’s president, blamed the cyclical nature of the mortgage business and the steep drop in refinancings that accompany rising interest rates.“We’re looking at all of our expenses,” he said. “High-growth cash-burning businesses are, from an investor-sentiment perspective, clearly not in favor.” More

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    Tech Start-Ups Reach a New Peak of Froth

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    SAN FRANCISCO — How crazy is the money sloshing around in start-up land right now?It’s so crazy that more than 900 tech start-ups are each worth more than $1 billion. In 2015, 80 seemed like a lot.It’s so crazy that hot start-ups no longer have to pitch investors for money. The investors are the ones pitching them.It’s so crazy that founders can start raising money on a Friday afternoon and have a deal closed by Sunday night.It’s so crazy that even sports metaphors fall short.“It’s not like one jump ball — it’s 10,000 jump balls at once,” said Roy Bahat, an investor with Bloomberg Beta, the start-up investment arm of Bloomberg. “You don’t even know which way to look, it’s all just wild.” He now carves out two hours a day for whatever “emergency deal of the day” pops up.The funding frenzy follows nearly two years of a pandemic when people and businesses increasingly relied on tech, creating bottomless opportunities for start-ups to exploit. It follows breakthroughs in artificial intelligence, nuclear technology, electric vehicles, space travel and other areas that investors say are poised to change the world. And it follows nearly a decade in which tech companies have dominated the stock market.The activity has crossed into even frothier territory in recent months, as tech start-ups offering food delivery, remote-work software and telehealth services realized that they not only would survive the pandemic but were in higher demand than ever. The money hit a fever pitch in the final months of 2021 as investors chased a limited pool of start-ups and as tech stocks like Apple, which topped a valuation of $3 trillion, reached new heights.When Roy Bahat, left, an investor with Bloomberg Beta, thought past tech bubbles would burst, “every single time it’s become the new normal,” he said.Andrew Spear for The New York TimesThe result is a booming ecosystem of highly valued, cash-rich start-ups in Silicon Valley and beyond that are expanding at breakneck speed and trying to unseat stalwart companies in all kinds of fields. Few in the industry see a limit to the growth.“The pot of gold at the end of the rainbow has become bigger than ever,” said Mike Ghaffary, an investor at Canvas Ventures. “You can invest in a company that could one day be a trillion-dollar company.”Astonishing data for 2021 tell the story. U.S. start-ups raised $330 billion, nearly double 2020’s record haul of $167 billion, according to PitchBook, which tracks private financing. More tech start-ups crossed the $1 billion valuation threshold than in the previous five years combined. The median amount of money raised for very young start-ups taking on their first major round of funding grew 30 percent, according to Crunchbase. And the value of start-up exits — a sale or public offering — spiked to $774 billion, nearly tripling the prior year’s returns, according to PitchBook.The big-money headlines have carried into this year. Over a few days this month, three private start-ups hit eye-popping valuations: Miro, a digital whiteboard company, was valued at $17.75 billion; Checkout.com, a payments company, was valued at $40 billion; and OpenSea, a 90-person start-up that lets people buy and sell nonfungible tokens, known as NFTs, was valued at $13.3 billion.Investors announced big hauls, too. Andreessen Horowitz, a venture capital firm, said it had raised $9 billion in new funds. Khosla Ventures and Kleiner Perkins, two other venture firms, each raised nearly $2 billion.The good times have been so good that warnings of a pullback inevitably bubble up. Rising interest rates, expected later this year, and uncertainty over the Omicron variant of the coronavirus have deflated tech stock prices. Shares of start-ups that went public through special purpose acquisition vehicles last year have slumped. One of the first start-up initial public offerings expected this year was postponed by Justworks, a provider of human resources software, which cited market conditions. The price of Bitcoin has sunk nearly 40 percent since its peak in November.But start-up investors said that had not yet affected funding for private companies. “I don’t know if I’ve ever seen a more competitive market,” said Ambar Bhattacharyya, an investor at Maverick Ventures.Even if things slow down momentarily, investors said, the big picture looks the same. Past moments of outrageous deal making — from Facebook’s acquisitions of Instagram and WhatsApp to the soaring private market valuations of start-ups like Uber and WeWork — have prompted heated debates about a tech bubble for the last decade. Each time, Mr. Bahat said, he thought the frenzy would eventually return to normal.Instead, he said, “every single time it’s become the new normal.”Investors and founders have adopted a seize-the-day mentality, believing the pandemic created a once-in-a-lifetime opportunity to shake things up. Phil Libin, an entrepreneur and investor, said the pandemic had changed every aspect of society so much that start-ups were accomplishing five years of progress in one year.“The basic fabric of the world is up for grabs,” he said, calling this time “the changiest the world has ever been.” In mid-2020, he started Mmhmm, a video communication provider for remote workers, and has landed $136 million in funding. Mr. Libin said he heard from interested investors a few times a week.Phil Libin has attracted $136 million in funding for Mmhmm, the video communication service he founded.Andrej Sokolow/picture alliance, via Getty ImagesIn less frothy times, young, fast-growing tech companies sought new investment every 18 months. Now they are re-upping multiple times a year.For Daniel Perez, a co-founder of Hinge Health, a provider of online physical therapy programs, the unsolicited emails from investors started in late 2020. They contained pitch decks packed with the elaborate research that the investment firms had done on Hinge, including interviews with dozens of its customers and data on its competitors.These “reverse pitches,” which numbered in the 20s, were meant to persuade Mr. Perez to take money from the investment firms. He also got several term sheets, or investment contracts, from investors he had never met before.“Often when we’re speaking to investors, they’d cut me off and say, ‘Let me show you what I already know about you,’” Mr. Perez said. The reverse pitch from Tiger Global, the firm that Hinge picked to help lead a $300 million funding round alongside the investment firm Coatue Management last January, was 90 pages.A few months after Hinge announced that funding, the reverse pitches started rolling in again. Three different investors sent Mr. Perez videos from celebrities they had hired on Cameo to make their case. One was from Andrei Kirilenko, a former Utah Jazz player whom Mr. Perez was a fan of.“It was a constant drumbeat that got a bit more feverish,” Ms. Perez said. In October, Hinge raised another $600 million led by Coatue and Tiger.Mr. Bhattacharyya said this kind of “pre-work” had become table stakes for firms looking to land a hot investment. The goal is to pre-empt the company’s formal fund-raising process and show how excited the firm is about the start-up, while possibly sharing some useful data.“It’s part of the selling process,” he said.Vijay Tella, founder of Workato, an automation software start-up in Mountain View, Calif., said the dossiers sent by prospective investors during his company’s latest round of funding in November were so elaborate that one firm had interviewed 30 of Workato’s customers. Afterward, Mr. Tella worried that his customers had been spammed by prospective investors and even apologized to some.Workato, which raised $310 million across two rounds of funding last year and is valued at $5.7 billion, is not currently seeking more money. But, Mr. Tella said, “I would bet right now that those calls are still happening.” More

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    Robinhood, in Need of Cash, Raises $1 Billion From Its Investors

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    #masthead-section-label, #masthead-bar-one { display: none }GameStop vs. Wall StreetBeating Wall Street4 Things to KnowUnderstanding Stock OptionsA Long Time ComingAdvertisementContinue reading the main storySupported byContinue reading the main storyRobinhood, in Need of Cash, Raises $1 Billion From Its InvestorsThe no-fee trading app, which is popular with young investors, has been strained by the high volume of trading this week in stocks such as GameStop.Increased trading has forced Robinhood to seek additional funding.Credit…Amy Lombard for The New York TimesøKate Kelly, Erin Griffith, Andrew Ross Sorkin and Jan. 29, 2021Updated 6:07 a.m. ETFacing an onslaught of demands on its cash amid a stock market frenzy, Robinhood, the online trading app, said on Thursday that it was raising an infusion of more than $1 billion from its existing investors.Robinhood, one of the largest online brokerages, has grappled with an extraordinarily high volume of trading this week as individual investors have piled into stocks like GameStop. That activity has put a strain on Robinhood, which has to pay customers who are owed money from trades while posting additional cash to its clearing facility to insulate its trading partners from potential losses.On Thursday, Robinhood was forced to stop customers from buying a number of stocks like GameStop that were heavily traded this week. To continue operating, it drew on a line of credit from six banks amounting to between $500 million and $600 million to meet higher margin, or lending, requirements from its central clearing facility for stock trades, known as the Depository Trust & Clearing Corporation.Robinhood still needed more cash quickly to ensure that it didn’t have to place further limits on customer trading, said two people briefed on the situation who insisted on remaining anonymous because the negotiations were confidential.Robinhood, which is privately held, contacted several of its investors, including the venture capital firms Sequoia Capital and Ribbit Capital, who came together on Thursday night to offer the emergency funding, five people involved in the negotiations said.“This is a strong sign of confidence from investors that will help us continue to further serve our customers,” Josh Drobnyk, a Robinhood spokesman, said in an email. Sequoia and Ribbit declined to comment.Investors who provide new financing to Robinhood will receive additional equity in the company. The investors will get that equity at a discounted valuation tied to the price of Robinhood shares when the company goes public, said two of the people. Robinhood plans to hold an initial public offering later this year, two people briefed on the plans said.Robinhood’s emergency fund-raising is the latest sign of how trading in the stock market has been upended this week.An online army of investors, who have been on a mission to challenge the dominance of Wall Street, rapidly bid up the price of stocks like GameStop, entrapping the big-money hedge funds that had bet against the stocks. Some of these individual investors have reaped huge profits, while at least one major hedge fund had to be bailed out after facing huge losses.Robinhood, which is based in Silicon Valley, has been key to empowering the online investors. Adoption of the app has soared in the pandemic as the stock market surged and people took up day trading in the void of other pastimes. The company has drawn in millions of young investors who have never traded before by offering no-fee trading and an app that critics have said makes buying stocks feel like an online game.Without fees, Robinhood makes money by passing its customer trades along to bigger brokerage firms, like Citadel, who pay Robinhood for the chance to fulfill its customer stock orders.In May, Robinhood said it had 13 million users. This week, it became the most-downloaded free app in Apple’s App Store, according to Apptopia, a data provider.Critics have accused the company of encouraging people to gamble on stock market movements and risk big losses. Brokerages including T. Rowe Price, Schwab and Fidelity have imitated Robinhood by lowering their trading fees to zero. Many of them were also hit by the crush of trading this week.Robinhood has had no trouble raising money over the last year, drawing $1.3 billion in venture capital backing and boosting its valuation to nearly $12 billion. Its other investors include the venture capital firm DST Capital, New Enterprise Associates, Index Ventures and Andreessen Horowitz.Yet the company has faced many issues, including fines from regulators for misleading customers. Last March, it raised more money after its app went down and left customers stranded and nursing big losses, leading to a still ongoing lawsuit.In recent weeks, many online investors have used Robinhood to make bets that pushed up the price of GameStop, AMC Entertainment and other stocks that had been widely shorted — or bet against — by hedge funds. That changed on Thursday after the company curbed customer trading in the most popular stocks. “As a brokerage firm, we have many financial requirements,” Robinhood said in a blog post Thursday. “Some of these requirements fluctuate based on volatility in the markets and can be substantial in the current environment.”In protest, hundreds of thousands of users joined a campaign to give Robinhood’s app the lowest one-star review and drive the company’s rating down. Some investors also sued Robinhood for the losses they sustained after the company cut off trading in certain stocks and several lawmakers urged regulators to exercise more scrutiny of the company.AdvertisementContinue reading the main story More

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    Airbnb Tops $100 Billion on First Day of Trading

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    AdvertisementContinue reading the main storySupported byContinue reading the main storyAirbnb Tops $100 Billion on First Day of Trading, Reviving Talk of a BubbleThe home-rental company’s blockbuster I.P.O. followed that of the delivery company DoorDash. Investors piled into both.Brian Chesky, Airbnb’s chief executive, on Nasdaq’s digital billboard in Times Square on Thursday.Credit…Hiroko Masuike/The New York TimesDec. 10, 2020SAN FRANCISCO — Over the last decade, Airbnb has upended the travel industry, riled regulators, frustrated local communities and created a mini-economy of short-term rental operators, all while spinning a warm narrative of belonging and connection.On Thursday, Airbnb sold investors on an even unlikelier story: that it is a pandemic winner.The company’s shares skyrocketed on their first day of trading, rising 113 percent above the initial public offering price of $68 to close at $144.71. That put Airbnb’s market capitalization at $100.7 billion — the largest in its generation of “unicorn” companies and more than Expedia Group and Marriott International combined.Airbnb’s offering raised $3.5 billion, making it the biggest I.P.O. this year. More

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    DoorDash Stock Soars After Initial Public Offering

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    AdvertisementContinue reading the main storySupported byContinue reading the main storyDoorDash Soars in First Day of TradingThe delivery company’s shares closed at $190 each, 86 percent above its initial public offering price of $102, in a sign of investor appetite.The New York Stock Exchange president, Stacey Cunningham, rang the opening bell as DoorDash celebrated its initial public offering on Wednesday.  Credit…NYSEDec. 9, 2020SAN FRANCISCO — Wall Street loves a pandemic winner.Shares of DoorDash soared in their first day of trading on Wednesday, capping a year of outsize growth for the country’s largest food delivery company. DoorDash stock rose 86 percent above its initial public offering price of $102 to close the day at $189.51.That valued the company at $72 billion, including employee-owned shares — more than the market capitalization of Domino’s Pizza and Chipotle Mexican Grill combined. DoorDash raised $3.4 billion, making it the one of the largest I.P.O.s of the year.Investors piled into the stock despite DoorDash’s deep losses and the intensely competitive market in which it operates. In the week before it went public, DoorDash raised its proposed price range 16 percent to $92.5 per share at the midpoint before pricing even higher. The pandemic has been a boon to the company, as people turned to delivery services while stuck in their homes.Tony Xu, the chief executive of DoorDash, said the company would try not to “chase the scoreboard” and the stock market hype as a public company. “I recognize the significance of the milestone and the moment, but it is one day on this multidecade journey,” he said.DoorDash’s listing heralds a banner week of public offerings for technology start-ups. Airbnb priced its offering on Wednesday at $68 a share, according to people with knowledge of the matter. The home rental company had raised its offering price range once, in the face of high demand, and could be valued at $47 billion, far above its $18 billion valuation in the private market this year. It will begin trading on Thursday.The e-commerce start-up Wish, the video gaming company Roblox and the real estate start-up OpenDoor also plan to list their shares before the end of the year. The events are set to deliver windfalls to the companies’ founders, employees and investors in what is expected to be the busiest year for I.P.O.s since 1999. More than 200 companies valued at more than $50 million have gone public so far this year, according to Renaissance Capital, which tracks I.P.O.s.Many of these companies lose money. Even so, investors have largely given them warm welcomes as they go public. Private investors valued Snowflake, a data warehousing company, at $12 billion before it went public in September. Since then, its valuation has soared to $107 billion.“It’s been 20-plus years since we’ve seen this many I.P.O.s,” said David Hsu, a professor of management at the University of Pennsylvania. But he added a cautionary note about the enthusiasm. “At some point, we do have to look at some fundamentals,” he said.DoorDash’s debut also shows the extreme economic disparities created by the pandemic. Restaurants, struggling to survive government-mandated closures, have increasingly relied on delivery apps like DoorDash to stay in business.DoorDash has grown during the pandemic as more people turn to meal deliveries.Credit…Sean Sirota for The New York TimesThe apps, which dispatch armies of gig workers to pick up and deliver orders, charge fees that some restaurant owners have said are onerous. In many cases, takeout orders have not made up for the lost revenue of indoor dining. Chains including Ruby Tuesday, California Pizza Kitchen and the parent company of Chuck E. Cheese have gone bankrupt this year.But DoorDash has thrived. In the first nine months of the year, its revenue more than tripled from the same period last year, to $1.92 billion. Orders surged to 543 million through September, compared with 181 million a year earlier.Ahead of its I.P.O., DoorDash announced a $200 million pledge to various programs to help restaurants and delivery drivers. It invited a number of restaurant owners and delivery drivers to virtually attend the stock market opening bell ringing and featured them in outdoor marketing campaigns around New York and San Francisco.Despite its rapid growth, DoorDash is burning cash. It lost $149 million in the first nine months of the year and warned investors that the pandemic-spurred growth was likely to slow down.Mr. Xu said the company would continue to spend money to grow “commensurate with the opportunity.”Mr. Hsu said DoorDash’s “astonishing” valuation made him think investors had overemphasized the effects of the pandemic.“When you get to this market cap level, there are questions about where do you go from here?” he said.DoorDash recently won a long-fought battle over its use of contract workers. Last month, Californians passed Proposition 22, a ballot measure that exempts DoorDash, Uber, Lyft and others from a state law that would have required them to treat their drivers as employees. The companies are expected to push for similar rules in other states.Tony Xu, DoorDash’s chief executive, said the company would not focus on the market hype. “I recognize the significance of the milestone and the moment, but it is one day on this multidecade journey,” he said.Credit…Jim McAuley for The New York TimesDoorDash has grown, in part, by focusing on suburban markets and partnerships with large chain restaurants. Founded in 2013 by Mr. Xu, Stanley Tang, Andy Fang and Evan Moore, it survived a ruthlessly competitive market for longer than many of its competitors. This year, two players, Grubhub and Postmates, were acquired by larger rivals.Through the deal-making, DoorDash has remained independent. It counts one million drivers and 18 million customers in the United States, Canada and Australia.The company has experimented with different business models, including a subscription service, DashPass, which costs $9.99 a month for unlimited deliveries. DashPass has five million subscribers.DoorDash began operating commissary buildings where restaurants can rent space and prepare food specifically for deliveries. It has struck partnerships with grocers, pet food companies and drugstores. The company even invested in Burma Bites, a local restaurateur.The succession of tech I.P.O.s provides long-awaited returns to venture capital investors. Many of the companies going public are a decade old. Plentiful venture funding has allowed “unicorn” start-ups, worth $1 billion or more, to put off going public, and with it the pressure to turn a profit, for as long as possible.Sequoia Capital, which has backed Airbnb, DoorDash, Snowflake and several other sizable start-ups going public this year, is expected to reap a bonanza. So is Founders Fund, a venture firm that is a large shareholder in Airbnb and Wish. And the Japanese conglomerate SoftBank, which was bruised by bad bets on the office rental company WeWork and others, could be redeemed by its investments in DoorDash and OpenDoor.Matt Phillips contributed reporting.AdvertisementContinue reading the main story More

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    ‘This Is Insanity’: Start-Ups End Year in a Deal Frenzy

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    #masthead-section-label, #masthead-bar-one { display: none }The Coronavirus OutbreakliveLatest UpdatesMaps and CasesC.D.C. Shortens Quarantine PeriodsVaccine TrackerFAQAdvertisementContinue reading the main storySupported byContinue reading the main story‘This Is Insanity’: Start-Ups End Year in a Deal FrenzyInvestors are tripping over one another to give hot start-ups money. DoorDash and Airbnb are going public. The good times are baaack.Credit…Mark WangBy More