What is going on with the San Antonio Spurs, Merge raises big Series B, Venture associates have nothing to do, and my biggest takeaway from Lex Fridman’s interview with Ye
Stretch Four Insights Volume 40
Happy Saturday,
I kicked this week off in Las Vegas at Money 20/20. There are some great recaps out there including one from Alex Johnson but it’s hard to put into words what the experience of Money 20/20 is. At the core, the conference attracts bankers, venture capitalist, startup founders, banks, and everyone in between. It was the tenth anniversary of the conference and the fifth year I have attended and as usual, it did not disappoint. There were officially 15,000 registered attendees and another 10,000 roamed the Venetian badge-less (cough, cough). Overall, I heard the content was great and the ad-hoc events that took place were great as well.
I returned home to my family on late Tuesday night and not a minute too soon for that late night feeding session with my son.
This week I want to share my thoughts on:
The San Antonio Spurs abruptly cutting a 19 year old first round draft pick
Merge raises a $55 million Series B round and has five day in-office work requirements
Venture associates struggle to stay busy during the slowing market of venture investments
Lex Fridman let’s Ye know how engineering culture works and it is fascinating and a bit racist
Let’s dive in.
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Quote of the Week:
“I am not one of the BLM marchers…” - Ye to Lex Fridman
What in the hell is going on in San Antonio?
Yesterday, #NBATwitter had a surprising story that took over the headlines. The San Antonio Spurs cut their 2021 lottery pick Josh Primo and he made a cryptic Instagram post suggesting it was related to mental health and previous “trauma.” The action by the Spurs is unheard of in professional sports especially considering the NBA’s recent focus on the mental health of players. To cut ties with a 19 year old lottery pick who as recently of October 24th played 25 minutes in a game off the bench leaves a lot to understand over the next few weeks. There are several rumors circulating Twitter but no one has given any clear information on what has happened.
While I have no insider intel, I assume that San Antonio is becoming a bad destination for young NBA players. Two things contribute to this including the city being such an eye sore in the NBA and Gregg Popovich who serves as both coach and president of the franchise is over the hill and is so far removed from the modern day NBA talent. I think this will be a clear signal that his days are likely going to end sooner rather than later. The Spurs are maybe the only team to consecutively part ways with two recent first round draft picks as they parted ways with Luka Samanic, their 2019 first round draft pick, just last year. They are also notorious for the Kawhi Leonard fiasco in which he refused to play for the team until he was traded to Toronto.
The team is surprisingly off to a 4-2 start, but many feel they will be a top candidate for winning the 2023 draft lottery which would put their franchise in contention for the most coveted NBA prospect, Victor Wenbanyama, to enter the draft since LeBron James in 2003.
Merge: The Leading Unified API for Integrations
Merge, a buzzy unified API product, announced a $55 million Series B round led by Accel. The deal is intriguing as large growth rounds have supposedly dropped substantially in volume over the past six months. According to my peers, this company is growing fast and on course to do roughly $6 million a year in revenue this year after only being around for roughly two years. The valuation on this round is fairly large, and it seems like this team got a near 50X valuation mark up meaning the valuation is fifty times the current revenue. Below are my takes on the company.
Upsides
Getting a Series B round done by a top class firm like Accel is impressive in this fundraising climate, both founders likely got some secondary to help with cost of living in San Francisco and New York where the company has offices.
In-office work and anti-remote startups will become a new thing in the coming months. Merge founders are adamant about being in office five days a week in their SF and NYC offices. They even got a feature piece from The Information back in April on how serious they are about an in-office work culture. This has likely been a contributing factor to their growth and execution as teams that are spread-out do not experience as much serendipity of being in office.
The team is building a quite complicated product. Their API stack integrates across HR, recruiting, payroll, accounting, ticketing, and CRM data. So there are technically thousands of various tools that engineers can get access too through their API and they have very good documentation on their website.
Downsides
The space that Merge plays in now is super competitive with at least four venture backed competitors alone and likely more to be funded soon. That is not even to consider the legacy ways engineers get access to this information, I am sure companies have built in-house work arounds and invested engineering resources for the customization that you likely will not get out of the box by using Merge.
The founder archetypes are typical. While everyone speaks well of the founders and they have strong pedigrees both from an educational standpoint, Columbia CS graduates, with strong tech experience, this will still be a challenging business to build as they need to keep all these intergrations running and updated across so many different use cases.
The team is approaching sixty people according to LinkedIn and, in my opinion, lacks diversity for a company that was started at peak DEI awareness. While this not a priority for most startups even at ~60 people; no employee representation beyond White or Asian is pretty intriguing but shows that it typically does not matter for companies until they are public and it definitely does not matter to venture funds like Accel.
Venture Associates may be next to go in the venture industrial complex vortex
As a founder, 2022 has made one thing very clear — venture associates have more time on their hands than ever. I am inundated with outreach from venture associates all over looking to have introductory calls and zooms. I typically pass on most calls as a three-time founder, but I want to unpack why I think this is happening more and more.
As venture firms have slowed the pace of investments from last year, it has left these associates with more time on their hands to research, write, and do outbound to founders. Venture capital is an industry that does not like to lay people off and many associates who started in the past three years are looking for promotions to principals. It’s not happening as quickly as they would have suspected because of the downturn we are seeing in the market. The tweet below highlights the median compensation for these roles. I think what will happen over the next 18 months is a lot of these associates will move on to business school, startup roles, or even start companies themselves.
Lex Fridman and Ye have a compelling conversation on engineering
While I will spare you my take on everything Kanye “Ye” West, I did check out the interview with engineering and artificial intelligence influencer and YouTuber, Lex Fridman. Two hours into the interview there was a conversation on engineering. Fridman responded to Ye’s question about one of his technology companies only having two black engineers out of sixty with this:
“I have not met a black engineer who likes to be called a black engineer…. In engineering they really try to look at each other as humans. Engineers want to look at the problem and you want to know that everybody on the team is the best possible person for the role.”
I was intrigued as a startup founder hiring and providing resources to engineering teams. It is daunting to think about race and ethnicity early on in a startup — but it does not give excuse as to why so many technology companies lack representation at the equity/board level. Fridman is a champion for engineering and celebrated throughout the Silicon Valley ecosystem so it is nice for him to be so clear in how things work. While I have my own opinions on the anti-semitism conversation that Kanye has sparked across the national media, the conversations around engineering and how technology is deemed to be unbiased was what I found most fascinating in this interview for me.
Money 2020 Recap
I spent 48 hours in Vegas at Money 20/20 and it was by far the most people I have ever seen at the conference. I have been going consistently since 2017 and only missed the COVID year but this year was great I was able to connect with old friends and new ones. If I could do it over, I would have been more proactive with RSVP’ing for specific events. As the market tightens, things become more exclusive at these types of events but I enjoyed A16z’s happy hour at Cut Steak, and Oak HC/FT’s annual dinner on Tuesday night.
Overall I made 25 good connections while there and I am excited with the prospects of growing ModernTax, and my Stretch Four projects over the next few months with some of these folks.
Tidbits
According to Kate Clark at The Information Andre Iguodala is raising a $225 Million venture fund
Coaching Networks advancements, announcing our new OIR program, and SaaS hacks to conserve cash
What’s Next
This is my first Halloween as a parent and in San Francisco it is kind of a big deal. Whitney and Cain have a costume and I have one where I am paying homage to a character from The Wire. Pictures to come.
While I am still recovering from Money 20/20, the inaugural SF Tech Week takes place this week so I am planning to attend a few events.
My November deadlines for ModernTax and Stretch Four are quickly approaching so the early part of November will be quite busy
I was invited to attend and present at the Venture 135 Conference in Charlotte, NC which takes place on November 15-16. So it will be a great time to head home and spend time with family while there. I am also going to check out my alma mater take on the number one ranked UNC on November 20th.
As always I would love your feedback on the newsletter so drop me a note at matt@stretchfour.co
Also if you are a tax or accounting professional I would love your feedback by completing this brief survey for a project we are working on at ModernTax.
Also, I am doing some research on some new product offerings ahead of tax season — if you work in any fintech related type business such as lending, credit, collections or know anyone that does please let me know at matt@moderntax.io.
Back to the trenches.
Best, Matt