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The DL - An inside view into Pacific Northwest Tech

Welcome to The DL, a weekly newsletter about tech, startups, and investing in the Pacific Northwest.
September 30 · Issue #15 · View online
The DL
Welcome to The DL, a weekly newsletter about tech, startups, and investing in the Pacific Northwest.

This week’s issue has a two minute summary of what’s happening at WeWork, a guide to choosing your next job, and the inside scoop on why Chik-fil-A is so good.

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What's happening at WeWork?
Great memes from @prayingforexits 🙏
Great memes from @prayingforexits 🙏
The WeWork IPO has gotten way too complicated, so here is the best summary of what’s going on that you can read in less than two minutes:

🚀 Pre S-1 Filing
  • 2018 - WeWork gets pitched on IPO valuations by Morgan Stanley ($43-104B), Goldman Sachs ($61-96B), and JPMorgan ($46-63B)
  • Jan 2019 - Softbank invests $2B in WeWork at a $47B valuation
  • May 2019 - After Uber’s IPO, WeWork becomes the most valuable startup in the US

🗯️ S-1 Filing
  • Aug 14 - WeWork files its S-1 for a September IPO, and critics begin bashing the company for everything from the mission statement…
  • “Our mission is to elevate the world’s consciousness”
  • to the… $700M+ given to Adam Neumann through debt and stock sales, including a $5.9M payment for the “We” trademark

📉 IPO feedback
  • Sep 5 - Based on initial feedback, WeWork considers pricing the IPO in the $20-30B range, significantly below its last $47B valuation
  • Sep 8 - WeWork begins considering a valuation below $20B, while investors push the company to consider postponing the IPO
  • Sep 13 - WeWork makes corporate governance changes and considers a valuation of $10-12B in order to get the IPO “back on track”
  • Sep 16 - WeWork makes a last-minute decision to postpone the IPO

👨‍💼 Spotlight on Adam
  • Sep 18 (Wed) - WSJ publishes a profile on Adam Neumann’s drug and alcohol use, conflicts of interest, and eccentric behavior
  • Sep 22 (Sun) - WSJ breaks the story that SoftBank and other board members are pushing for Adam Neumann’s removal as CEO
  • Sep 24 (Tue) - After a board meeting, Neumann steps down as CEO; board names Sebastian Gunningham and Artie Minson as co-CEOs

🔮 What’s next?
  • Sep 27 (Fri) - WeWork is firing ~20 execs close to Neumann, selling non-core businesses, and leaning towards pulling its IPO filing
  • Sep 30 (Mon) - WeWork formally withdraws its IPO filing

Here are my three learnings from the WeWork story so far:
1. Story is critical, but eventually you have to deliver
  • The market cap of all office REITs in the United States is ~$100B. WeWork’s potential has to be way bigger than that because who would want to invest in such a risky business for a 2x return?
  • But eventually you need to back up your story with substance. Here’s an interesting analysis on the “BS Ratings” of different startup mission statements and how they correlate to stock performance

2. Public markets are slightly more rational than private markets
  • The marginal buyer sets the price of an asset, but many private deals look like auctions because only one bidder wins
  • In the public markets, many investors can buy or sell a position at any time, so it’s harder to get caught up in auction fever

3. Sentiment changes fast; investment decisions should not!
  • It’s crazy how quickly the media went from portraying WeWork as a hot startup to an insane business that might go bankrupt
  • If I were a late stage private investor, I would be focused on tuning out the noise and trying to figure out whether or not WeWork actually makes money and investing at the right price

How to choose your next job
Before reading the rest of this, put yourself into the shoes of a Stanford senior graduating with a CS degree, and pick one of these (real) job offers:

  1. MegaTech Public – $115K base, $25K signing, 10% annual bonus, $200K RSUs vesting over 4 years, lots of perks and benefits
  2. UnicornTech Private - $105K base, $10K signing, no annual bonus, options for 0.01% of the company vesting over 4 years, lots of perks
  3. NextBigThing Private - $89K base, $3K signing, no annual bonus, options for 0.5% of the company vesting over 4 years, limited benefits
  4. TooBigToFail JumboBank - $85K base, $5K signing, $60K annual bonus (growing $20K per year), no equity, generous benefits

The fun part of this poll is it’s part of a class at Stanford called CS 007 (Personal Finance for Engineers), and the “answers” are posted online.
While most students think working at a bank will maximize their comp over the next five years, most of them (52%) want to join a startup. Here’s why:
  1. Long-term value – people want the potential for growth and learning; also equity is seen as the largest driver of long-term earnings
  2. Company success - working at a successful startup can enhance future career prospects
  3. Quality of team, people, and network - working with great people is a major source of job satisfaction and can lead to future opportunities
  4. Risk tolerance - some people prefer the potential for exceptional outcomes vs. guaranteed results

If you want to see more content on personal finance and how to make big financial decisions, check out the course blog. It’s a great resource!

Other stuff Dan's talking about
💸 How much do people at tech companies make? - Last week’s most popular link was Microsoft comp data, so I wrote a more detailed post on tech compensation vs. other high paying careers. Check it out on my new website! (with searchable archives for all DL posts)
The church of chicken - It only costs $10K to start a Chick-fil-A (vs. $2M for a McDonald’s) because they pay all the startup costs. This allows them to be very selective (0.15% acceptance rate) and find passionate community leaders to spread Chik-fil-A’s “gospel of hospitality and fried chicken”
🤖 $160,100 - Live auction price for a 2-story tall, giant battle robot. The owners spent $2.5M building it, but they went bankrupt and need to sell
🍣 “End of the Line” - Nice article (and pun) from Eater on the sudden end of Blue C Sushi, the conveyor belt sushi restaurant

Thanks for reading!! ❤️
About me: I work as an investor at Madrona Venture Group, a Seattle-based venture capital firm that has been early partners with companies like Amazon, Smartsheet, Apptio, and Redfin.
If you have thoughts, questions, or comments, hit reply!

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