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The DL - Tech's Hiring Spree, VC Investment Memos, Remote Work at Netflix, and DL Baby Advice

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Welcome to The DL, a weekly newsletter about tech, startups, and investing in the Pacific Northwest.
 
September 14 · Issue #65 · View online
The DL
Welcome to The DL, a weekly newsletter about tech, startups, and investing in the Pacific Northwest.

This week’s issue covers tech’s hiring spree, Bessemer’s investment memos, Reed Hastings on remote work, and baby advice from DL readers. (Thank you all for the notes of congratulations and advice!)

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Do you work at Amazon yet?
Despite a global pandemic, hiring at most tech companies (except for Uber, Lyft, and Workday) is still on track or even accelerating.

Amazon grew by 36K employees to 877K people between March and June. They also made a couple of announcements on hiring even more people last week:
  • 25K new jobs in Bellevue over the next 5 years (they were previously targeting 15K jobs in Bellevue, so this is an extra 10K jobs)
  • 33K new jobs in corporate and tech roles with an average pay of $150K (that’s 10x more employees than Zoom!)

The population of Bellevue is only 150K, so in a few years 1 in 6 people in Bellevue will be an Amazon employee! And I guess the other 5 will be folks who retired early with their Amazon RSUs. 😂

Bessemer Investment Memos
"Outcome Analysis" for Shopify ($112B market cap). Note - the most optimistic case is a $400M exit!
"Outcome Analysis" for Shopify ($112B market cap). Note - the most optimistic case is a $400M exit!
VCs normally don’t share their investment memos, and the only “public” memo out there is Sequoia’s investment memo for YouTube’s seed round that was used as testimony in a lawsuit.

Last week, Bessemer shared several of their investment memos from their investments into companies like Shopify, Pinterest, Twilio, and LinkedIn. Tons of great insights into how investors evaluate companies, frame investment decisions, and structure deals.

Here are some interesting excerpts from the Shopify memo, along with my commentary:
Team - Investors often say the number one thing they look for in new investments is a great team. But in a memo, three flights to Ottawa to get to know the team were summed up by “We have been impressed by Tobi.”
We have been impressed by Tobi. He is a young, first-time CEO who is thoughtful, has good product and management instincts. Shopify’s 24 employees are located in Ottawa, Canada. Based on Shopify’s reputation in Ottawa as a local internet startup success story, and based upon Tobi’s reputation among the developer community, the company has been able to recruit some of the best development and design talent in Ottawa at 60%-70% of the cost of similar talent in Silicon Valley or New York.

Market - Instead of trying to overcomplicate a market sizing analysis, this memo just points to other companies that have built big businesses in a similar market to justify the market is big enough.
Shopify targets small and mid-sized brick & mortar retailers as well as people looking to start an online-only store to sell physical goods. Estimating the size of this market is difficult. However, the size of similar, but much more legacy and US/Canada-only businesses provide a proxy: Homestead (~85K customers), Yahoo Stores (~55K) and eBay ProStores (~30K). At the lowest end, Shopify targets at-home capitalists—the same audience as Etsy, which has roughly 80,000 active sellers generating $300mm in annualized gross merchandise value.

Product - This section lists a bunch of product features, but the important point is describing the customer problem Shopify tried to solve, and their philosophy on how to continue enhancing the product
Shopify is a SaaS application for setting up and running an online store. In many ways, its strength lies in its simplicity, which is ideally suited to small businesses. A non-techie can start taking orders from a professional-looking online store in a few hours after sign-up.
The Shopify philosophy is to build only those features into that most customers need most of the time.

Deal - Man, investing in a $100B+ company at a $25M pre-money is pretty awesome. Interesting to see that at the time of the deal, they were already looking for ways to increase their ownership by buying more shares
This is a deal for BVP to invest $5mm at $25mm pre-money, with a 13.5% option pool built into the pre-money valuation, 4% of which will be re-granted to existing employees. This Series A security is a 1x straight preferred. BVP will receive two of five board seats and will have the right to force a sale after 6 years.
In addition, we anticipate an opportunity to purchase $2mm worth of common shares at a 25% discount from a co-founder who left the company several years ago. The additional $2mm would increase our exposure to $7mm, but also increase our ownership to 31% at an attractive price.

Remote Work Sucks -Reed Hastings
Remember these things?
Remember these things?
As everyone continues to rave about remote work, it was fun to read this interview with Reed Hastings on why he thinks remote work is “a pure negative.” Some highlights:
  • Do you have a date in mind for when your workforce returns to the office? Twelve hours after a vaccine is approved.
  • Have you seen benefits from people working at home? No. I don’t see any positives.
  • Work from home approach…? If I had to guess, the five-day workweek will become four days in the office while one day is virtual from home.

Other stuff Dan's talking about
2020 in one photo
2020 in one photo
👶🏻 Baby Advice - ICYMI last week we had a special DL announcement: Sarah and I are expecting a baby boy next month! I solicited baby advice from DL readers, and here is the collective wisdom in case you’re curious
🛒 Amazon x Reliance - Microsoft and Amazon have been conspicuously absent in all the action around Reliance Industries. But now it looks like Reliance is offering Amazon a 40% stake in its $20B retail business
✈️ The Wild World of The Points Guy - The Points Guy started his blog in 2010 and sold it two years later for $20M. Now it makes $50M+ a year! Article on his “success and life of excess.” (Paywall. LMK if you want a copy)
🐉 D&D TikTok - Dungeons & Dragons had its biggest ever revenue year in 2019, and now they are blowing up on TikTok, too. I’ve never played! Can someone teach me / invite me to a game?

Please hit reply! (Or subscribe or forward!)
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! If you’re new, check out some of the DL’s top articles from the last few months:

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