Bungie employees say they were caught off-guard by 17% staff reduction

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Screenshot from Bungie's recent game The Final Shape.

Image Credits: Bungie /

Bungie, the gaming company that created sci-fi hits such as Halo, Destiny, and Marathon, has laid off 220 employees, roughly a 17% reduction to its workforce, the company announced Wednesday. This is Bungie’s second round of layoffs since it was taken over by Sony in 2022.

Two former Bungie employees affected by Wednesday’s layoffs say they were caught off guard by the workforce reduction. Bungie recently released Destiny 2: The Final Shape, and the project exceeded all internal projections, according to the former employees. In recent months, management had signaled in team meetings that the company was doing well.

Tzivi Sherman, a sound designer at Bungie for more than two years, said he found out about the layoffs from Bungie’s corporate Twitter account in a post on X. He found out his role was impacted shortly after.

“Saw the tweet then about 45 minutes later got an email with a meeting request and an ominous title,” Sherman told TechCrunch.

Although Sherman found out scrolling through social media, he says he’s been waiting for the other shoe to drop ever since Bungie’s layoffs in October.

“It kind of feels like [upper management] is being very two-faced about it,” said Guilhem Lagarde, a product support technician at Bungie affected by Wednesday’s layoffs, in an interview with TechCrunch. “Like they’re telling us one thing, but behind the scenes, something else is happening.”

Sony’s purchase of Bungie in 2022 kicked off a culture shift within the game studio, according to both former employees. This spring, however, Sony and Bungie pushed for a more active integration of the two companies, they said.

Over the last two years, massive layoffs in the gaming industry have become somewhat common, especially following major acquisitions, as is the case here. Kotaku estimates that more than 8,800 video game industry workers have been let go in 2024 alone. Investors continue to be interested in the lucrative gaming industry, but developers building the technology have not been as lucky.

In a press release, Bungie CEO Pete Parsons said Wednesday’s layoffs were a “necessary decision to refocus our studio.” Parsons also mentioned the integration, and said Bungie is working to integrate 155 employees with Sony to reduce the need to layoff more employees.

In the same press release announcing layoffs, Bungie announced it’s working on a new game. Parsons said Bungie is spinning out one of its incubation projects to form a new studio within Playstation Studios. The CEO described it as “an action game set in a brand-new science-fantasy universe.”

This layoff compounds with another layoff in October 2023, where 100 Bungie employees were let go and two game releases were delayed. Parsons said the company still has over 850 team members building Destiny and Marathon.

Bungie did not immediately respond to requests for comment.

Bungie employees say they were caught off-guard by 17% staff reduction

by with No Comment Tech

Screenshot from Bungie's recent game The Final Shape.

Image Credits: Bungie /

Bungie, the gaming company that created sci-fi hits such as Halo, Destiny, and Marathon, has laid off 220 employees, roughly a 17% reduction to its workforce, the company announced Wednesday. This is Bungie’s second round of layoffs since it was taken over by Sony in 2022.

Two former Bungie employees affected by Wednesday’s layoffs say they were caught off guard by the workforce reduction. Bungie recently released Destiny 2: The Final Shape, and the project exceeded all internal projections, according to the former employees. In recent months, management had signaled in team meetings that the company was doing well.

Tzivi Sherman, a sound designer at Bungie for more than two years, said he found out about the layoffs from Bungie’s corporate Twitter account in a post on X. He found out his role was impacted shortly after.

“Saw the tweet then about 45 minutes later got an email with a meeting request and an ominous title,” Sherman told TechCrunch.

Although Sherman found out scrolling through social media, he says he’s been waiting for the other shoe to drop ever since Bungie’s layoffs in October.

“It kind of feels like [upper management] is being very two-faced about it,” said Guilhem Lagarde, a product support technician at Bungie affected by Wednesday’s layoffs, in an interview with TechCrunch. “Like they’re telling us one thing, but behind the scenes, something else is happening.”

Sony’s purchase of Bungie in 2022 kicked off a culture shift within the game studio, according to both former employees. This spring, however, Sony and Bungie pushed for a more active integration of the two companies, they said.

Over the last two years, massive layoffs in the gaming industry have become somewhat common, especially following major acquisitions, as is the case here. Kotaku estimates that more than 8,800 video game industry workers have been let go in 2024 alone. Investors continue to be interested in the lucrative gaming industry, but developers building the technology have not been as lucky.

In a press release, Bungie CEO Pete Parsons said Wednesday’s layoffs were a “necessary decision to refocus our studio.” Parsons also mentioned the integration, and said Bungie is working to integrate 155 employees with Sony to reduce the need to layoff more employees.

In the same press release announcing layoffs, Bungie announced it’s working on a new game. Parsons said Bungie is spinning out one of its incubation projects to form a new studio within Playstation Studios. The CEO described it as “an action game set in a brand-new science-fantasy universe.”

This layoff compounds with another layoff in October 2023, where 100 Bungie employees were let go and two game releases were delayed. Parsons said the company still has over 850 team members building Destiny and Marathon.

Bungie did not immediately respond to requests for comment.

Big, costly seed deals were the exception in 2023's lackluster venture capital market

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Image Credits: Nigel Sussman (opens in a new window)

Hopes that it would become easier for startups to raise capital in 2023 were left unmet as the year ended.

The Exchange explores startups, markets and money.

Read it every morning on TechCrunch+ or get The Exchange newsletter every Saturday.

New data from business database PitchBook paints a modestly dim picture of venture capital investment activity in the fourth quarter of 2023. Per PitchBook’s preliminary count, startups in the U.S. raised 2,879 rounds worth about $37.5 billion in the fourth quarter — the lowest quarterly deal value since Q3 2019 and the lowest deal count since Q4 2017.

Across stages, venture capital investment activity in the United States is flagging, and this extends past aggregate figures — for example, we saw less total capital invested in U.S. startups last year than in 2020.

However, there is an interesting wrinkle in the data: We saw a decline in the number of seed deals, in keeping with the trend in the rest of the market, but it seems the youngest startups are generally faring better than everyone else. Observe:

There was a decline in the median deal value between 2022 and 2023 for all startup fundraises at Series A onward, but 2023’s median deal value at the seed stage matched the $3 million record set in 2022. (The average value of U.S. seed deals rose to $1.3 million last year, which we last saw happen in 2006.)While the median pre-money valuation for all Series A and later rounds declined in 2023 compared to 2022, seed deals’ median pre-money price tag rose to $12 million in 2023, up from $11 million in 2022.

The news is not all good, though. As we noted above, seed-stage startups were not immune to the wider decline in deal activity, and the number of pre-seed and seed deals declined in 2023 to roughly the same point as Q4 2017.

So, what all this adds up to is: fewer but costlier seed deals in the U.S. Is this trend healthy for startups in the world’s biggest VC market? It’s too early to say, but there is evidence that the rising median valuations for seed deals are shaking up the venture industry and, consequently, startup land.

TechCrunch scooped the shuttering of Countdown Capital earlier this week, and the following paragraphs from that story have been stuck in my head (emphasis ours):

The letter posits [from Countdown Capital founder Jai Malik] larger narratives about early-stage hard tech industrials investing that throw into doubt the ability of small, specialist funds to compete against multi-stage incumbents.

Malik explicitly touches on this fact toward the end of the letter, when he writes: “To be clear, we’re not bearish on venture capital or the future success of venture-scale hard tech companies at large. We’re bearish on the ability of small, early-stage funds — particularly sectionally focused ones — to continue exploiting these opportunities profitably.”

In the letter, Malik connects large multi-stage firms investing in hard tech industrial startups to the slowdown in growth in software-as-a-service (SaaS) businesses. But he says that the rate of overall value growth for industrial startups will not outpace the rate of investment from large firms. “Consequently, we think early access to the best companies for a specialized, early-stage venture firm like Countdown will become more limited,” he says. “The most successful early-stage, specialist firms may simply resemble less-profitable ‘derivatives’ of top-performing multi-stage firms, like Founders Fund.”  . . .

He said that this lack of competitive advantage was already noticeable: In three cases, Countdown came close to investing in a company’s first round, only for the firm to be priced out by a larger multi-stage firm: “A 50-100% price difference at the pre-seed and seed stage is immaterial to a multi-stage firm managing billions of dollars, but can and should be the difference between a yes and no for a firm of our size.”

It’s worth noting that larger funds are less price-sensitive in early-stage dealmaking because they expect to build their stake as the startup scales. Paying more — overpaying, if you want to call it that — for an initial stake represents a very small percentage of their total anticipated investment; what matters is early ownership that can be levered into larger stakes later on. If you expect to invest $100 million into a company over time and spend $5 million on a seed deal instead of $4 million, you aren’t going to be staying up at night worried about the price. But if you intend to invest less, spending that extra seven figures early can jumble your math.

Connecting this to our above work, I posit that the multistage impact that Countdown Capital outlined on early-stage investing is showing up more generally in the market. That’s resulting in more expensive seed deals. This could also be playing into the falling number of seed fundraises happening, but I am less sure of this logic on that front.

Newchip Andrew Ryan

They thought they were joining an accelerator — instead they lost their startups

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Newchip Andrew Ryan

Image Credits: Bryce Durbin / TechCrunch

Lacey Hunter thought all was well as she put her startup through the three-month Newchip accelerator. Then the organization filed for bankruptcy in May 2023. Things went from bad to worse later that year when she discovered warrants of her company — rights to buy an ownership stake — had become part of the proceedings, which ultimately forced her to shut down her company.

In 2022, Hunter started TechAid, an AI smart-matching tool for humanitarian aid, and was just beginning the accelerator’s curriculum when Newchip filed for bankruptcy.

“I made a few friends, but functionally, got nothing from Newchip,” Hunter said. “I was shooting to have the curriculum done by August, but in May, the website went down.”

The now-defunct Austin accelerator had filed for bankruptcy amid employee and customer discontent. The court has since ordered the company to auction off the warrants it held in more than 1,000 of the startups that went through the accelerator program.

Normally, private companies like startups have control over which investors are allowed to buy shares and the prices they pay. But the bankruptcy court, which works to restore creditors rather than equity holders, isn’t allowing Newchip’s startups to exert that kind of control. Instead, the auctions are ongoing, with the first tranche already sold and upcoming tranches expected to be sold this spring and summer.

Founders are outraged — including some, like Hunter, who have actually lost their companies as a result.

TechAid fought the sale of the warrants prior to closing the company. Hunter tried to buy them back herself from Newchip, but the organization’s lawyers declined her offer, she told TechCrunch. She had lined up a grant from a bank to help fund her offer, but it ultimately told her no because it was too risky for them to be involved with an unknown warrant holder on her cap table. So Hunter felt she had no choice but to shut TechAid.

“There was no path,” Hunter said. “I knew I was not going to be able to raise money. I mean, I couldn’t even get a no-strings-attached grant. I totally get that, but it still sucks.”

Newchip’s fall from accelerator grace

Newchip started out as an aggregator of top deals from “various equity-based crowdfunding platforms,” according to Silicon Hills News, and later evolved into an accelerator that promised to help startups grow their companies and meet investors — for a hefty fee.

It charged startups between a few thousand dollars and $18,000 to $20,000 for its training programs, founders said. Startups also granted Newchip the right to buy $250,000 worth of shares in the company at a later date, but at their current valuation — this type of deal is also known as a warrant.

Newchip founder and CEO Andrew Ryan previously faced harsh criticism about his leadership style, including allegations that he could be “abusive” and threatening to employees, according to eight former employees who walked out. (Ryan acknowledged to TechCrunch last year that his leadership style was based on “a military mindset.”) One example involved a meeting of about 15 employees in sales, operations and marketing. Ryan had asked the leaders of each department to read a book on how to help college volunteers be more passionate about volunteering, recalled one person who attended the meeting. Ryan asked two of the company’s leaders to lead the group in a discussion of the book. But many were confused by it and didn’t see how it applied to Newchip’s business.

“They were struggling with it. Andrew kept jumping in and interrupting them, and directly challenging them.” And finally, recalled the source, Ryan said, “This was a test for individuals that I’ve asked to do this today. I was going to fire one of you, based on whoever did the worst job.”

He then singled out one person, told the room the person was fired, and, this person recalled, Ryan then said, “I do stuff sometimes to see who’s loyal and to see who is going to do what I tell them to do. This was a test and you failed. You’re out.’”

After seeing Ryan fire this guy in front of the whole room, “I literally watched all of his direct reports sitting there saying to themselves, ‘I will never trust this man again,’” the source said.

Ryan contends that the person who was fired during that meeting had behaved aggressively after being singled out. Ryan also claims that the individual had come unprepared to lead the meeting, which Ryan viewed as an “act of overt insubordination,” telling TechCrunch: “While conducting the termination publicly in that meeting may seem harsh, it was intended to reinforce the gravity of the situation and ensure all managers understood that we took these training sessions and their responsibilities as leaders seriously.”

Newchip logo glitched
Image Credits: TechCrunch

When Newchip (which also did business under the name Astralabs) initially filed for bankruptcy in March 2023, it was a Chapter 11 debt reorg. It then went into Chapter 7 — dissolution and liquidation —  two months later.

Its Chapter 11 filing revealed that it had $1.7 million in total assets and $4.8 million in total liabilities. But the value of the warrants was apparently not taken into account at that time, a source familiar with internal happenings said. Those warrants were estimated to be valued at an eye-popping just under $500 million by Austin-based VC fund and early Newchip investor Sputnik ATX, according to a document viewed by TechCrunch.

Management had not been keeping up with the warrants to the point where it had missed that some companies had exited or raised money, losing out on the potential upside, noted Kerstin Hadzik, a consultant who was brought in to serve as interim CFO a few weeks after the initial bankruptcy filing.

How much did Newchip potentially lose? Sputnik ATX said it identified $54 million in warrant value from companies that had liquidity events “that should have been reported to Newchip but were not,” according to documents viewed by TechCrunch.

In Hadzik’s view, Newchip might have also been saved from going into Chapter 7 if Ryan had been willing to step down as CEO and had presented the warrants as assets when initially filing for Chapter 11.

The judge repeatedly asked Ryan if he would voluntarily step down and let someone else, such as a chief restructuring officer, run the company. Ryan repeatedly dodged the question, expressing doubt that anyone could do so successfully. Ryan also noted that employees had requested “a new CEO” and later claimed that he “was going to step aside … but the shareholders and investors, as part of them putting capital in, preferred that I stay here to make sure that we have the capital … to continue driving the business.”

Ryan also admitted that he was the company’s “major owner and shareholder” and that he had just “terminated all the board” the week before, just after having filed for bankruptcy, according to court documents viewed by TechCrunch.

“The judge was offering like a lifeline,” and Ryan “just said no,” Hadzik recalled.

In a Zoom interview with TechCrunch back when we first reported on the bankruptcy, and in two LinkedIn posts in 2023, Ryan said that he accepted “full responsibility for the events at Newchip.”

Ryan later alleged that there was an attempted coup on the part of an investor but sources say that Ryan had actually asked early investor Joe Merrill to serve as CEO before changing his mind and resuming the role himself. Merrill, who was an early investor in Newchip under its previous model and also co-founder of Sputnik ATX, declined to comment beyond noting that he believed the attempted sale of the warrants was a valid move.

Founders fight for their companies

One founder, who asked to remain anonymous, told TechCrunch that Newchip had approached her on LinkedIn and told her if she got approved to join, she would get introductions to investors. So she paid a $7,500 deposit and was all set to join Newchip when a founder friend told her to “never pay for introductions.”

She decided to hear out Ryan. What convinced her to ask for her money back was that Ryan “blew off our meeting.” He reached out later, but she had already emailed Newchip asking for her deposit back on the basis that she had not started yet.

The founder got her money back, but Newchip didn’t void her contract, so she is now part of the bankruptcy lawsuit. That’s when she learned that someone could buy the warrants of her company for pennies on the dollar, and “it could screw your valuation going forward,” she said.

“I feel so much stress and embarrassment,” she told TechCrunch. “I’m a struggling founder and don’t have the money to pay for a lawyer. Here was this accelerator supposed to help founders, and instead it is imposing stress on young founders.”

There was a period of time when founders could object to their warrants being sold, according to Chad Harding, managing partner at Peak Technology Partners, the investment banking firm tasked by the court to sell the warrants.

The deadline for those in the first tranche to object to these sales was January 15, he told TechCrunch. Founders from all over the world, including Australia and Finland, filed objections, according to court documents.

“We were in the process of obtaining a refund from Newchip when Newchip went bust,” wrote Veronica Hey, CEO and founder of Australian startup Ok Away. “The contract is therefore null and void and the warrant attached to it is not applicable. None of this will stand up in an Australian court. If you continue to pursue in ‘selling’ this warrant you are selling something that does not exist and there will be repercussions.”

This Austin accelerator made big claims; employees and customers say it didn’t deliver

But startups’ objections were made in vain when the court overruled them. A bankruptcy court’s goal is to oversee the selling of assets to settle debts. If there is money left over, it’s paid to shareholders. Ryan is the majority shareholder.

So the warrants are being sold in three tranches. The first involved 133 companies, including for startups such as Cleanster.com, bitewell, Agshift and Firehawk Aerospace. Combined, those 133 startups had raised over $340 million in funding, according to documents shared by the sales agent with potential investors and viewed by TechCrunch.

Ultimately, the sales agent ended up selling 28 warrants in just four companies from the first tranche for a total of about $58,000, presumably at a discount. Successful bidders included Bitewell and ClearForce — startups that bought back their own warrants in advance for $5,000 each, according to an agreement with the trustee — as well as Palm Ventures and Angel Deal Syndicate. The latter purchased the bulk of the warrants, spending $43,000 on warrants in 24 companies, according to court documents viewed by TechCrunch.

The second tranche will likely be sold this summer and will include over 1,400 warrants for sale, according to Harding. The bid deadline will likely be late July, Harding said.

Founders of those startups included in the second tranche will also have the opportunity to object with a proposed deadline of May 31.

Ryan maintains that extensive efforts “have been made to notify stakeholders well in advance.”

“This has afforded ample time for interested parties to access information and documents, raise any objections or issues, and prepare for participation in the sale,” Ryan told TechCrunch.

When dreams become nightmares

Like TechAid’s Hunter, Garrett Temple blames the loss of his company on Newchip’s demise. He, similar to Hunter, also participated in Newchip’s accelerator program from January until May 2023. His startup, Novogiene, was a medical tech company focused on epidemic prevention.

Temple put around $7,500 on his credit cards to be part of the program and said that he never spoke with investors. His main reason for doing Newchip was to get investors for a $500,000 round, in part to pay for a small production run of his device so he could send it to universities and medical schools for pilot testing.

The meetings with investors were supposed to happen after a demo day that was scheduled for the summer. But when Newchip shut down in May, that demo day, and hence those introductions, didn’t happen. Temple wasn’t able to keep going and ended up dissolving Novogiene in the summer of 2023. As such, his company no longer existed for warrants to be sold to potential investors.

Temple said he spoke with his bank about getting money back from the program since he used credit cards. The bank was at first successful in getting $5,000 returned. However, about a month later, Temple noticed that money was no longer in his account and believes Newchip protested the funds.

Though Temple has moved on, he still has some intellectual property for Novogiene and says he is hoping at some point to license the technology to someone else or perhaps at another time pick up where he left off.

“It was very sad to call it quits because getting the funding to make those units was the only hurdle before making serious progress,” Temple said. “If they connected me with investors like they said, I could have made my invention, gotten efficacy and would be shipping units right now. I really do believe that.”

Accelerator operators sell dreams. But that doesn’t always mean that the accelerator will come through. And sadly, the founders who buy into those dreams can be the ones who end up paying the price.

Big, costly seed deals were the exception in 2023's lackluster venture capital market

by with No Comment Tech

Image Credits: Nigel Sussman (opens in a new window)

Hopes that it would become easier for startups to raise capital in 2023 were left unmet as the year ended.

The Exchange explores startups, markets and money.

Read it every morning on TechCrunch+ or get The Exchange newsletter every Saturday.

New data from business database PitchBook paints a modestly dim picture of venture capital investment activity in the fourth quarter of 2023. Per PitchBook’s preliminary count, startups in the U.S. raised 2,879 rounds worth about $37.5 billion in the fourth quarter — the lowest quarterly deal value since Q3 2019 and the lowest deal count since Q4 2017.

Across stages, venture capital investment activity in the United States is flagging, and this extends past aggregate figures — for example, we saw less total capital invested in U.S. startups last year than in 2020.

However, there is an interesting wrinkle in the data: We saw a decline in the number of seed deals, in keeping with the trend in the rest of the market, but it seems the youngest startups are generally faring better than everyone else. Observe:

There was a decline in the median deal value between 2022 and 2023 for all startup fundraises at Series A onward, but 2023’s median deal value at the seed stage matched the $3 million record set in 2022. (The average value of U.S. seed deals rose to $1.3 million last year, which we last saw happen in 2006.)While the median pre-money valuation for all Series A and later rounds declined in 2023 compared to 2022, seed deals’ median pre-money price tag rose to $12 million in 2023, up from $11 million in 2022.

The news is not all good, though. As we noted above, seed-stage startups were not immune to the wider decline in deal activity, and the number of pre-seed and seed deals declined in 2023 to roughly the same point as Q4 2017.

So, what all this adds up to is: fewer but costlier seed deals in the U.S. Is this trend healthy for startups in the world’s biggest VC market? It’s too early to say, but there is evidence that the rising median valuations for seed deals are shaking up the venture industry and, consequently, startup land.

TechCrunch scooped the shuttering of Countdown Capital earlier this week, and the following paragraphs from that story have been stuck in my head (emphasis ours):

The letter posits [from Countdown Capital founder Jai Malik] larger narratives about early-stage hard tech industrials investing that throw into doubt the ability of small, specialist funds to compete against multi-stage incumbents.

Malik explicitly touches on this fact toward the end of the letter, when he writes: “To be clear, we’re not bearish on venture capital or the future success of venture-scale hard tech companies at large. We’re bearish on the ability of small, early-stage funds — particularly sectionally focused ones — to continue exploiting these opportunities profitably.”

In the letter, Malik connects large multi-stage firms investing in hard tech industrial startups to the slowdown in growth in software-as-a-service (SaaS) businesses. But he says that the rate of overall value growth for industrial startups will not outpace the rate of investment from large firms. “Consequently, we think early access to the best companies for a specialized, early-stage venture firm like Countdown will become more limited,” he says. “The most successful early-stage, specialist firms may simply resemble less-profitable ‘derivatives’ of top-performing multi-stage firms, like Founders Fund.”  . . .

He said that this lack of competitive advantage was already noticeable: In three cases, Countdown came close to investing in a company’s first round, only for the firm to be priced out by a larger multi-stage firm: “A 50-100% price difference at the pre-seed and seed stage is immaterial to a multi-stage firm managing billions of dollars, but can and should be the difference between a yes and no for a firm of our size.”

It’s worth noting that larger funds are less price-sensitive in early-stage dealmaking because they expect to build their stake as the startup scales. Paying more — overpaying, if you want to call it that — for an initial stake represents a very small percentage of their total anticipated investment; what matters is early ownership that can be levered into larger stakes later on. If you expect to invest $100 million into a company over time and spend $5 million on a seed deal instead of $4 million, you aren’t going to be staying up at night worried about the price. But if you intend to invest less, spending that extra seven figures early can jumble your math.

Connecting this to our above work, I posit that the multistage impact that Countdown Capital outlined on early-stage investing is showing up more generally in the market. That’s resulting in more expensive seed deals. This could also be playing into the falling number of seed fundraises happening, but I am less sure of this logic on that front.

Facebook, Instagram and Threads were all down in massive Meta outage on Super Tuesday

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facebook glitch

Image Credits: TechCrunch

Reports are coming in that a number of Meta’s top social apps, including Facebook, Instagram, and Threads, are all experiencing an outage on Tuesday morning. When loading the apps or websites, users receive an error message that “something went wrong” and to try again later, or, in the case of Facebook, they’re taken to a logged-out landing page but are unable to sign in even when using their correct password. [Update: 12:11 p.m. ET: The apps appear to be working again. Meta said at 12:19 p.m. ET that the issue was “technical” in nature.]

The troubles seem to have started at some point after 10 a.m. ET on Tuesday, according to reports on social media and various user-submitted issue trackers, like DownDetector. However, Meta’s own status page only shows results related to Meta’s business products, like Ads Manager, not the platforms as a whole. We’ve reached out to Meta to confirm the timing and the reports and will update if we hear more information. In the meantime, Meta communications director Andy Stone has confirmed the outage in a post on X, noting, “We’re aware people are having trouble accessing our services. We are working on this now.”

It’s highly unusual for Meta to be experiencing a widespread outage like this, given the size and scale of its network and the redundancies built in. For that reason, some people are suspicious about the origins of this outage, particularly because it’s election day across a number of U.S. states, which means millions of people are headed to the polls to vote in the primary on what’s known as Super Tuesday. This outage, then, comes at a terrible time for any candidates or political organizations looking to do last-minute voter outreach efforts or those reminding people to go vote.

https://twitter.com/mkarolian/status/1765044318669062438

Meta’s suite of apps has played a large role during the election cycle, given that its family of apps, which also includes WhatsApp, now reach 3.98 million monthly active users as of the end of last year, the company’s data shows. To quell its potential role in influencing the elections’ outcome, Meta disabled political ads in the timeframe leading up to key elections, like the U.S. midterms. To address newer concerns, Meta also announced it would label political ads with AI-generated imagery for the 2024 election cycle.

Related to elections and social media discussions, Meta last week said it would be exiting the news business in the U.S. and Australia with the removal of the News tab in April 2024.

Amazon Web Services’ service health status currently shows there are no recent issues, but Meta operates its own data centers, which could still be experiencing an issue, despite whether or not AWS was seeing a problem.

While some people have reported seeing issues with other sites, like YouTube and X (formerly Twitter), those platforms appear to be currently up.

X CEO Linda Yaccarino posted an update shortly after the news of the Meta outage broke to confirm that X was not seeing issues of its own.

“Testing, testing… affirmative, everything is functioning smoothly here,” she wrote.

X owner Elon Musk meanwhile mocked the outage with a meme. In a separate post, he also added, “If you’re reading this post, it’s because our servers are working.”

The issues at Meta seem to stretch beyond just its consumer-facing apps, as company employees have also posted on X that they are unable to log in to work as well. One Meta Reality Labs employee noted they were even booted out of work “mid meeting.”

Remarked app developer Nikita Bier, whose app TBH was acquired by Meta, “Last time Facebook did a forced logout of everyone, it was hacked, where adversaries leveraged a bug with the View-As feature.”

Meta did not indicate that it was hacked today, but the timing had raised people’s concerns.

Roughly a couple of hours after the outage began, it was resolved. In a post on X, Stone said, “Earlier today, a technical issue caused people to have difficulty accessing some of our services. We resolved the issue as quickly as possible for everyone who was impacted, and we apologize for any inconvenience.”

YouTube no longer experiencing outages, site confirms

Facebook plans to shut down its news tab in the US and Australia

Discord comes back online after widespread outage

Nine crypto VCs on why Q1 investments were so hot and how it compares to previous bull market

by with No Comment Tech

16 small white piggy banks placed randomly on green surface

Image Credits: PM Images (opens in a new window) / Getty Images

If the 2023 crypto venture landscape was an ice-cold pot of water, the first quarter of 2024 is the part where the bubbles start to form right before water boils, Tom Schmidt, a partner at Dragonfly Capital, said to TechCrunch.

And he’s not wrong: $2.52 billion in total capital has been raised across the crypto and blockchain sectors in Q1 2024, according to PitchBook data. That’s about 25% higher than $2.02 billion in the fourth quarter of 2023.

“It’s been an extraordinarily busy time. It has 2021 feels to it,” said David Nage, portfolio manager at Arca. “Deals in 2021 felt like you had a gun to the back of your head; that feeling has kind of returned to the market a bit.” Nage said his firm has tracked over 690 deals across stages that have transpired during Q1, about 30 to 40% more than the lows in 2023.

“In Q1, the crypto venture capital funding landscape was cautiously optimistic, rebounding from a challenging two-year period of fundraising difficulties for both companies and managers,” said Alex Felix, co-founder and chief investment officer at CoinFund.

Despite a significant year-over-year decrease in both VC and crypto funding in 2023, around 65%, there is a noticeable uptick in deal-making activity, Felix added.

But why now?

The crypto VC landscape has heated up in part because of positive effects from legal wins last year from Ripple and Grayscale, as well as positive sentiments around decentralized finance (DeFi) on Solana. There’s also demand increasing for the biggest cryptocurrency post SEC spot bitcoin ETF approvals in the U.S.

“Another thing that affected the market is we didn’t die,” Nage said. “I know it’s funny to say this, but after the [collapse of] LUNA, BlockFi, FTX, the banking crisis, the thought was that we would die and we didn’t.”

Can crypto’s recent wins resurrect venture interest?

And it may not stop anytime soon, thanks to macro validation from crypto. “Crypto venture will continue to heat up on the back of a bullish macro backdrop fueled by the launch of crypto ETF products, the BTC halving, projected rate cuts in the U.S. ahead of the upcoming presidential election,” said Mike Giampapa, general partner at Galaxy Ventures. “We’re also seeing institutional interest start to convert into real budgets and products.”

For example, BlackRock is launching its tokenized money market fund on the Ethereum blockchain, which could lead to heightened competitive pressure from traditional financial institutions and more adoptions.

Where deals are flowin’ in

In general, the crypto startup deal flow has picked up in areas ranging from DeFi to SocialFi to Bitcoin layer-2 growth. “We see 30 to 40 deals on a weekly basis, that’s increased 10% to 20% over the last quarter. It’s getting harder to keep up with the pace of that,” Nage said.

There has been an uptick in both new companies coming to market and existing companies that remained lean throughout the bear market that are revisiting fundraising, Giampapa said. “The market in 2024 will be a tale of the ‘haves’ and ‘have nots,’ with newer companies building along popular narratives getting funded at rich valuations and many other companies going out of business,” he added.

Right now, SocialFi, which in web3 world refers mainly to decentralized social media, is very hot. Bi.social recently closed a $3 million round and decentralized social network protocol Mask Network hit $100 million for its fund to further support other similar applications. Some success in this sector can be thanks to decentralized social app networks like Farcaster, which is using Web 2.0 techniques to adopt new audiences. Web3 gaming is also rapidly expanding, with hundreds of new games expected to go to market later this year.

Crypto and AI, blockchains and anything zero-knowledge related are “red-hot right now,” Schmidt said.

“Given the grandiose expectations for AI’s potential to impact the global economy, we expect this trend to continue for the foreseeable future,” Tekin Salimi, founder of dao5, said.

For example, modular and AI-integrated blockchains, like 0G labs, which launched with a $35 million pre-seed round, are also attracting the attention of venture capitalists.

Founder-friendly market is spiking valuations

Competitiveness among VCs is creating an environment in which founders have greater leverage in fundraising, Salimi said. There’s “no shortage of hungry money as of recently,” said Michael Anderson, co-founder of Framework Ventures.

“This is founder-friendly in the sense that, in oversubscribed rounds, investors are now reverse-pitching their value,” said Marthe Naudts, associate at White Star Capital’s Digital Asset Fund, meaning that some investors have to show founders why they should choose them. “Founders now have optionality and the ability to set terms, with competitive rounds filling out before investors have time for intensive due diligence.”

But Felix says that the power hasn’t really shifted from investors to founders but is “perfectly balanced” for both parties. “Founders are benefiting from rounds catalyzed with more urgency and valuations ticking up slightly from their recent trough, and VCs are winning more protective and advantageous deal structures.”

It’s worth noting that there’s a massive dispersion based on the quality of the team and sector, Schmidt said. Some startups that previously raised during the last market cycle are working through a re-pricing through a down round or extension, while others are fresh faces.

With pre-seed rounds, there are under $10 million valuations in crypto consumer, but there are also $300 million or higher valuations for sectors like crypto and AI, Schmidt noted. For instance, PredX, an AI-enabled prediction market, raised $500,000 and was valued at $20 million post-money valuation, according to Messari data. Separately, CharacterX, a web3 AI social network, raised $2.8 million in a seed round at a $30 million post-money valuation.

For seed rounds, Nage is seeing $25 million to $40 million pre-money valuations, with several startups pricing in at the $80 million market on seed rounds. Schmidt said the average seed round is in a similar range of $30 million to $60 million post-valuation.

“Valuations are up significantly, and even when larger, more established firms pass on a deal, founders still have plenty of options with others,” Anderson said. “Some of the valuation we’re seeing are already a bit outlandish given how early we are in this cycle.”

Because fundraise announcements are often delayed by many months to a year after the actual raise, there are misperceptions around where the private market is if participants are basing their expectations purely off headlines, Schmidt said.

“Raises that would have taken months or not happened at all last year, even for high-quality teams, are now happening in weeks or less with better terms for founders,” Schmidt said. “Teams that squandered time and money during the bear market are still raising bridge rounds, but new teams are able to come out of the gate strong with larger raises and higher valuations.”

The valuation shift is also driven by sentiment around cryptocurrency prices, so bitcoin reaching all-time highs, Solana surpassing $200 and ether near $4,000 is a “massive sentiment shift,” Nage said.

For founders, seed rounds remain easiest to raise, as many small funds and angel investors are willing to write the first check at the lowest entry points, Felix said. “However, I do not anticipate an immediate improvement in the Series A graduation rate, which has declined from the upper 20% range to the mid-teens. Raising a round of more than $10 million will continue to be appropriately challenging.”

Many venture capitalists are still trying to be mindful of not getting trapped into higher valuations by FOMO’ing into the hype, while also realizing that they can’t just sit on their hands and knees and wait it out. “It is common to see rounds get oversubscribed within days of coming to market and allocations being denied or shifted to subsequent rounds at higher valuations,” said Thomas Tang, VP of investments at Ryze Labs.

The tokenomic come back

Since the end of 2023, Nage said he’s been hearing from companies and peers that they’re looking at tokenomic designs for 2024. So there’s a new rise of token issuance and there’s a number of Arca’s portfolio companies that are working through building that out for this year. This is a shift from the mid-2022 post-Terra/LUNA collapse era, when most seed deals were funded with Simple Agreement for Future Equity (SAFE) or warrants, he added.

“This new issuance phase we’re entering into is that valuations have shifted violently,” Nage said.

This dynamic has driven VCs to accept “lofty valuations in private rounds since they expect that the tokens will be traded publicly at a significant markup,” Tang said.

That’s not to say there aren’t SAFE rounds still happening, but Schmidt said the market has congealed around those alongside priced equity rounds and token structures “as a way to give investors protection, but also give teams flexibility.”

And it’s tougher for teams raising around traditional business models, said Clay Robbins, co-founder of accelerator and venture capital fund Colosseum. Crypto-native VCs see token trades and early liquidity behind it, so they’re heavily biased that way, while generalist investors don’t quite believe in that market yet, he added.

On that point, Naudts said the long-term performance of these tokens is yet to be seen. Her firm, White Star, is cautious of tokens intended both as a speculative asset and a means of payment. “But we’re seeing lots more experimentation with tokenomics models here and it’s certainly a space where we are excited by the innovation at play.”

Looking to the rest of 2024

The early-stage funding space will continue to heat up throughout the remainder of the year, Robbins said. Given the “relatively anemic IPO market, lack of fundamentals-based underwriting of growth-stage crypto companies and a (now confirmed) trial between the SEC and Coinbase, I anticipate it will be inconsistent at the growth stage.”

And April will be a big month for crypto market sentiment. As the Bitcoin Halving is coming up, which only occurs once every four years, there’s a lot of uncertainty on how that will affect the industry. Past halving events have propelled the price of bitcoin, but historical data doesn’t always predict the future.

“While short-term market corrections may be on the horizon, we expect the next three quarters of 2024 to be very bullish,” Salimi said. “Historically, financial markets make positive gains during election years. Additionally, we anticipate the macro environment to begin improving later this year, manifesting first in interest rate cuts.”

And relative to last year, many venture capitalists are certain — if there aren’t any massive fraud cases, lawsuits or negative regulatory effects — that the market will continue to see hyper VC activity in the coming quarters that it saw in Q1. “Regulation continues to be the wild card here and could serve as a catalyst for either another leg higher or a brake on growth,” Giampapa said.

If there’s positive progress on the regulatory front, real on-chain momentum, more institutional-based products being launched and continued overall improved macroenvironment, there could be “frenzy levels of deployment,” Robbins said.

“There will be more activity, more deal flow and one thing above everything else is funds are raising capital,” Nage said. Many firms weren’t able to raise from LPs last year because the industry “was a death knell and no interest was out there from LPs.”

As the industry moves on from FTX, LPs are also warming back up to the space, but some are also beginning to differentiate between “crypto” and “crypto venture,” which may lead to some choosing to just allocate to Bitcoin and leave it at that for their crypto exposure, Schmidt said.

However, traditional VCs or crossover funds haven’t “plunged head-first back into crypto, but they’re slowly dipping their toes into a few more deals,” Schmidt said. “I would not be surprised if things get frothier as those bigger market participants come back, crypto funds go back out to the market to reload on capital from LPs, and the space overall becomes more institutionally attractive again.”

Regardless, the sentiment has shifted dramatically over the last quarter, so as that continues to improve, it should also create positive effects on the venture market, Nage added. “If [firms] can raise funds in the next two to three quarters, they won’t hold on to their past dry powder as aggressively as they did the past year. As that eases, you’ll see more checks.”

Last year, most funds were doing about one to two deals a month, or a few a quarter, Nage said. “That has dramatically changed. In December alone, we’ve done half a dozen, if not more.” All the deals Nage is in talks with this most recent quarter were time constrained.

By comparison, Felix shared that CoinFund closed 17 deals in 2023 and four deals in the first quarter of 2024.

Last year, a total of $10.18 billion in capital was raised across the crypto and blockchain industry, PitchBook data showed. I asked each firm how much capital they expect to be raised by the end of 2024 and most estimated above that $10 billion range, but some went as high as the $20 billion range.

Felix believes that VC funding to web3 could be more than 10% of global dollars raised so that could be as much as $16.2 billion at year end based on PitchBook’s 2023 fundraising figures. Either way, it’s expected to be short of the nearly $30 billion that crypto startups raised in 2022, and the more than $33 billion they raised back in 2021.

“This market falls somewhere between the mania of 2021, 2022 and the muted market of last year,” Robbins said.

While Giampapa also thinks many managers will accelerate deployments and go out to fundraise in the next six to 12 months, there’s a caveat. In the previous bull market, some of the large deployers of capital were firms like FTX and Three Arrows Capital, which are no longer in business. “Without these pools of capital, I struggle to see how dollars deployed into crypto VC get back to the 2021 to 2022 levels.”

Newchip Andrew Ryan

They thought they were joining an accelerator — instead they lost their startups

by with No Comment Tech

Newchip Andrew Ryan

Image Credits: Bryce Durbin / TechCrunch

Lacey Hunter thought all was well as she put her startup through the three-month Newchip accelerator. Then the organization filed for bankruptcy in May 2023. Things went from bad to worse later that year when she discovered warrants of her company — rights to buy an ownership stake — had become part of the proceedings, which ultimately forced her to shut down her company.

In 2022, Hunter started TechAid, an AI smart-matching tool for humanitarian aid, and was just beginning the accelerator’s curriculum when Newchip filed for bankruptcy.

“I made a few friends, but functionally, got nothing from Newchip,” Hunter said. “I was shooting to have the curriculum done by August, but in May, the website went down.”

The now-defunct Austin accelerator had filed for bankruptcy amid employee and customer discontent. The court has since ordered the company to auction off the warrants it held in more than 1,000 of the startups that went through the accelerator program.

Normally, private companies like startups have control over which investors are allowed to buy shares and the prices they pay. But the bankruptcy court, which works to restore creditors rather than equity holders, isn’t allowing Newchip’s startups to exert that kind of control. Instead, the auctions are ongoing, with the first tranche already sold and upcoming tranches expected to be sold this spring and summer.

Founders are outraged — including some, like Hunter, who have actually lost their companies as a result.

TechAid fought the sale of the warrants prior to closing the company. Hunter tried to buy them back herself from Newchip, but the organization’s lawyers declined her offer, she told TechCrunch. She had lined up a grant from a bank to help fund her offer, but it ultimately told her no because it was too risky for them to be involved with an unknown warrant holder on her cap table. So Hunter felt she had no choice but to shut TechAid.

“There was no path,” Hunter said. “I knew I was not going to be able to raise money. I mean, I couldn’t even get a no-strings-attached grant. I totally get that, but it still sucks.”

Newchip’s fall from accelerator grace

Newchip started out as an aggregator of top deals from “various equity-based crowdfunding platforms,” according to Silicon Hills News, and later evolved into an accelerator that promised to help startups grow their companies and meet investors — for a hefty fee.

It charged startups between a few thousand dollars and $18,000 to $20,000 for its training programs, founders said. Startups also granted Newchip the right to buy $250,000 worth of shares in the company at a later date, but at their current valuation — this type of deal is also known as a warrant.

Newchip founder and CEO Andrew Ryan previously faced harsh criticism about his leadership style, including allegations that he could be “abusive” and threatening to employees, according to eight former employees who walked out. (Ryan acknowledged to TechCrunch last year that his leadership style was based on “a military mindset.”) One example involved a meeting of about 15 employees in sales, operations and marketing. Ryan had asked the leaders of each department to read a book on how to help college volunteers be more passionate about volunteering, recalled one person who attended the meeting. Ryan asked two of the company’s leaders to lead the group in a discussion of the book. But many were confused by it and didn’t see how it applied to Newchip’s business.

“They were struggling with it. Andrew kept jumping in and interrupting them, and directly challenging them.” And finally, recalled the source, Ryan said, “This was a test for individuals that I’ve asked to do this today. I was going to fire one of you, based on whoever did the worst job.”

He then singled out one person, told the room the person was fired, and, this person recalled, Ryan then said, “I do stuff sometimes to see who’s loyal and to see who is going to do what I tell them to do. This was a test and you failed. You’re out.’”

After seeing Ryan fire this guy in front of the whole room, “I literally watched all of his direct reports sitting there saying to themselves, ‘I will never trust this man again,’” the source said.

Ryan contends that the person who was fired during that meeting had behaved aggressively after being singled out. Ryan also claims that the individual had come unprepared to lead the meeting, which Ryan viewed as an “act of overt insubordination,” telling TechCrunch: “While conducting the termination publicly in that meeting may seem harsh, it was intended to reinforce the gravity of the situation and ensure all managers understood that we took these training sessions and their responsibilities as leaders seriously.”

Newchip logo glitched
Image Credits: TechCrunch

When Newchip (which also did business under the name Astralabs) initially filed for bankruptcy in March 2023, it was a Chapter 11 debt reorg. It then went into Chapter 7 — dissolution and liquidation —  two months later.

Its Chapter 11 filing revealed that it had $1.7 million in total assets and $4.8 million in total liabilities. But the value of the warrants was apparently not taken into account at that time, a source familiar with internal happenings said. Those warrants were estimated to be valued at an eye-popping just under $500 million by Austin-based VC fund and early Newchip investor Sputnik ATX, according to a document viewed by TechCrunch.

Management had not been keeping up with the warrants to the point where it had missed that some companies had exited or raised money, losing out on the potential upside, noted Kerstin Hadzik, a consultant who was brought in to serve as interim CFO a few weeks after the initial bankruptcy filing.

How much did Newchip potentially lose? Sputnik ATX said it identified $54 million in warrant value from companies that had liquidity events “that should have been reported to Newchip but were not,” according to documents viewed by TechCrunch.

In Hadzik’s view, Newchip might have also been saved from going into Chapter 7 if Ryan had been willing to step down as CEO and had presented the warrants as assets when initially filing for Chapter 11.

The judge repeatedly asked Ryan if he would voluntarily step down and let someone else, such as a chief restructuring officer, run the company. Ryan repeatedly dodged the question, expressing doubt that anyone could do so successfully. Ryan also noted that employees had requested “a new CEO” and later claimed that he “was going to step aside … but the shareholders and investors, as part of them putting capital in, preferred that I stay here to make sure that we have the capital … to continue driving the business.”

Ryan also admitted that he was the company’s “major owner and shareholder” and that he had just “terminated all the board” the week before, just after having filed for bankruptcy, according to court documents viewed by TechCrunch.

“The judge was offering like a lifeline,” and Ryan “just said no,” Hadzik recalled.

In a Zoom interview with TechCrunch back when we first reported on the bankruptcy, and in two LinkedIn posts in 2023, Ryan said that he accepted “full responsibility for the events at Newchip.”

Ryan later alleged that there was an attempted coup on the part of an investor but sources say that Ryan had actually asked early investor Joe Merrill to serve as CEO before changing his mind and resuming the role himself. Merrill, who was an early investor in Newchip under its previous model and also co-founder of Sputnik ATX, declined to comment beyond noting that he believed the attempted sale of the warrants was a valid move.

Founders fight for their companies

One founder, who asked to remain anonymous, told TechCrunch that Newchip had approached her on LinkedIn and told her if she got approved to join, she would get introductions to investors. So she paid a $7,500 deposit and was all set to join Newchip when a founder friend told her to “never pay for introductions.”

She decided to hear out Ryan. What convinced her to ask for her money back was that Ryan “blew off our meeting.” He reached out later, but she had already emailed Newchip asking for her deposit back on the basis that she had not started yet.

The founder got her money back, but Newchip didn’t void her contract, so she is now part of the bankruptcy lawsuit. That’s when she learned that someone could buy the warrants of her company for pennies on the dollar, and “it could screw your valuation going forward,” she said.

“I feel so much stress and embarrassment,” she told TechCrunch. “I’m a struggling founder and don’t have the money to pay for a lawyer. Here was this accelerator supposed to help founders, and instead it is imposing stress on young founders.”

There was a period of time when founders could object to their warrants being sold, according to Chad Harding, managing partner at Peak Technology Partners, the investment banking firm tasked by the court to sell the warrants.

The deadline for those in the first tranche to object to these sales was January 15, he told TechCrunch. Founders from all over the world, including Australia and Finland, filed objections, according to court documents.

“We were in the process of obtaining a refund from Newchip when Newchip went bust,” wrote Veronica Hey, CEO and founder of Australian startup Ok Away. “The contract is therefore null and void and the warrant attached to it is not applicable. None of this will stand up in an Australian court. If you continue to pursue in ‘selling’ this warrant you are selling something that does not exist and there will be repercussions.”

This Austin accelerator made big claims; employees and customers say it didn’t deliver

But startups’ objections were made in vain when the court overruled them. A bankruptcy court’s goal is to oversee the selling of assets to settle debts. If there is money left over, it’s paid to shareholders. Ryan is the majority shareholder.

So the warrants are being sold in three tranches. The first involved 133 companies, including for startups such as Cleanster.com, bitewell, Agshift and Firehawk Aerospace. Combined, those 133 startups had raised over $340 million in funding, according to documents shared by the sales agent with potential investors and viewed by TechCrunch.

Ultimately, the sales agent ended up selling 28 warrants in just four companies from the first tranche for a total of about $58,000, presumably at a discount. Successful bidders included Bitewell and ClearForce — startups that bought back their own warrants in advance for $5,000 each, according to an agreement with the trustee — as well as Palm Ventures and Angel Deal Syndicate. The latter purchased the bulk of the warrants, spending $43,000 on warrants in 24 companies, according to court documents viewed by TechCrunch.

The second tranche will likely be sold this summer and will include over 1,400 warrants for sale, according to Harding. The bid deadline will likely be late July, Harding said.

Founders of those startups included in the second tranche will also have the opportunity to object with a proposed deadline of May 31.

Ryan maintains that extensive efforts “have been made to notify stakeholders well in advance.”

“This has afforded ample time for interested parties to access information and documents, raise any objections or issues, and prepare for participation in the sale,” Ryan told TechCrunch.

When dreams become nightmares

Like TechAid’s Hunter, Garrett Temple blames the loss of his company on Newchip’s demise. He, similar to Hunter, also participated in Newchip’s accelerator program from January until May 2023. His startup, Novogiene, was a medical tech company focused on epidemic prevention.

Temple put around $7,500 on his credit cards to be part of the program and said that he never spoke with investors. His main reason for doing Newchip was to get investors for a $500,000 round, in part to pay for a small production run of his device so he could send it to universities and medical schools for pilot testing.

The meetings with investors were supposed to happen after a demo day that was scheduled for the summer. But when Newchip shut down in May, that demo day, and hence those introductions, didn’t happen. Temple wasn’t able to keep going and ended up dissolving Novogiene in the summer of 2023. As such, his company no longer existed for warrants to be sold to potential investors.

Temple said he spoke with his bank about getting money back from the program since he used credit cards. The bank was at first successful in getting $5,000 returned. However, about a month later, Temple noticed that money was no longer in his account and believes Newchip protested the funds.

Though Temple has moved on, he still has some intellectual property for Novogiene and says he is hoping at some point to license the technology to someone else or perhaps at another time pick up where he left off.

“It was very sad to call it quits because getting the funding to make those units was the only hurdle before making serious progress,” Temple said. “If they connected me with investors like they said, I could have made my invention, gotten efficacy and would be shipping units right now. I really do believe that.”

Accelerator operators sell dreams. But that doesn’t always mean that the accelerator will come through. And sadly, the founders who buy into those dreams can be the ones who end up paying the price.