In May, the venture capital firm Sequoia circulated a memo among its startup founders. The 52-page presentation warned of a challenging road ahead, paved by inflation, rising interest rates, a Nasdaq drawdown, supply chain issues, war, and a general weariness about the economy. Things were about to get tough, and this time, venture capital would not be coming to the rescue. “We believe this is a Crucible Moment,” the firm’s partners wrote. “Companies who move the quickest and have the most runway are most likely to avoid the death spiral.”
Plenty of startups seem to be taking Sequoia’s advice. The mood has become downright funereal as founders and CEOs cut the excesses of 2021 from their budgets. Most crucially, these reductions have affected head count. More than 10,000 startup employees have been laid off since the start of June, according to Layoffstracker.com, which catalogs job cuts. Since the start of the year, the tally is closer to 40,000.
The latest victims have been crypto companies, and the carnage is not small. On Tuesday, Coinbase laid off 1,100 employees, abruptly cutting their access to corporate email accounts and locking them out of the company’s Slack. Those layoffs came just days after Coinbase rescinded job offers from more than 300 people who planned to start working there in the coming weeks. Two other crypto startups—BlockFi and Crypto.com—each cut hundreds of jobs on Monday; the crypto exchange Gemini also laid off about 10 percent of its staff earlier this month. Collectively, more than 2,000 employees of crypto startups have lost their jobs since the start of June—about one-fifth of all startup layoffs this month.
The conversation around crypto companies has changed abruptly in the past year. In 2021, they were the darling of venture capitalists, who showered them with billions of dollars to fund aggressive growth. Coinbase, which went public in April 2021 at $328 a share, seemed to suggest an emerging gold mine in the sector. Other companies, like BlockFi, started hiring aggressively with ambitions to go public. Four crypto startups took out expensive prime-time ads in the most recent Super Bowl.
Coinbase was also focused on hypergrowth, scaling its staff from 1,250 at the beginning of 2021 to about 5,000 in 2022. “It is now clear to me that we over-hired,” Brian Armstrong, Coinbase’s CEO, wrote in a blog post on Tuesday, where he announced the layoffs. “We grew too quickly.”
“It could be that crypto is the canary in the coal mine,” says David A. Kirsch, associate professor of strategy and entrepreneurship at the University of Maryland’s Robert H. Smith School of Business. He describes the contractions in crypto startups as one potential signal of “a great unraveling,” where more startups are evaluated for how well they can deliver on their promises. If history is any indication, those that can’t are fated for “the death spiral.”
Kirsch has spent years studying the lessons of past crashes; he is also the author of Bubbles and Crashes, a book about boom-bust cycles in tech. Kirsch says that the bubble tends to pop first in high-leverage, high-growth sectors. When the Nasdaq fell in 2000, for example, the value of most ecommerce companies vanished “well in advance of the broader market decline.” Companies like Pets.com and eToys.com—which had made big, splashy public debuts—eventually went bankrupt.
For three years, Elizabeth Holmes has faced the court of public opinion, as countless books, articles, documentaries, and TV shows have squeezed every last drop out of the saga of the blood-testing startup Theranos. Now, an actual court has delivered the final verdict. On Monday, after seven days of deliberations, a jury in San Jose, California, found her guilty on four counts of wire fraud and conspiracy to commit wire fraud. The jury returned a verdict of not guilty on another four counts, and it could not agree on three.
The four guilty charges involve Theranos’ investors, who say they were misled about the company’s capabilities, and who lost millions of dollars after its demise. Holmes now faces up to 20 years in prison for each conviction. (The judge has not yet set a hearing for sentencing.)
Over the past three months, the prosecution made its case that Holmes knowingly “chose fraud over business failure,” convincing her investors to sink more money into the company despite its failings. Twenty-nine witnesses took the stand, including former employees who testified that when Theranos’ technology did not work as promised, Holmes encouraged them to cover it up. One former product manager said the company faked demos and removed abnormal results when sending reports to investors. Another revealed that Holmes exaggerated partnerships with pharmaceutical companies, made up nonexistent military contracts, and pasted pharmaceutical logos onto Theranos’ reports, confusing investors and potential partners about who was vouching for the blood-testing technology. A journalist from Fortune, who wrote a cover story about Theranos in 2014, said Holmes failed to correct numerous errors in the reporting because it benefited the company to appear more capable than it actually was.
Mountains of evidence—including text messages, emails, and company documents—showed that Theranos’ technology was in disrepair and failed to live up to its founder’s vision as the future of blood testing. But the case hinged on whether Holmes, as the company’s CEO, knowingly deceived investors and patients, or if she acted in good faith as a struggling entrepreneur. “The battle ground is Holmes’ mental state: whether or not she had the intent to commit fraud,” says James Melendres, a former federal prosecutor and a partner at business law firm Snell & Wilmer. “You have 12 jurors—12 people off the street—who sit in a room and decide what was in Holmes’ mind.” The jury found Holmes not guilty on the counts involving patients, two of whom received bogus test results from Theranos’ blood testing technology.
The defense called three witnesses, including Holmes herself, who spent seven days on the stand diffusing the blame across Theranos’ many scientific advisers and board members. Many of Theranos’ employees had years of experience working in biotechnology; Holmes, by comparison, dropped out of Stanford in her sophomore year.
She testified that Ramesh “Sunny” Balwani, her former business partner and former boyfriend, was responsible for preparing falsified financial reports and overseeing the company’s labs. Holmes also said that Balwani controlled and abused her, affecting her mental state during her later years at Theranos. Balwani faces his own criminal trial later this year.
Holmes’ case has been viewed as Silicon Valley’s trial of the decade, as well as an indictment on startup culture itself: When does a founder’s hubris become fraud? Melendres calls the decision a “bellwether,” noting that it could become a landmark case in the Department of Justice’s handling of startups.
For the rest of Silicon Valley, the case may be a reminder that there is a limit to how much startups can get away with—and that the government is watching. “The government usually wins these things,” says Jennifer Kennedy Park, a partner at Cleary Gottlieb Steen & Hamilton. She also notes the vast resources and subpoena powers that can give prosecutors an advantage. This case shows that founders are not off-limits.
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Bob Goodfellow has spent 30 years in underground construction and design projects and now works on the Los Angeles Metro system. His company Aldea is working with Petra on tests of its initial systems.
“It’s like nothing I’ve ever seen before,” Goodfellow says. “There’s been talk about things like nuclear-powered tunnel-boring machines and contactless tunneling and stuff like that, but it’s just been talking prototypes. As far as I know, these are the first people that are trying to really, genuinely commercialize it.”
Petra has been operating in stealth mode since 2018. Initially, Abrams said, the founding team thought plasma could be an ideal way to cut through rock. But the approach ran into issues, including the size of the equipment, how to supply the plasma, and what to do with pools of magma created by the excavation.
“We just ended up melting a lot of the rock and creating lava, and when we created lava, it was effectively holding our system in its tracks,” she says.
Petra CTO and Tesla cofounder Ian Wright joined the company about a year ago to work on energy consumption for powering a plasma torch but started moving the team away from the plasma-torch approach. Wright says he regularly fields questions about the Boring Company, a tunneling company Elon Musk cofounded, but Wright says he played no role in the Boring Company.
Utilities employ a variety of methods to put power or cable lines underground. On city streets, it’s typically done using a saw with a giant blade to cut through asphalt or concrete. In less crowded places, dynamite or other explosives blast away rock, or excavators break rock into smaller pieces. Drilling can be done with a traditional drill head and a mix of chemicals, and boring machines can dig tunnels as big as a freeway or as small as a few inches wide.
John Fluharty is a contractor who installs pipelines for utility companies and a member of PDi2, a company that researches and supports ways to “underground” utility and power. He says burying power lines generally costs up to five times as much as running them above ground; hard-rock installations can cost up to 20 times more than overhead lines. But once they’re installed, maintenance costs are much lower than for above-ground lines.
Concerns about climate change have increased interest in burying power lines. For the US to reach carbon neutrality by 2050, Princeton University researchers concluded, the nation’s power grid will have to carry 60 percent more electricity, including a fourfold increase in wind and solar capacity. Technological advances that enable power lines to carry more electricity could also help address climate change and advance wind and solar farm projects.
Supporters say moving utilities underground makes more sense in a world where extreme weather can threaten people’s access to electricity, especially in places prone to fire or hurricanes. High-voltage lines have sparked numerous fires in recent years, including a 2018 fire in Northern California that killed 84 people. Pacific Gas & Electric, which pled guilty to manslaughter in connection with that fire, recently committed to placing 10,000 miles of power lines underground in central and northern California.
When Deepak Rao founded his first startup, in 2011, he put all of his business expenses on two personal credit cards, with a combined credit limit of about $3,000. “They were totally maxed out all the time,” he says. “To this date, my credit score has never recovered.” Even after four years of working at Twitter with a product manager’s salary, Rao still couldn’t qualify for credit cards with the kinds of perks he wanted: ones that paid for vacations, or gave him points at the places he liked to shop.
With his second startup, Rao is trying to solve that problem. The X1, a new credit card, is designed for people who want premium perks—with or without premium credit scores. It uses a novel underwriting process, which links with a user’s bank account to determine credit limits based on cash flow. The card promises up to five times higher credit limits than the average card.
The card itself is made of stainless steel—the kind of objet d’art that’s advertised as making a pleasant clang when you drop it—but it’s meant to be used digitally, like the Apple Card. It has a sleek app that gives users the ability to create disposable “virtual” cards, cancel subscriptions with one click, and make anonymous transactions without giving out a real name or card number. Its points are redeemable at a list of merchants frequented by the stereotypical tech bro: Peloton, Patagonia, Allbirds, and Airbnb.
Perhaps for that reason, the X1 has become something of a Silicon Valley darling, with a waitlist of more than 350,000 people, the startup says. Its investors include Affirm CEO Max Levchin, Box CEO Aaron Levie, and Yelp CEO Jeremy Stoppelman. “I think of it as Silicon Valley’s answer to American Express, which is really for the old guard at this point,” says David Sacks, the venture capitalist and PayPal alumnus, who sits on the X1’s board and uses the card himself.
Other credit card startups have sought to fill gaps in the market. Brex, which is now valued at nearly $8 billion, created a card to work for startups that had funding but no revenue. Karat did something similar for creators locked out of traditional financing. Both of those cards solved a crediting issue for a novel type of business, and offered perks specific to their needs. The X1 is hoping to do the same for consumers, specifically those who are mostly young, high-earning, and who live on their phones.
The X1 will begin rolling out cards to its waitlist this week, after testing the card in beta for the last six months. One of the X1’s beta testers, Akhil Bhandaru, told me he had been spreading his expenses over several credit cards to keep his overall credit utilization low. Despite being a well-paid engineer at Amazon, his best credit card had a monthly limit of $4,500, because his credit history was so short. (He graduated from college in 2020.) The X1 gave him six times as much credit, and better perks than any of his other entry-level cards. For the first time, he was able to use his own credit card points to pay for flights home to see his parents.