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Savvy investors, so the thinking went, wouldn’t worry about other companies merely because WeWork fell over.

The same point could be extended to and and other companies whose (at times) unprofitability made them less attractive than they had once been. (Lyft, as you recall, has worked to push back against the narrative with results and promises.)1

But all that might be wrong. A new post from well-known entrepreneur and venture capitalist draws a very different sketch of WeWork, its possible impacts, and where the market is today. We’re sharing two paragraphs (one early, one late) . Do read what’s below, and then make sure to of the original entry:

The topic du jour in tech right now is the sudden reappraisal of some high-flying startups based on unit economics/gross margins (e.g. WeWork, Uber, Lyft, DoorDash, Postmates, etc). […]

The public market’s verdict on WeWork and other gross margin-challenged companies has trickled down to growth and venture investors. Growth capital has seemingly tightened overnight. Winter is here. Founders should plan to be contribution margin positive by the time they raise growth capital — or at least be close to it, with a highly credible plan to get the rest of the way. Founders can no longer depend on an endless spigot of funding to defer tough business decisions.

Sacks wrote that yesterday, so the perspective is fresh.

Here at Crunchbase News, we’ve covered lots of positive signs in the startup market and the surrounding halls of capitalism. We’ve also noted some of the weaker signals. And that’s generated some mild chiding from industry participants.

But I can’t recall something this stark being said out loud in some time: “Growth capital has seemingly tightened overnight. Winter is here.”

Sacks does go on to say that his pronouncement, this window into the world of growth capital and its new expectations, is “not a bad development for our industry or for founders who want to build real businesses.”

Signs Of Winter

Signs of some issues in the late-stage market have cropped up in recent weeks. Three rounds of layoffs at recent IPO Uber were notable. WeWork is going to endure stiff layoffs as it seeks to right its own ship. , a car leasing unicorn backed by the Vision Fund, is cutting back on staff. So is .

What Sacks has done is make it perfectly acceptable now to be rather skeptical of the late-stage (growth, if you want) market in the world of private capital. Don’t trust me, trust him, and so forth.

So expect more winter watching from these pages of the coming weeks. There will be, nearly certainly, more cuts and retrenchments from some of the companies in the market who have raised the most, spent the most, and lost the most money.

To that effect, here are two recent such announcements:

• is , despite being one of the most . Regulatory pressure and self-inflicted wounds are throwing JUUL into choppy waters.
• Wag is at a price that will likely be a fraction of what the Vision Fund valued it at when it pumped huge sums into its coffers.

Lots of unicorns have great gross margins and businesses that can tack towards profitability or even cashflow breakeven. But some unicorns don’t, and according to Sacks the snow is already falling.

More when they tell us how they are doing.

Illustration: .

investment approach of putting large sums of capital to work at private companies, often providing them with fresh investment in the form of nine- and ten-figure checks is showing some weakness as 2019 begins to wrap up.

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Yesterday that , a Vision Fund investee, will “be laying off 40% of its staff [… and] removing its CFO, Tyler Painter.” A company doesn’t undertake a set of changes that painful in unison unless things have gone rather poorly.

Fair, a startup that helps consumers lease cars from their phones, has . Inclusive of debt financing, corporate and venture rounds, Fair has from investors like , , , , and along with both the Vision Fund and SoftBank itself, according to Crunchbase data.

But it is not alone in cutting staff. Fair has an innovative model — you can rent-buy a car for as long as you’d like under its model, and then stop rent-buying it when you desire — but that wasn’t enough to protect it from layoffs. The same could be said (notable business model followed by staff cuts) for a number of other Vision Fund-backed firms:

• : A highly-funded, on-demand dog-walking service that laid off . Stories have come out noting growth and operational challenges at the firm.
• : One of the Vision Fund’s largest bets, Uber’s three-part layoffs this year were big news. That the company was working to control costs as its growth slowed and its losses persisted wasn’t a surprise, but it did feel notable that a firm as wealthy as Uber was forced to go under the knife so late in its operational life.
• : The company’s impending layoffs aren’t the only time it has cut staff, but they should prove to be the sharpest cut. Estimates vary, but as many as 4,000 WeWork staffers could be fired in the coming months.

Three’s company and four is a horde, the cliche nearly goes.

So What?

This seems something like reality setting in for SoftBank and the startups it backs with ample cash.

There’s an illusion in Silicon Valley that if a company is pulling in giant fundraising rounds, they must be doing well. Just look at WeWork, its more than $12 billion it raised before it geared up to go public, and the mess that followed.

Raising huge rounds can be a a good sign, sure. It’s a sign of investor confidence in a company and some reassurance that the company will be around for a bit and hopefully do something productive with the money. But lots of venture capital doesn’t make up for an unsustainable business model (i.e.g high burn rates and no path to profitability), though it can help cover it up with a big budget for marketing and fast growth. Eventually, especially when a company slows growth, the economics of the business gets more attention and that’s when cuts happen.

SoftBank may be writing big checks like it’s not a big deal, but it isn’t doing it for charity. They’re doing it to make money in the long term.

But there have been reports that SoftBank CEO Masayoshi Son could pivot away from the firm’s current investing strategy and focus. reported that Son is considering shifting the Vision Fund’s focus away from rapidly growing startups to “companies with clearer pathways to profitability and public offerings.” With Son changing his tune, there could be fewer, smaller checks for startups and less means to grow fast.

It makes sense. No one wants to lose money on an investment, forget losing billions on multiple unprofitable companies. If Son and SoftBank go through with it, it will be hard to blame them.

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Switzerland-based seems to have, and the company’s innovative storage method made see enough potential profit to . (The company has raised other capital , including led by , subsidiary of . That deal will make sense shortly.)

For the Vision Fund, the deal size isn’t shocking; but what caught our eye is the technology selected. This is the fund’s first-ever investment into an energy company, according to a by Energy Vault.

Energy Vault is a change from Masayoshi Son and Company putting capital to work in on-demand companies, chips, or dog-walking, and we’re here for it.

Towering Possibilities

Here’s how the company’s Super Jenga (our name, not theirs) system works:

That is very smart? And simple? And pretty cool? And we suspect that it would look pretty neat in action. (TechCrunch of the system.)

Energy storage is an active sector, one that has as our needs to capture, and later access, power have risen; as the world moves towards renewable energy sources, some of which are more cyclical in nature than traditional power generation methods, being able to save generated power is a key piece of work.

To demonstrate the scale of the need for Energy Vault’s product, or one like it, read discussing how Utah may store air power in salt:

One hundred miles south of Salt Lake City, a giant mound of salt reaches thousands of feet down into the Earth. It’s thick, relatively pure and buried deep, making it one of the best resources of its kind in the American West.

Two companies want to tap the salt dome for compressed air energy storage, an old but rarely used technology that can store large amounts of power.

Compared to that, Energy Vault’s methods look downright simple. Let’s move on now to the Vision Fund and its recent deal flow and performance (both the good and bad), leaving you with the point that Energy Vault is incorrectly named. It should be called “Energy Tower.”

Vision Fund 2

Aside from investing in every late-stage company you can name, is looking to raise more money of its own. The SoftBank Vision Fund II plans to land somewhere around $108 billion, several billion dollars larger than its older sibling.

The pace and size of investments from ���Ǵڳٵ����԰�’s first fund was hard to wrap our heads around — and, apparently, investors struggled as well. Reports in June detailed that the second Vision Fund was having a hard time raising cash to fuel its investing machine. However, a month later, SoftBank said it had landed and on its list of LPs for the second Vision Fund.

It was a welcome boost for SoftBank, as it raises new billions, that its first fund had a good recent quarter. The firm saw liquidity, as well as “unrealized valuation gains” that looked strong. The results weren’t too surprising, considering some of its portfolio companies’ recent successes (think direct listing, fundraising rush, and recent investing news), but they were notable all the same. And while we poke at ���Ǵڳٵ����԰�’s invest-in-everything strategy, keep in mind its numbers showed specific strengths in its enterprise and consumer deals.

When SoftBank does launch its second, gigantic fund, we’ll see a second wave of investments by the behemoth. Despite its string epic check size and deal stamina, the company does have a few investments that could serve as learning lessons for the second fund

Market Wobbles

First up, Uber, a huge Vision Fund investment that had a disappointing start to its life as a public company and still is struggling.

The most recent news from the ride-hailing giant comes from its recent second quarter earnings report. The global transportation company – which SoftBank put billions into, making it – had less revenue than expected and larger losses than anticipated.

Uber must be feeling deflated, to say the least.

SoftBank, in its earnings report, explained that it had an “unrealized loss totaling ¥195,326 million was recorded for the decrease in the fair values of investments in Uber and others.” That means Uber isn’t the only Vision Fund deal that appears weak.

Looking to the future, WeWork, which filed its S-1 publicly yesterday, appears dangerously unprofitable as well (more here). And SoftBank has invested at least $6 billion into the co-working space business over time, and at one point .

But while its Uber bet hasn’t performed well thus far, and the company’s WeWork stake is looking risky, the Vision Fund’s huge (paper) win from its DoorDash bet could allow the investing giant to keep making big bets on unprofitable companies. And, perhaps, cut checks into different sorts of corporate growth risk, deals like this week’s Energy Vault deal.

Energy Jenga!

Illustration: .

This week announced that it $125 million in equity funding and $30 million in debt. The new capital and access thereof will help it compete with rival , which recently raised huge sums from Softbank.

The two companies operate in the pet care space, offering services like dog walking.

(We wound up if that’s your sort of thing.)

Pet care is not a small market. Pets are a huge business, often requiring regular care and frequent interaction. So, if you want to sell dog walking, or put pets up while owners are out of town, there’s plenty of revenue to go around.

So much so in fact that investors domestic and abroad have poured nearly unbelievable sums into the space. How much? Here’s an  from earlier today:

The funding comes on the heels of the $300 million in funding that rival Wag raised from SoftBank just a few months ago. Both companies are playing with serious money now, and it appears that Rover & its lead investor T. Rowe Price are not afraid to challenge SoftBank’s kingmaker strategy.

Both startups are entering each other’s turf, both have a nearly identical paw logo, and both are very well-funded. In total, Rover has raised ~$311 million while Wag has raised ~$362 million.

Doing some sums, I think that 311+362=673, or, in our case, $673 million for just these two companies. That’s a simply hilarious amount of money.

(We wound up if that’s your sort of thing.)

In today’s market, the IPO window is quite open, stocks are doing well, and late-stage startups are doing well. Perhaps that will sort out just fine. But if that doesn’t happen, and here in the later stages of this bull run we see a number of bets implode and quite a lot of capital destroyed, I’ll be curious if deals like the above are later viewed as high-water marks of oops.

That or they’ll be brilliant and my concerns here will seem alarmist and silly. We’ll see.

From The :

• The Daily is off today.