The Technology 202: Coronavirus could hit start-up funding hard

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Tech investors have a bleak message for start-ups: Coronavirus could make it much harder to get funding. 

“Coronavirus fears are now affecting fundraising for start-ups,” tweeted Josh Elman, who has invested in companies such as TikTok and Medium. “I am seeing advice that tells any company that might run out of cash in 2020 to start raising now before things might get a lot tighter. RIPGoodTimes?”

Fears of the virus’s spread are already limiting day-to-day dealmaking in the tech industry. Many high-profile conferences where entrepreneurs typically meet potential investorssuch as Mobile World Congress and major tech companies’ developer eventsare canceled or only being virtually streamed. 

Some start-ups have already been forced to overhaul their plans for new product launches that were scheduled to take place at these shows, Bilal Zuberi, a partner at the venture firm Lux Capital, tells me in an interview. 

“Any relationships that were going to be built or anything that was going to be executed at these events is pushed out at least a few quarters,” Zuberi said. 

The start-up ecosystem has enjoyed a funding boom in recent years, but the economic uncertainty that coronavirus has unleashed is a sobering reality check that the party could be ending. Some venture capitalists are hitting pause as they wait to see how far the virus spreads and whether Washington can limit it. 

Zuberi and some venture capitalists say deals for new companies could be limited due to their need to continue supporting companies that are already up and running. Investors need to ensure they have capital on hand in case their existing portfolio sees challenges related to the virus.

They’re also anticipating that there could be delays in initial public offerings amid broader Wall Street jitters. Some of the most highly anticipated IPOs of the year, such as Airbnb’s, could be pushed into 2021. 

“2020 now looks like not a very good year to go public anymore,” Zuberi said. 

Continued troubles on Wall Street could also translate into lower valuations in start-up deals. Disruptions to travel could also limit venture capitalists’ ability to meet with companies around the world they were considering backing. Zuberi, for his part, said he’s canceled all nonessential travel for now. He’s still attending board meetings in Boston next week, but he says other board members will no longer be attending. 

The tech industry has been hit particularly hard by covid-19. Facebook yesterday said a Seattle-based contractor tested positive for the disease and shut its offices there. Amazon called all employees in Seattle and Bellevue, Wash., to work from home due to coronavirus concerns. Twitter has also instructed employees to work from home. 

Santa Clara County, the home of many major Bay Area tech companies, has reported 14 cases of coronavirus, according to local media reports

That’s leading some to limit meetings even in town. Hunter Walk, a partner at the venture fund Homebrew, tweeted that his firm is sending the following advisory to anyone they’re scheduled to meet with:

BITS, NIBBLES AND BYTES

BITS: Investors, clients and friends freely used the controversial facial recognition app Clearview AI to identify people whose names they didn’t know at parties, on dates and at business gatherings, Kashmir Hill reports for the New York Times. The company previously said its technology was only used by law enforcement agencies and “select security professionals.” 

“As part of the ordinary course of due diligence, we provided trial accounts to potential and current investors, and other strategic partners, so they could test the technology,” Hoan Ton-That, the company’s co-founder, told the Times. 

In one instance, the billionaire John Catsimatidis used the Clearview app to identify a man he spotted his daughter on a date with in a restaurant. After a waiter took a picture of the man, Catsimatidis was able to view photos from him around the web and identify him as a San Francisco-based venture capitalist. 

“I wanted to make sure he wasn’t a charlatan,” Catsimatidis told Kashmir. He then texted the date’s bio to his daughter.

One investor said his daughters in grade school and junior high enjoyed playing with the app. 

Clearview AI was largely unknown to the general public until the New York Times reported on it in January. The company has faced broad backlash for its practice of scraping photos of users from around the web. Facebook, Google and Twitter sent cease-and-desist letters, and lawsuits have been filed in some states amid broad privacy concerns. 

NIBBLES: Sen. Josh Hawley (R-Mo.) announced at a hearing yesterday that he will introduce legislation to ban the popular video app TikTok from all government devices. The Departments of State and Homeland Security, as well as several military branches, already banned the use of the social network on government devices. 

Hawley said the ban is needed because the Chinese-owned app “tracks your search history, your keystrokes, your location” and sends that information to the Chinese government:

Top cybersecurity officials echoed his concerns at the Senate Judiciary Committee hearing.

“There’s certainly no place for applications like TikTok on government devices and government  networks,” Bryan Ware, assistant director for Cybersecurity and Infrastructure Security Agency at the Department of Homeland Security, testified. “China has amazing programs now in collection of data … and when that data is our voices, our faces, our locations and things that are tied very closely to our identity like our phones are, that should give us great concern.”

Both TikTok and Apple declined to send executives to the hearing, the second called by Hawley on the relationship between Big Tech and China. So far, there’s no public evidence that TikTok shares any data from Americans with the Chinese government, and TikTok has repeatedly denied the allegations.

“While we think the concerns are unfounded, we understand them and are continuing to further strengthen our safeguards while increasing our dialogue with lawmakers to help explain our policies,” TikTok said in a statement.

BYTES: Google displayed ads this week playing on coronavirus fears despite policies banning such ads, Megan Graham at CNBC foundMajor tech companies are struggling to crack down on parties that are trying to exploit the global health crisis for profit.

CNBC found ads on Google for masks that misrepresented the brand being sold and claimed that they were government-approved. Other ads claimed a “limited stock” was available. The ads violate Google’s policy that bars content from capitalizing on “sensitive events” such as natural disasters, conflict and death, Google told CNBC. Google said it has “been proactively enforcing” the policy and would investigate the examples flagged by CNBC. 

Amazon and Facebook also struggle to crack down on sellers price-gouging items such as hand sanitizer on their third-party marketplaces, my colleagues Jeanne Whalen, Abha Bhattarai and Jay Greene report. Facebook banned ads that claim to cure coronavirus or created urgency around the disease last week. But my colleagues found overpriced items well into this week on both platforms.

The issue has sparked concerns from lawmakers. Sen. Ed Markey (D-Mass.) slammed Amazon in a letter yesterday for failing to rein in coronavirus profiteers.

(Amazon CEO Jeff Bezos owns The Washington Post.)

PUBLIC CLOUD

— News from the public sector:

Lawmakers grilled some of the country’s top e-commerce platforms about their efforts to combat the spread of online counterfeits on Wednesday as the Trump administration and Congress push to clamp down on the hundreds of millions of fake products spreading across dominant and powerful platforms.

The Hill

PRIVATE CLOUD

– Ex-Google engineer Anthony Levandowski filed for bankruptcy yesterday, the same day he lost his bid to get a court to throw out a $179 million penalty for his defection from the tech giant to Uber, my colleague Reed Albergotti reports.

Levandowski’s move to Uber rocked the tech world, setting off a lengthy legal battle that includes ongoing criminal charges that he stole trade secrets about Google’s driverless technology.

– More news from the private sector:

#TRENDING

—  Tech news generating buzz around the Web:

CHECK-INS

—Coming up:

  • The Senate Judiciary Subcommittee on Antitrust will host a hearing on “Competition in Digital Technology Markets: Examining Self-Preferencing by Digital Platforms” on Tuesday at 10am.
  • Nava Public Benefit Corporation will host a conversation moderated by the Technology 202’s Cat Zakrzewski on “Impact at Scale: From Big Tech to Civic Tech” on Tuesday at 6 p.m.
  • The Senate Committee Judiciary will hold a hearing Wednesday on “The EARN IT Act: Holding the Tech Industry Accountable in the Fight Against Online Child Sexual Exploitation” on Wednesday at 10:00 a.m.
  • The Code for America Summit will take place March 11-13 in Arlington, VA.
  • SXSW will take place in Austin March 13-22.
  • FCC Commissioner Geoffrey Starks and FTC Co missioner Rebecca Kelly Slaughter will jointly host a field hearing in Detroit, Michigan on 5G technology and big data on March 16 at 1 p.m.
  • The Game Developers Conference will take place in San Francisco March 16-20.

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