Mastodawn

Texelsaur 🔜 Megaplex Jun 14, 2024

(Originally posted this elsewhere, was asked to thread here.)

Ok. Seeing refs to "shareholders" and "api downtime" as cause for the VRChat Layoffs.

First, READ THE FUCKING EMAIL: https://ask.vrchat.com/t/an-email-from-our-ceo/25060

Then, if you're still confused, here's a small 🧵 on startups, funding, and this particular situation.

An Email from our CEO

Below is the full text of an email sent to our team today. Aside from removing some email addresses and formatting, there are no redactions or edits. To: All VRChat Employees Personal and Company Emails From: Graham Gaylor, CEO Subject: Important Announcement - Company Update - June 2024 Hi everyone, Today, I have some very hard and sad news to share. We’re reducing the size of our team by around 30% and saying goodbye to many talented team members in the process. This is the hardest chan...

VRChat Ask Forum

qdot Jun 13, 2024

In terms of my background and perspective: I worked at Linden Lab for a couple years during its heyday, have worked at startups for over a decade (and non-profits & medium/big corps for another decade), run my own startup, dealt with funding before (at very small levels).

qdot Jun 13, 2024

VRChat is a venture funded company, currently living off of its Series D Round, which it got in 2021, off the back of the Meta Horizons hype.

For those of you that don't wanna log into Crunchbase, here's the numbers. Note the round size curve, we'll get back to that later.

qdot Jun 13, 2024

Explaining venture style series funding would be a bazillion more tweets of things written elsewhere, so if you don't understand this, go check out this Investopedia link: https://www.investopedia.com/articles/personal-finance/102015/series-b-c-funding-what-it-all-means-and-how-it-works.asp

What Is Series Funding A, B, and C?

Series A, B, and C funding rounds are separate fundraising events businesses use to raise capital. Each round is named for the series of stock being issued.

Investopedia

qdot Jun 13, 2024

Ideally, you want to IPO/Exit by Series C. Anything after that is like "Wellllllll maybe this time" for investors but you're diluting into oblivion at that point.

At this point in the explanation, VRChat basically has $95.2m in funds as of 2021. It's now 2024.

qdot Jun 13, 2024

The $80M Series D in 2021 came because the industry was absolutely shitting itself for virtual worlds thanks to the Meta Horizon Announcement + COVID lockdown.

VRChat got $80m, but they weren't alone. Check out the absolutely wacky shit from sort-of-competitor Rec Room:

qdot Jun 13, 2024

Anyway, VRChat. So they've got $95.2m in 2021, and they start scaling staff. I do not have direct numbers, but going off some handwaving and vague estimates from LinkedIn analysis, they went from maybe 15-30 headcount in 2021 to... somewhere around 140-160 before today?

VRChat's staff is international, and I'm used to SF Bay Area Pay Rates, so best I can give is the vaguest estimates on payroll burn. But with estimated 2024 headcount, it'd probably be in low millions per month.

qdot Jun 13, 2024

That is *just* payroll burn, not accounting for all of the other costs of business, including online services, legal, etc etc etc. You usually just assume payroll is by far and away the largest burn in a company though.

"But qDot, doesn't VRChat make money? They're not just completely burning, right?"

FANTASTIC QUESTION! IT DOES!

So that $95.2m *is* being bolstered by some sort of revenue. How much, well, we don't know.

What we do know today is that it's not enough to match payroll burn.

qdot Jun 13, 2024

So what are VRChat's current monetization vectors? Here's an incomplete list off the top of my head:

- Event fees (for things like @furality that just happened)
- Creator Marketplace Income
- VRChat+ Membership fees

Those first two are non-recurring income. Events like VKET and Furality don't happen monthly, they're like a once a year deal.

Creator Marketplace could be recurring at some point but is still getting off the ground, and isn't even publicly available yet (I think?)

qdot Jun 13, 2024

That leaves VRChat+ Memberships. At $9/month, you're going to need 100000+ monthly subscribers to start even making a dent in that payroll burn.

I have *no clue* what sub #s are, I can't speak to the impact of having.

From the email, it sounds like the new leadership brought in around the founders has given a very conservative outlook on recurring revenue growth, meaning that $95.2m must be stretched.

That's why we call it runway. If your company goes off the end of it, you crash and burn.

qdot Jun 13, 2024

"But why did payroll get so large?! Why would founders let that happen?!"

The CEO's email covers this. They were inexperienced and overconfident.

Admission does not excuse the fuckup and I absolutely hold them accountable, you will also rarely hear leadership ANYWHERE say that.

qdot Jun 13, 2024

"But why don't they get more funding?"

It's 2024, funding is FUCKED. VC is 100% vibes based, the vibes suck now that we're out of the ZRP salad days, and virtual worlds are a very fucking dead fad.

Yes I know you like being an animal person in VR but that doesn't mean cash.

qdot Jun 13, 2024

To summarize:

- Bad business decisions made by founders.
- Choice: lengthen company lifetime by headcount reduction, or stay course and possibly crash company. Neither is great.
- The first choice was taken.

ICs had nothing to do with this and fuck you if you say otherwise.

qdot Jun 13, 2024

One of the things to remember here also is that the ICs (individual contributors, i.e. not execs/management) ARE THE SHARE (well, options) HOLDERS.

Part of the reason you join these stupid fucking startups is the ability to maybe own part of it when it goes to the damn moon.

qdot Jun 13, 2024

I realize many see VRChat as the platform, not as a going concern.

For those laid off (and vested), they may have a piece of the pie, albeit FAR fucking less than the founders and investors.

Don't play the "shareholders" game if you don't understand where the shares might be.

qdot Jun 13, 2024

Anyways, I need to stop posting. If you have questions, please reply here and I'll do my best to reply while couching my answer in enough "I AM NOT A VRCHAT EMPLOYEE/VC FUND INVESTOR/ETC" warnings to run myself out of characters before even starting it.

qdot Jun 13, 2024

I should also point out that the VRChat layoff is layoff is not happening in a vacuum. It follows at least some of the trends of the game industry. See this thread for more general info on that, though there are big differences in things like publishing and dev models: https://x.com/ballmatthew/status/1800912075171999884

Matthew Ball (@ballmatthew) on X

1/ After only 5.5 months, the video game industry has set a tragic new record for in-year layoffs (10,900 versus the prior record of 10,500 in 2023, and the record before that, 8,500 in 2022). These layoffs span games that were canceled and scaled back, as well as studios that…

X (formerly Twitter)

digitalfox Jun 13, 2024

@qdot Thanks for taking the time to voice your thoughts.

It's unfortunate, but considering how others have crashed and burned, and the game industry situation (which has impacted some good friends who are still job hunting), I appreciate their attempt to find more solid footing.

I can only hope VRChat pulls through while retaining what sets it apart from more commercial social VR attempts.

Baral'heia Stormdancer ΘΔ🐲Jun 13, 2024

@qdot It's an interesting discussion when you get a peek behind the curtain like this. Thanks for posting this thread! ^^

Skyler Ringtail Jun 13, 2024

@qdot Thanks for the informative analysis.

Are you able to comment on how the "plans to take care of the team" (severance, healthcare, option vesting, etc.) compare to the "industry norm" (if there is such a thing)? It seems fairly generous compared to my own experiences.

qdot Jun 13, 2024

@SkylerRingtail compared to the game industry it’s crazy generous. Lots of studios getting jack shit right now. Even In terms of regular tech, also pretty generous.

Tanaki (pumpkin spice loaf)Jun 13, 2024

@qdot ... three rounds in 12 months ....

i'm clearly working for the wrong scam

Tanaki (pumpkin spice loaf)Jun 13, 2024

@qdot enlightening fact i got from an investor friend a few weeks ago: funds these days are typically looking for 3-year cashout. that makes the 2021/2024 number stand out...

you already know this, but for the sake of the thread: if the VCs own more than 50% of the company -- highly likely given vrchat's inexperience -- then the VCs can force an event of some sort, regardless of how the founders feel. :(

Inkblitz 🔜 ???, MFF, ???Jun 13, 2024

@qdot Oof, I missed this in the furality hype. That's a real bummer to hear, but thanks for the breakdown

Bluesky: @flaky.blue Jun 13, 2024

@qdot I just joined VRChat after getting my PSVR2 hooked up to the PC last night. Feels like that one GIF of Donald Glover with the room on fire rn.

Thanks for the thread.