Backdrop

The turn of the year saw a major sea change in the return of volatility to the financial markets. Goldman Sachs recently revised upward its expected Fed moves to 5 from 3 and recently cut its GDP forecast from 3.8% to 3.2%. Many IPOs were pulled in January/February and the word SPAC is still a 4-letter word. Major US stock indices are down 7-14% YTD. As I write this newsletter, Europe is down about 4%.

Check out the picture of the VIX below, the market guide to volatility.

Chicago Board Options Exchange’s CBOE Volatility Index

Oh. Let’s not forget about the war in Ukraine. I call it a war since people are being killed, my editorial license despite our government using more whitewashed wording. Disrupted energy supplies into Europe, trade sanctions, NATO forces getting ready, attention withdrawn from business as usual.

Oh, Let’s not forget inflation; have you seen the price of gas or milk & cookies these days?

I’m no macroeconomist, but at the age of 56, I have been around long enough to know that volatility is not positive for most of us, except for Wall Street traders making markets or certain hedge funds. Good times can’t last forever. Easy money has always dried up for a substantive period of time.

However, the job market is just as strong as it was compared to last year. I see no slowdown in hiring from my conversations with HR professionals, recruiters, and other coaches. Amazon has doubled its maximum base from $160-350K and JP Morgan and most of Wall Street are now paying 22-year old’s almost $150k. Companies are flush with cash. It’s easy to find any job.

If I were a betting man, I would say the job market is a lagging indicator and will feel the impact of the macro factors soon.

Therefore, because the macro picture eventually affects the job market, you might want to think about what all this means for your job search-your target employer, title, compensation, etc. I argue in this newsletter that recognizing the risk in our financial system and positioning yourself accordingly is doable and just prudent. What can you do? We discuss some recommendations on how to think about your next move in terms of:

• Target employer considerations
• Management age
• Target Compensation structure
• Regulatory considerations

Target employer considerations

If you work for a well-established company, ask yourself, “how well have they done in prior inflationary periods?” More importantly, how quickly has your company contracted personnel. The easiest and most effective cost-containment strategy I know is still a reduction in force. Also, has your company’s business model already been disrupted is now facing a slow death? How reliant is your company upon Russia for sales? There might be more risk inherent in your company than you think.

Wherever you are now, if you want to make a move, what should you think about with respect to a target employer? We will confine our thoughts to the startup world defined as companies pre-IPO.

One of the most important considerations is the company’s burn rate compared to its capital. Said another way, divide the company’s cash equivalents on hand by the average or anticipated monthly cash outflow. If the number is at least 2 (implying 2 years), then they are in good shape. Meaning, the company can conduct business as usual even if the company can’t raise capital over 2-years.

Furthermore, ask yourself in which funding round are they? Everything else being equal, a series A funding round company is riskier than a Series C round. Of course, there are exceptions. Investigate their products, and ask around if they really have a sustainable, provable competitive advantage. Do they have a large company customer base or rely upon a handful of wobbly ones? Are they building out the infrastructure of FinTech/Web 3.0 since I’ll take an infrastructure play anytime?

Management age

How about the age of the C-suite? Has management successfully navigated through multiple inflationary periods in their current company or former ones? I’m not saying a 29-year CEO can’t make smart decisions, but I’d rather have some grey hair flying the plane upon hitting turbulence. I was on a webinar last week with crypto companies containing 50-200 employees. The CEOs were in their late 20’s early 30’s.

I asked them how well their companies would do in a rising rate, inflationary period. One 29-year-old gave me a rehearsed answer to a completely different question then paused awkwardly at the end and said “Uh, I don’t think interest rates are going up anytime soon.” Maybe he is right, but his answer was anything but well thought out. A more seasoned CEO would have talked about planning for multiple scenarios including rates and other changes in the macro-environment.

Maybe this is the time to dial back on that shiny penny and go for a rustier nickel.

Target compensation structure

You can’t pay for private school with stock options. My kid’s colleges a number of years ago wanted this funny thing called cash twice a year. In these cycles, the word “solid base” is oh so sweet. I would argue for a new compensation package that tilts more towards cash than upside, especially if you have a need for cash in the short to medium term. Now is the perfect time to ask for a higher base since smaller companies are flushed with cash. If you don’t think their timing to an IPO has now been lengthened beyond the company’s original thoughts, wake up! 2-3 years to IPO may turn into 4-6. Great odds are you won’t be there then.

Regulatory considerations

If the FinTech you are targeting directly touches retail customers, not thinking the SEC, FRB, and CFPB will have a major influence on everything is foolish. You can only fight City Hall for so long.

Why can’t Bitcoin get out of its trading pattern, and why are many FinTech stocks down so much? “Regulatory Uncertainty”. I don’t think I have ever read a 10k where these words were not plastered everywhere. I have spoken to so many direct B2C and B2B lenders who have no staff intimate with KYC or AML-these are the basics. FinTech must work with regulators, and VC investors are coming to demand it.

According to our friends in the US government, they believe FinTechs fall under at least one of the following agencies*:

• Commodities Futures Trading Commission (CFTC)
• Consumer Financial Protection Bureau (CFPB)
• Federal Deposit Insurance Corporation (FDIC)
• Federal Reserve System
• Federal Trade Commission (FTC)
• Financial Crimes Enforcement (FinCEN)
• Financial Industry Regulatory Authority (FINRA)
• Internal Revenue Service (IRS)
• National Futures Association (NFA)
• Office of Foreign Assets Control (“OFAC”), US Department of the Treasury
• Office of the Comptroller of the Currency (OCC)
• Security and Exchange Commission (SEC)
• Society for Worldwide Interbank Financial (SWIFT)
• Mars International Bank (Sorry, Elon Musk joke)

* Library of Congress “Financial Industry Regulatory Authorities”

Summary

If you know my writing by now, I don’t do “Summary”. It takes hours for me to write these newsletters; please go back and read this edition since my mom keeps track of my readers and sends the top 100 readers pastry for the holidays. Mom makes great pastry!