May 14, 2022
The last week has been tumultuous, to say the least. There is blood in the streets, with many of our clients suffering deep drawdowns. The full effect of the carnage will be revealed in the months and weeks to come and for many clients these will be very difficult times. Fortunately, we have seen this before, on at least a few occasions, the first of which was in the infamous ”Black Friday” when markets fell by >60% in a matter of hours!
If any of you are anxious, remember…This too shall pass 🧘
It might seem ugly now but markets will recover, they always do and risk takers will quickly forget the party where everyone got too drunk on the punch (leverage), did stupid things and got hurt. While this volatility was bad for risk takers, it was extremely good for exchanges and trading platforms. We did some of our highest volumes ever this week! 🚀🚀
While the volatility is good for us short term, it isn’t good for our clients and ultimately if our clients are hurting (and subsequently don’t trade) we will eventually hurt as well. Our investors and advisors are calling for recession-like conditions (letter to Dragonfly Capital portfolio company founders) both for crypto and risk assets generally, cautioning us to buckle down, focus and practice austerity with respect to resources and our product. I think this is prudent advice.
What does that mean for Paradigm?
Our business is as healthy as ever, financially speaking so there won’t be any layoffs or anything of that sort. Micki and I have always prioritized managing risk versus pursuing extreme growth, especially in a volatile environment such as the one we operate in. Our liquidity position remains healthy: we have $xx million in cash in the bank and our burn is approximately $xx m/ month. That gives us about xx months of runway assuming 0 revenue. Our revenues are approximately $xx /month but we’d want to continue to invest that in the business to ensure that trading activity doesn’t fall. Revenues will almost certainly fall in the coming months as will our ability to raise money, so having a good cash reserve is critical to ensuring we navigate safely through these stormy conditions.
So what will change?
In keeping with the prudent advice cited above, and to protect our cash reserve, we will slow down hiring and only focus on the key roles we need and use this time to improve our product delivery discipline and put in place scalable processes for key orgs in the company. We will also look to defer any unnecessary expenses but we are pretty lean anyway so I don’t expect much change here. The one item that I do know that will most likely be deferred is the company offsite. Note, I said deferred, not canceled. As an FYI, the total cost of the event is estimated to be $xx K with hotels, flights and all the excursions we had planned for 60-70 Paradigmers in Europe. I know this sucks and we hate making this decision but I think it would be wise to temporarily put our offsite on hold until market conditions recover slightly and we have more certainty over the macro outlook. I do promise that when it does happen hopefully later this year, Micki and I will work together to make it extra AMAAAAZING!
Lastly, as Jonathan correctly pointed out, in down markets, businesses with real customers, real business model, real revenue, and cash reserves, come out the other side a lot stronger than the speculative hype companies. We're extremely well positioned in this regard. This is a great time to cement ourselves as THE institutional liquidity network, while other projects who simply put out tweets and press releases claiming the same will likely struggle.
That is all, Micki and I just wanted to check in and give you an update on what we were thinking. Please feel free to ping either of us in case you have any questions.
Micki and Anand