In an attempt to provoke America into regional military intervention, which would itself provoke a broader global conflict over Israel, the Houtis — effectively the government of northern Yemen, which has been at civil war since 2014 — crippled the Red Sea. Now, around a third of global container shipping has been diverted, dramatically disrupting global trade. With no end to the crisis in sight, this already-significant problem could, given just a few more disruptions, easily cascade into something unmanageable.

Yesterday, I hit up the nation’s foremost thinker on the subject, Ryan Petersen, who also happens to be the CEO of Flexport, one of the most important supply chain management and logistics companies in the world. We discussed the crisis, implications, and what appears to be a massive erosion of the US-led global order, central to which has always been our navy’s commitment to guaranteeing safe trade. A lot in here, check it out below and pop off in the comments.

THE FIFTH ESTATE

NOTABLE INDUSTRY TRENDS

Section 174. Last year, chad Ben Thompson was pretty much the only guy who covered Section 174, a disastrous change to the tax code that could irreparably impede bootstrapped American software development. This week, Gergely Orosz, who is usually kind of a dud but did a good job here, kicked the topic back into the discourse, and I’m hoping — really praying now — this becomes a broader story, because if it doesn’t the damage will be immense.

With little fanfare, Section 174 went into effect in July 2022, now requiring companies to amortize payroll tax deductions for software developers over a five-year period. An example scenario from Orosz helpfully illustrates how bad this is:

Take an imaginary bootstrapped software business called “Acme Corp.” This company generates $1,000,000 of revenue per year running a SaaS service. It employs five engineers, and pays each $200,000. That is $1,000,000 paid in labor costs. For simplicity, we omit other costs like servers and hosting, even though those costs can also fall under the new R&D rules, and have to be amortized. So, how much taxable profit does this company make?

In 2021, the answer would be zero profit. In 2022, the answer was $900,000 in profits(!!) This is because from 2022, software engineer labor costs must be amortized over five years.

An enduring, vital question for tech: if this is truly where the nation’s best and brightest work, why does the industry keep getting caught with its pants down, here? Partly, I think it’s the idealism of it all. We tend to mostly believe the world can be meaningfully and helpfully changed through innovation and new companies. That is incredibly naive. The sausage is made in Washington. Yes, the innovation is vital, but if you aren’t playing the game you’re losing. Right now, tech is losing.

Read more about 174 on Pragmatic Engineer, and in a thread by @ankurnagpal.

Carta’s comms crisis. Cap table management startup Carta came under fire last week after Linear CEO Karri Saarinen shared a screenshot of an email showing a Carta employee attempting to arrange a sale of Linear shares from an existing angel investor to an undisclosed buyer — without Linear’s prior knowledge or go-ahead. Turns out, the existing investor that Carta reached out to was a family member who’d never publicized their investment, suggesting that Carta had used privileged cap table information to track them down. This prompted a backlash on X and LinkedIn, as founders and others called out what they saw as a breach of trust by the company. On Monday evening Carta CEO Henry Ward announced the company would suspend its work in the secondary share market, and would prioritize protecting their customers’ privacy: “It is our customers’ data, not ours.” 

Lulu Cheng Meservey did a fantastic job summarizing the comms problem facing Carta, and how to navigate the problem. Worth checking out in full. (@lulumeservey)

@rishmishra

INDUSTRY LINKS

BROAD TECH:

• Following the OpenAI board’s failed coup, the company has entered talks with several prospective board members. Potentials reportedly include Nat Friedman and Alexandr Wang. Both would be dope. (The Information)

• Eric Schmidt is quietly working on a military drone project. The former CEO of Google has said “the future of war will be dictated and waged by drones.” Founders Fund, loves to be setting trends — looks like we’re all doing defense now! (Forbes)

• Waymo’s Phoenix-based autonomous vehicles will take to freeways this month for the first time. (Forbes)

• Apple’s $3,499 Vision Pro headset will be released on Feb 2. Preorders begin at 5am PST on Jan 19. (Bloomberg) We will find out within the first month whether the product succeeds (hot people wear them) or fails (hot people do not wear them).

• Also, Apple is asking Vision Pro app developers not to use terms such as “VR,” or “AR” in their marketing, and instead use the term “spatial computing.” 

• Pirate Wires has conducted an investigation on the Apple website, and has determined the headset is, in fact, VR and AR.

• Tesla’s U.S. market share ended up higher than Subaru and VW, selling 4.20% (not a joke) of all new vehicles in 2023. (@SawyerMerritt)

• An optimistic Palantir CTO Shyam Sankar, in the company of several other defense companies including Anduril, said the US has “a narrow window to unite the defense tech ecosystem” after meeting with White House officials to discuss weapons system and battlefield tech. (@ssankar)

• Flexport’s Petersen: “Insurance costs for ships transiting the Red Sea have increased 3.5X since the attacks started in December.” (@typesfast)

• This week in loser journalism, the WSJ published a ‘scoop’ on Elon’s recreational drug use. (WSJ) Musk's response: “WSJ is not fit to line a parrot cage for bird 💩.” He also added: “Whatever I’m doing, I should obviously keep doing it!”

• The attention-starved Timnit Gebru, most famous for resigning from Google before insisting she was fired, and for her position that the goal of AI is the extermination of black people, has added a new, equally incoherent conspiracy theory to her portfolio: Elon is rich because of the South African apartheid.

• Even more Musk: the I guess formerly megawoke Don Lemon, canceled from CNN for saying Nikki Haley was past her prime on account of she is postmenopausal, pledged fealty to Elon Tuesday with an announcement he’ll be airing his new show on X. (@donlemon)

• Also debuting shows on X: former Hawaii congresswoman Tulsi Gabbard, and sports commentator Jim Rome. (WSJ)

• Zuck is now raising cattle. In an Instagram post, he shared a few details: his wagyu and angus herd will eat macadamia meal, and drink local beer. This is part of his goal to “create some of the highest quality beef in the world.” We love this, and are genuinely happy for him. (Business Insider)

$$$:

• Soundcloud is hoping for an acquisition, targeting a price of over $1 billion. (Sky News)

• Shares of Tinder’s parent company Match Group jumped 6.5% on news that activist investor Elliott Management has built a $1 billion stake in the company. (Bloomberg)

• Parag Agrawal, who was very briefly CEO of Twitter before Elon’s war of conquest, has returned to the Arena with an AI startup. He’s raised about $30 million from Khosla Ventures, Index Ventures, First Round Capital, and others. (Business Insider)

• Jeff Bezos has invested in Perplexity, an AI-first search engine that aims to become a replacement for Google. (WSJ) A few team members here at Pirate Wires use Perplexity regularly, and have insisted this is cool and matters.

• US VC fundraising from LP’s has hit a 6-year low, with 2023 fundraising dropping 60% from 2022. A fact for some strange reason largely ignored throughout most of venture, which largely carries on tweeting as if nothing has changed at all. (FT)

On Wednesday, I published my take on Bill Ackman, MIT, Claudine Gay, and of course, the plagiarism war that now embroils some of our most elite institutions. Is this the first real opportunity for actual change in a decade?

“Grab your popcorn, kids, it’s a good old fashioned Plagiarism War. In the end, it was the morally inverted rape parades that drove America’s more moderate billionaires to interrogate those age old questions “what the hell is going on at Harvard,” and “why the hell am I paying for this?” But today, as an entire class of former-fence sitters introspect, not only on the problems of the world but on the donor class’s role in causing these problems, no personal evolution has been more stark, or more public, than that of hedge fund billionaire Bill Ackman, who is presently waging war against the American institutions most hopelessly rotted by radical activist politics; no disrupted vector of radical power more starkly embodies the changing times than Claudine Gay, the former Harvard president who, it would seem from the press, Ackman just fired; and no piece of this saga, from inception to the vindictive institutional backlash now bearing down on Ackman’s wife, would be possible without the discourse vacuum inherent of Elon Musk’s free Twitter — a total collapse of the Overton window. With the shape of culture up for grabs, idealists and ideologues from every pole, and from every corner, have finally come to agreement on one point: the game is no longer rigged in favor of the craziest people alive. This is why, for the first time in decades, everyone is playing to win. Anon, have you ever seen a scared authoritarian before?

Things are about to get ugly.”

Read the full piece here.

Litigation and regulation:

• Monday, OpenAI responded to the New York Times’ lawsuit targeting both them and Microsoft, arguing the suit is “without merit.” Their position:

• We trained on the NYT, which is protected under fair use laws.

• Our models will occasionally ‘regurgitate’ content word-for-word, but it’s a rare bug we’re working to eliminate.

• Aaand the NYT has ‘intentionally manipulated’ prompts to get our models to regurgitate.

• The Supreme Court announced it won’t hear X’s case challenging a ruling by the 9th U.S. Circuit Court of Appeals that effectively prohibits the company from revealing how many times “in a six-month period it received a national security order requesting information about users.” (CNBC)

• The UK’s media watchdog Ofcom has assembled a team of nearly 350 people to enforce the country’s new Online Safety Act, which gives the agency eye-watering powers to prosecute tech companies and their leaders. (FT)

Human resources:

• Amazon is cutting “several hundred roles” in its Prime Video and MGM Studios division. (Hollywood Reporter), while Twitch is planning to cut roughly 35% of its staff, or about 500 employees. Twitch has remained unprofitable since its 2014 acquisition by Amazon. (Fortune)

• BlackRock will lay off 600 employees, or 3% of its workforce, “to reallocate resources to faster-growing areas.” Though it has been widely rumored these cuts are ESG-focused, people familiar with the situation told FT the RIF is “not focused in any particular business segment or team, people familiar with the plans said.” Still, the company expects to net grow total headcount in 2024. (FT)

• Duolingo has “offboarded” 10% of their contractor staff, with a spokesperson saying they no longer need as many people, part of which “could be attributed to AI.” (Bloomberg)

• Twilio’s CEO Jeff Lawson is stepping down amid weak sales growth and pressure from Anson Funds, an activist investor. Shares jumped 7% on the news, and an Anson investor applauded the change as a “step in the right direction.” Khozema Shipchandler will take the CEO role. (Bloomberg)

• Unity is yet again laying off employees, this time 1,800. (TechCrunch)

• Presentation software startup Pitch is laying off two-thirds of its workforce and transitioning to a “bootstrapped” model. From co-founder Christian Reber: “We created sky-high expectations for our business, our employees, and ourselves as founders. Towards the end of last year, my co-founders and I noticed that those expectations were simply too high.” (TechCrunch)

• Rent the Runway will cut about 10% of their workforce. Shares in the company have sunk 86% over the last year. (Bloomberg)

• AI hardware startup Humane is laying off 10 employees, or about 4% of its workforce, with the CTO leaving his post to work in an advisor role. Humane’s first product ships in March. (TechCrunch)

Crypto:

• As expected, the SEC approved several Bitcoin spot ETFs yesterday, on the heels of an anticipatory “fee war” between issuers competing for pristine market share. ETF issues include all the usual suspects: Blackrock, Grayscale, Ark, Fidelity, and more. This came one day after the SEC’s X account announced the approval of the ETFs, causing BTC to momentarily spike to around $48,000. Minutes later, the SEC removed the post and said it was an “unauthorized tweet” due to a compromised account. An initial investigation by X Corp. revealed that the account lacked 2FA protection. 🤡 (NYT)

• Ahead of the Bitcoin ETF approval, New Scientist published a sloppy, patently false article on Bitcoin energy usage, and was so immensely ratio’d on Twitter the author of the piece deleted his account lmao. Wade through all the bullshit with Nic Carter, who detailed the incident.

Trade war:

• Apple is struggling to sell iPhones in China, seeing a double-digit YoY decline. Contributing to the slump: Huawei’s release of the Mate 60 Pro phone — which runs on a made-in-China chip — has “spurred a patriotic fervor” that has converted some iPhone users. (Bloomberg)

• TikTok has quietly restricted access to their hashtag-tracking dashboard after it was used by lawmakers and researchers to call out purported bias related to the Israel-Hamas conflict. (NYT)