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Convoy’s collapse and the importance of corporate finance literacy for employees

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Convoy is a very high profile startup in the Seattle area. In fact, I visited their office this past May. It rents several floors in the Russell Investment Building at 1301 2nd Avenue, Seattle with a beautiful view of Pudge Sound. Its early investors include Bill Gates and Jeff Bezos. It raised $260 million at a $3.8 billion valuation just 18 months ago. Convoy has raised a total of estimated $925M.

This past Thursday October 19 2023 morning, Convoy’s CEO Dan Lewis announced that the Seattle company was closing its core business and laying off a majority of its workforce. Laid-off employees reportedly did not receive any severance.

I live in Seattle and I know several employees at Convoy. It was one of the most dramatic collapses in Seattle tech history. It literally burned through $260M+ and is going out of business.

There is a family behind every job. Imagine the stress and pain of Convoy employees who were impacted. None of us wanted to be part of this type of experience. The reality is that Convoy had gone through multiple rounds of layoffs, and its employee count was around 500 before Thursday’s announcement. Previously its employee count peaked at around 1,500.

So far, Convoy’s CEO had been using both an “unprecedented freight market collapse” and “dramatic monetary tightening” as the “explanation” for the collapse. For a collapse of this magnitude to happen, the executive team and the board of directors had failed to execute. Hopefully the WSJ Journal will publish an investigative piece soon to tell us what exactly happened.

My warning to all of you is the importance of monitoring and understanding how your employer is going. This kind of collapse does not happen overnight. I don’t know if the Convoy management team has been providing financial updates to its employees and how much transparency it has provided. However, as an employee, it’s absolutely imperative for you to have a basic understanding of corporate finance, and keep a close tab on what is going on. Every quarter you should assess the financial health of your company, layoff risk, and how you should manage your career accordingly.

Specifically, you should have answers to the following questions:

  • How much cash does the company have on hand?
  • How much short-term debt does the company have?
  • What is the current burn rate?
  • Based on the cash on hand and the burn rate, what is the company’s run rate? If it’s less than 12 months, you should at least start interviewing to protect yourself.
  • For the past 2 quarters, has the company been hitting its revenue and margin forecast? If it has two consecutive misses, its inevitable changes will come. It will either shuffle the management team and/or have a round of layoff.
  • What is the current company valuation? What is the company’s revenue multiple?
  • If the company is profitable, what is the EBITDA multiple?
  • How do the revenue and EBITDA multiples compare to industry average (both now and historical)? These comparisons and analysis will help you better understand if the company is overvalued.

As an employee, regardless of your functional area, you should acquire a basic level of corporate finance literacy, and understand how the company is doing financially. It will allow you to protect your downside, increase your upside, and minimize the chance you get trapped in a Convoy-like collapse.

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