
E146: Did the Fed break the VC model? Plus IPOs, M&A, revaluing unicorns & more
All-In with Chamath, Jason, Sacks & FriedbergFri Sep 22 2023
Instacart IPO:
- Instacart's float was 6.7% and the company went public at a valuation of $8 billion.
- The IPO price for Instacart was below its last private round valuation of $39 billion, causing many late-stage investors to be underwater.
- The low float and lack of lock-up period resulted in downward pressure on the stock after it opened, with the stock breaching its issue price shortly after going public.
Klaviyo IPO:
- Klaviyo's float was 7.6% and the company went public at a valuation of around $9 billion.
- Similar to Instacart, Klaviyo's IPO price was below its last private round valuation, leading to early investors being underwater.
- The small float size and lack of lock-up period contributed to selling pressure on the stock.
Arm IPO:
- Arm had a larger float size compared to Instacart and Klaviyo, with 9.4% of the company made available for sale during its IPO.
- However, even with a larger float, Arm's stock also breached its issue price soon after going public.
- The overall performance of these three recent IPOs indicates that market conditions were not favorable for these companies' valuations.
Impact on Limited Partners (LPs):
- LPs are cautious about adding new managers or increasing commitments due to recent market conditions.
- LPs are looking for earlier stage investments and strategies that offer differentiation or an edge over other funds.
- They are evaluating fund performance based on alternative returns and comparing them against other investment options such as the S&P 500.
Business Fundamentals vs Stock Performance:
- It is important to differentiate between business fundamentals and stock performance when evaluating companies' success or failure.
- Focusing solely on short-term stock price movements can distract from assessing the true value and potential of a business.
- Investors should consider long-term business performance and market value rather than day one stock price fluctuations.
Consumer Spending and B2B Recession:
- Consumer spending has been strong, supporting the economy during a B2B or enterprise recession.
- However, there are concerns that consumer spending may decline as credit card debt reaches all-time highs and interest payments increase.
- The real estate market is also facing challenges, impacting commercial real estate and reducing real estate transactions.
Impact on IPO Market:
- The recent IPOs have not signaled a significant reopening of the IPO market, with low floats and downward pressure on stock prices.
- The construction of these IPOs by banks has been criticized for lacking lock-up periods and concentrated allocations to anchor buyers.
- Limited supply combined with selling pressure from retail investors led to breaching issue prices shortly after going public.
Outlook for Future IPOs:
- There is uncertainty about future IPOs as companies weigh the benefits of going public against potential challenges in current market conditions.
- Banks may need to consider improved allocation structures and lock-up periods to create more stable post-IPO trading environments.
- It remains to be seen whether other big-name companies will go public or delay their plans based on the recent performance of Instacart, Klaviyo, and Arm.
They're cutting two funds out of their 20:
- Starting to look more like an advertising business rather than an e-commerce business
Advertising multiples have contracted and the market doesn't love that revenue quality:
- Revenue is too levered to interest rates and the economy
- Companies advertise more when the economy does well, less when it doesn't
- Facebook and Google tend to get an increasing share of advertising revenue
Businesses with high gross transaction values are sensitive to take rate:
- Take rate tends to decay over time due to competitive pressure or supplier pricing power
Instacart's assumptions on take rate should be examined for valuation purposes:
- If take rate is going up, it would be surprising given historical trends
Clavio's business:
- Did $165 million in Q3, growing at a rate of 56%
- Projected to reach $1 billion in annual recurring revenue (ARR) next year
- Strong net revenue retention (NRR) at 119%, indicating customer expansion outweighs churn
Founders' valuations may not align with public comps anymore:
- Expectations have adjusted as founders become aware of public comparables
Potential impact of labor deals on established auto industry:
- Timing could put significant financial strain on companies already facing reduced demand due to higher interest rates
- Potential risk of moving factories outside the US or automation replacing jobs
New breakthrough in autoimmune disease treatment using glycosylation technique:
- Glycosylated antigens presented in liver can re-regulate immune system response against specific proteins causing autoimmune conditions
- Offers potential new modality for addressing various autoimmune diseases by resolving immune system attacks on body's own proteins