EC Newsletter

Quantifying the global e-commerce slowdown • ZebethMedia

By zebethcontrolPosted on November 18, 2022Posted in alibaba, Amazon, Commerce, EC Ecommerce and D2C, EC Newsletter, eCommerce, jumia, Shopify, The ExchangeNo Comments

The COVID-19 pandemic was many things. Global contagion. Health catastrophe. Herald of new geopolitical tensions and a long-running commentary on how far we’re willing to go to protect — or not — our fellow humans. It was also a business earthquake that shook up most industries around the world. But as quickly as COVID came on the scene, breaking supply lines and business models, it also faded. In the wake of most of the world learning to live with — or merely deciding to endure — the health impacts of the pandemic, many industries snapped back to their prior form. Airlines went from trash to first class; in contrast, tech companies flipped from darlings to disparaged. The Exchange explores startups, markets and money. Read it every morning on ZebethMedia+ or get The Exchange newsletter every Saturday. Some tech concerns picked up tailwinds during COVID, in that a newly reformed business climate helped them grow for a time. You can cast a wide net here: Robinhood exploding in part thanks to consumers stuck at home with more cash than usual, Instacart seeing explosive demand for its grocery delivery service. Some tech companies went the other way, as was the case with Airbnb’s business cratering during the early COVID months as going places went from aspirational to insane overnight. Since the return to what passes as normalcy, the businesses impacted initially by COVID have charted diverging courses. Robinhood lost some of its shine as its user base, per the usually chatted narrative, went back outside. Instacart saw its growth slow but managed to hold onto its pandemic-era gains. Airbnb, an early example of the layoffs that COVID could induce at erstwhile healthy companies, recovered, and has retained much of its value since going public, a rare feat for its IPO cohort.

Maybe FTX was the real poster child for 2021’s startup excess • ZebethMedia

By zebethcontrolPosted on November 17, 2022Posted in due diligence, EC Blockchain, EC Cryptocurrency, EC Newsletter, EC venture capital, FTX, Startups, The Exchange, Venture, venture capitalNo Comments

If someone offers you a seat on a rocket, you don’t ask which seat. So goes one of Silicon Valley’s favorite platitudes, one that you can trace back (at a minimum) to former Google CEO Eric Schmidt and former Facebook COO Sheryl Sandberg. The idea is that if you are given a shot at working on something new and big, you just say yes and sort out where you fit in the organization later. The chestnut can apply in other circumstances. For example, if I was building a Very Cool Company that was perhaps set to break out and become the Next Big Thing, you might be more concerned about getting some of your capital into the business (a seat on my business rocket ship) than precisely how the business is run (asking which seat you are buying). The Exchange explores startups, markets and money. Read it every morning on ZebethMedia+ or get The Exchange newsletter every Saturday. Making a big bet on the future without knowing all the details can, per the Sandberg example, work out well. It can also … not. As with many business cliches, the rocket-seat philosophy is frequently over-applied. Instead of being reasonable advice to be bold in the face of uncertainty, it can also be used to make witless choices appear reasonable.

How Bird clipped its own wings • ZebethMedia

By zebethcontrolPosted on November 16, 2022Posted in bird, EC Mobility Hardware, EC Newsletter, electric scooters, SPAC, Startups, The Exchange, TransportationNo Comments

The scooter startup’s accounting blunders are about more than its bottom line Well, those Bird results were wrong. It recently came to light that Bird, a former startup unicorn in the once-hot scooter rental market, overstated its revenue for several years, leading to the company stating in a filing with the U.S. Securities and Exchange Commission that several of its “audited consolidated financial statements [ … ] should no longer be relied upon.” The errors impact the company’s results for 2020 and 2021, along with the first two quarters of 2022. Given that Bird announced its plan to go public by merging with a special purpose acquisition company in mid-2021, a transaction predicated on its trailing results, the accounting mess is consequential. The Exchange explores startups, markets and money. Read it every morning on ZebethMedia+ or get The Exchange newsletter every Saturday. For many investors, we reckon that the admission of error is a bit too late. Back when the Bird-SPAC deal was voted on, shares of the blank-check company fell. And then kept falling. Since the merger of the two companies, Bird has lost nearly all of its value, falling from a 52-week high of $9.05 per share to just 30 cents per share as of early morning trading today, according to Google Finance data. More simply, Bird lost nearly all of its value after going public, which we presume means that some regular folks took a bath. Now it turns out that it went public using partially incorrect historical data. Even more, the company’s latest earnings report notes that as of the end of Q3 2022, Bird “will not be sufficient to meet the Company’s obligations within the next twelve months” with its existing cash balance of $38.5 million.

There’s still juice in the NFT market despite very real downturn • ZebethMedia

By zebethcontrolPosted on November 15, 2022Posted in coinbase, Crypto, EC Blockchain, EC Cryptocurrency, EC Newsletter, NFTs, OpenSea, The ExchangeNo Comments

But from Coinbase to Reddit, OpenSea is no longer the only fish in the sea Alex Wilhelm Anna Heim 8 hours Eight months ago, this column asked if we were entering an NFT downturn. The answer, it turns out, was a giant yes. That NFT hype is behind us is something we could tell without even looking at any data. But we do love data, and backing up our hunches, so we’re going to take a closer look at some of the very same charts we examined earlier this year. The universe of non-fungible tokens is fragmented by definition since they can be minted and sold by anyone across a number of blockchains and marketplaces. But there’s actually a reasonably good proxy to evaluate how the market is doing: trading volume on OpenSea, one of the main NFT marketplaces, and a startup that was valued at more than $10 billion earlier this year. The Exchange explores startups, markets and money. Read it every morning on ZebethMedia+ or get The Exchange newsletter every Saturday. We need to add a caveat here: OpenSea was perhaps more central to the NFT market when we started using it as a reference than it is today. In the meantime, new players have emerged, and not all of them share OpenSea’s Ethereum-based roots. For instance, there’s Joepegs, an NFT marketplace on the Avalanche blockchain that recently raised a $5 million seed round from the Avalanche Foundation and FTX Ventures (whose funds they “transferred out of FTX prior to recent bankruptcy events,” the Joepegs team said in a statement.) More importantly, Coinbase finally launched its long-anticipated NFT marketplace. But it was off to a lackluster start, and data from analytics platform Dune shows that trading volume on CoinbaseNFT is only a small fraction of OpenSea’s tally (or LooksRare’s, for that matter) over the same period.

The startup and venture markets are coming back to square one • ZebethMedia

By zebethcontrolPosted on November 14, 2022Posted in EC Newsletter, EC venture capital, Startup Trends, startup valuations, Startups, The Exchange, VentureNo Comments

What goes up must come down” is a cliche that is also a bastardization of Newton’s third law. It’s also a good reminder that when it looks like the business market has changed fundamentally, we’re often really just seeing a temporary aberration. This idiom rings true when we consider the cycle of tech valuations (up and then down), venture capital (up and then down), and the pace at which new unicorns are being minted (also up and then down). These three trends are linked, obviously, but what gave us pause recently was the realization that we haven’t merely seen declines in recent quarters: instead, there’s been a whole-cloth return to pre-COVID norms. The Exchange explores startups, markets and money. Read it every morning on ZebethMedia+ or get The Exchange newsletter every Saturday. Take tech valuations, for example: It struck us this morning while drafting the weekly kick-off Equity episode that the value of tech stocks — measured through our favorite software-company tracking index — is today trading around the value it had in early 2020, just before and after the massive COVID-induced sell-off hit American stocks: Please excuse our annotation method — it’s Monday. It’s clear that the 2020-2021 boom in software valuations was more of an anomaly than a new-normal. Besides, the fact that the companies in the index grew over the last few years but are worth less today implies that they might have been overvalued even pre-COVID. If today’s prices hold up, they will indict not only the excess of the recent past, but the overvaluations of the 2010s as well.

As the economy shifts, what’s the best software customer? • ZebethMedia

By zebethcontrolPosted on November 11, 2022Posted in appian, EC Cloud and Enterprise Infrastructure, EC Newsletter, Matt Calkins, Okta, SaaS, SMBs, Startups, The ExchangeNo Comments

It’s a busy time in tech, with billions of dollars of value incinerated in recent days: FTX is at death’s door, while Twitter, recently sold at a price that no longer made sense once the transaction closed, is either slouching toward insolvency or not, depending on how you vet its new owner’s recent comments. But while there are a great many shiny things vying for our attention, the larger (and more boring) world of B2B software is going through a fascinating year. Recall that when COVID-19 first swept the world, there was doubt that tech companies would perform well. Those concerns were misplaced; as it turns out, businesses of all sizes still needed tech solutions to run their operations, meaning that while much of the economy suffered, tech companies picked up extra momentum. The Exchange explores startups, markets and money. Read it every morning on ZebethMedia+ or get The Exchange newsletter every Saturday. The market ran a bit too far with the idea last year, pushing valuations into the stratosphere and betting that a great number of smaller tech companies were the next Microsoft when in reality, the number of truly massive winners in a venture context will remain limited. Regardless, valuations have come down and the growth reported by some public tech companies has decelerated. But looking at Q3 results, it’s not too hard to see elements of strength amid warnings from executives that the economy could remain rather wobbly in the coming quarters. Investors are getting stricter with their marks this year, so we’re getting more granular. Today, let’s peek at some recent tech results — with a focus on gross retention — from companies that sell to big and small corporations alike. We’ll also weave in notes from a chat with the CEO of Appian the other week, as well as some new data from GGV about where SMBs intend to spend. This gives us a modestly well-rounded perspective on where the software market — which accounts for much of the larger tech industry itself — is today, and where it may be heading next year.

As inflation slows, did we just see the bottom for tech stocks? • ZebethMedia

By zebethcontrolPosted on November 10, 2022Posted in EC Newsletter, EC venture capital, Startups, tech valuations, The Exchange, VentureNo Comments

While the world digests the fact that FTX could be heading to zero, Elon Musk continues to make headlines with changes to Twitter policy — at times seemingly on the fly — and results from the U.S. midterm elections still trickling in, there could be some fair winds blowing for tech companies. This morning, the United States released new inflation numbers, with CNBC reporting that the consumer price index, or CPI, was up 0.4% in October and up 7.7% from the same month one year ago. Given expectations of 0.6% and 7.9% expansion, respectively, the report counted as an unexpected bit of positive news. The Exchange explores startups, markets and money. Read it every morning on ZebethMedia+ or get The Exchange newsletter every Saturday. Why? Because if inflation is cooling, then the pace at which the U.S. Federal Reserve will raise interest rates may slow. Slower rate increases would shift the calculus for investors, making assets like stocks — and tech stocks in particular — more attractive, and more conservative investments less so on a relative basis.

Will the FTX debacle scupper crypto venture dealmaking? • ZebethMedia

By zebethcontrolPosted on November 9, 2022Posted in Binance, blockchain, Crypto, EC Blockchain, EC Cryptocurrency, EC Newsletter, EC venture capital, FTX, The Exchange, Venture, venture capitalNo Comments

The dramatic fall of FTX is taking with it more than just the paper wealth of one of crypto’s most colorful players. Given the amount of invested capital that may be incinerated in the crypto exchange’s anticipated sale to rival Binance, it’s hard not to wonder where venture goes next in web3. FTX is no longer set to generate massive investor return when it goes public; instead, backers of the exchange are concerned that their investment could go to zero in the Binance transaction. The potential sale of FTX to the larger exchange may save the brand — there’s a lot we still don’t know about its health sans rescue — but it is not clear if any of the capital pools that helped power its rise will get their money back. The Exchange explores startups, markets and money. Read it every morning on ZebethMedia+ or get The Exchange newsletter every Saturday. The scale of the potential losses is staggering. FTX’s mid-2021 funding round was something that it described at the time as the “largest raise in crypto exchange history,” for example. The $900 million round valued the company at around $18 billion. The boast about the round now sounds more like a threat, at least from a venture returns perspective. “Over 60 investors participated in the $900M Series B,” FTX wrote at the time, noting that “Paradigm, Sequoia Capital, Thoma Bravo, SoftBank, Ribbit Capital, Insight Partners, Third Point, Lightspeed Venture Partners, Altimeter, BOND, NEA, Coinbase Ventures, Willoughby Capital, 40North, Senator Investment Group, Sino Global Capital, Multicoin, the Paul Tudor Jones family, Izzy Englander, Alan Howard, VanEck, Hudson River Trading, and Circle” put capital into the round.

What’s the right NDR target for SaaS startups? • ZebethMedia

By zebethcontrolPosted on November 8, 2022Posted in EC Newsletter, EC venture capital, Enterprise, openview, SaaS, Startups, The Exchange, VentureNo Comments

Why are software companies valuable? Put another way, why have we spent so many years valuing software companies using revenue multiples, instead of the profit multiples that are more common in other industries? There are several key reasons. First, software companies have very strong gross margins; software is cheap to sell once you’ve written the code. Secondly, and more to the point today, is the fact that modern software companies are set up to sell more of their product to existing customers over time. This is often achieved through selling more seats (individual use licenses) to extant accounts or, in the case of on-demand pricing, more total usage of a service over time. Regardless of the method, what matters is that software companies today tend to see limited gross churn (customers dropping their contracts) and positive net dollar retention (the sale of more product to existing customers over time). The Exchange explores startups, markets and money. Read it every morning on ZebethMedia+ or get The Exchange newsletter every Saturday. Net dollar retention (NDR) is, essentially, gross churn from existing customers plus upsells from the same, measured over a set time period. The resulting metric, measured in a percent of prior revenue, helps investors understand just how much built-in growth momentum a company has. The greater net dollar retention that a software company has, the more efficient its growth will be (selling more stuff to already-landed customers is cheaper than securing net-new accounts). NDR matters, and investors, focused on more efficient growth than last year, are likely putting more emphasis on the metric. So, what should startups target when it comes to NDR results? Even more, do those expectations match what startups are actually reporting? And who has better net retention, public software companies or their startup rivals?

Maybe we were valuing software companies the wrong way all along • ZebethMedia

By zebethcontrolPosted on November 7, 2022Posted in EC Newsletter, EC venture capital, jason lemkin, Startups, tech valuations, The Exchange, VentureNo Comments

‘I honestly didn’t think it could get worse’ What’s a software company worth? It’s not an idle question, but one that underpins a huge amount of private-market investment and human effort. In 2021, the presumed value of software revenues grew, adding to a longer upcycle that pushed tech companies’ valuations into the stratosphere. Since late 2021, however, a decline in tech valuations in private and public markets has entirely shaken up the game. And then, after quarters of declines, tech stocks took another gut punch Friday, with a key index tracking the value of cloud and SaaS stocks reaching a fresh 52-week low. The Exchange explores startups, markets and money. Read it every morning on ZebethMedia+ or get The Exchange newsletter every Saturday. To paraphrase SaaS investor Jason Lemkin in the wake of the selloff, we didn’t think that it could get worse. So much for that misplaced optimism. The recent selloff is news in and of itself, but past examining the latest contractions, it’s worth asking the question lurking at the back of the entire software revaluation saga: Were we using the right valuation metrics all along? Maybe not. And if not, we’re not only seeing a reevaluation of software companies, but perhaps a new era of tech valuations more generally. It won’t be one that is attractive to startups. Public tech companies are also running afoul of the shift.