Day: February 4, 2023

Control, Complexity and Politics: Deconstructing the Adani Affair!

The India Rising story hit some turbulence last week, as one of its biggest corporate success stories, the Adani Group, was hit with a report from Hindenburg Research, an investing group that specializes in targeting and shorting companies that it believes have dubious accounting and business practices. In response, people have fallen into two groups, with the Adani family and its supporters arguing that the short selling report is a hit job by a "foreign" entity to bring down not just the company, but also the country, and others noting that the report just reinforces what has troubled them about the company's meteoric rise in the last decade. I will confess that I know very little about the Adani Group, and I have nothing invested financially or emotionally in the company's fortunes. If you are looking for advice on whether you should buy or sell Adani shares, based upon my analysis, you will be disappointed. Instead, I will argue that the ingredients that led to the Adani stock price meltdown last week, which include an ambitious family group obsessed with control, a financial market where trading momentum trumps financial fundamentals and a capital market (debt and equity) where governments and regulators put their thumbs on the scale, are embedded in many Indian companies, and represent the weakest links in the India story.

The Lead In

    As noted in the introductory paragraph, I start from a position of ignorance about the Adani Group, and it thus made sense to (Read more...)

Thinking EBITDA Multiples for SaaS at Scale

Last week I was talking to a growth stage software investor. We were discussing a recent round they lead and I asked how they thought about the revenue multiple for this SaaS business. Revenue multiple? I was quickly corrected that they didn’t underwrite it as a Rule of 40 multiple of recurring revenue, growth rate, and gross margin (see Rule of 40 Valuations). Rather, they made the investment based on an estimated EBITDA, and EBITDA multiple, five years from now.

Coming from the grow-at-all-costs for several years to the current grow-reasonably-efficient times, making the leap to EBITDA multiples isn’t as dramatic, but it’s still problematic with so many software companies burning cash. EBITDA (earnings before interest, taxes, depreciation, and amortization) is form of profitability calculation made popular by the Cable Cowboy John Malone many years ago. In rough numbers, a smaller business is worth 4-6x EBITDA, a mid-sized business is 6-8x EBITDA, and a large business or one with an exceptional business model is 10-15x+ EBITDA (also varies dramatically by industry, growth rate, etc.).

SaaS companies, due to characteristics like the stickiness of the product, high gross margins, revenue predictability, and more make for an exceptional business model. Let’s do some basic math to see how a growth stage investor might underwrite a SaaS company at scale to make 3-5x the investment in five years.

Initial Deal
$20M Revenue
$80M pre-money valuation
$20M investment for 20% ($100M post-money valuation)

End of Year 1
$27M Revenue

(Read more...)

A bit of weekend reading

This post is by Om Malik from On my Om

man sitting on bench reading newspaper
Photo by Roman Kraft on Unsplash

…oftentimes you can see change on the horizon, assuming you’re looking for it, and there comes a day when the landscape flips. But the old entities attached to the old ways refuse to adjust, they believe in holding back the future, staying rooted in the past, to their detriment, because the public is not controlled by them. 

Bob Lefsetz

This simple insight is Silicon Valley (a proverbial proxy for post-industrial technology). Why it exists, why it eats itself, and why it finds the future. A more business version of this insight is Clay Christensen’s Innovator’s Dilemma. 

Top Read:

The Junkification of Amazon: Amazon might be the biggest store on the web, but it is also the shittiest place to shop on the web, says John Herrman. I couldn’t agree more — my overall experience with Amazon has deprecated, and I am always worried about what crap I will get in the box. I have shifted about a third of my dollars to Walmart — Amex underwrites the Walmart equivalent of Prime — and another third to Target or independent stores. Shopify has made it easier to shop with independents. Amazon’s great advantage is “returns.” You will see Amazon as just another web place when someone cracks that. (Ironically, New York magazine has no problem linking to Amazon for affiliate revenues.)


So Many Podcasts, So Little Money: Spotify has thus far failed its big bet on podcasts. It has become the (Read more...)

The Best of 2022

This post is by Om Malik from On my Om

At the very end of 2022, I wrote about my photographic journey and how it has allowed me to look at both the world and life in new ways. It has allowed me to embrace imperfections, my own and in others. Of course, it could just be that my inner monologue influenced my photography.

Regardless, many of you wrote wanting to see more of my photos from 2022. There are quite a few favorites, so instead of creating a long string of photos, I roped in my friend Felix and had him create a video presentation of the best of my 2022 photos! Sit back, relax, and enjoy!

February 4, 2023, San Francisco.

“No photos”

This post is by Seth Godin from Seth's Blog

That’s what it said at the florist shop.

I’m guessing because ‘taking’ a photo sometimes feels like a taking. The creativity, skill and effort that goes into making a distinctive arrangement might feel uncompensated when someone simply takes the work and posts it.

This misses the real point, though.

Once you’ve made something worth photographing, having the idea captured and spread helps you, it doesn’t hurt. More than ever, people are paying for famous, even if it’s as prosaic as a famous bouquet, produced by the originator of the design.

The hard part is making something worthy, not protecting it from cameras.