Zoom’s earnings to test hot tech valuations


This post is by Alex Wilhelm from Fundings & Exits – TechCrunch

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

This week will see two richly valued SaaS businesses share their Q1 earnings reports: CrowdStrike and Zoom. Both are 2019 IPOs, but these relatively young public companies have enjoyed a strong run in the public markets this year.

Zoom started off 2020 worth around $69 per share; today it is worth $179.48 ahead of the start of today’s trading. CrowdStrike started the year at a little over $49 per share; today it’s worth $87.81 per share. The business-focused, but consumer-friendly video chat service Zoom and the cybersecurity-focused CrowdStrike are perfect examples of the updraft that SaaS businesses have ridden this year.

With both firms reporting earnings at the same time, we’ll get notes on the work-from-home trend, and how it is impacting services that help make remote-work possible. CrowdStrike’s earnings will inform us on how the cybersecurity space is performing — are businesses shelling out more than expected to keep their networks and employees safe when so many are out of the office?

If Zoom and CrowdStrike report results that disappoint investors, they could do more than just deflate their own shares. Missed earnings reports from either could puncture SaaS valuations more broadly, perhaps impacting private valuations for companies that are in the market for new capital. Why?

Prominence and timing.

Earnings expectations

Survival of the Fittest: COVID-19’s Impact on Venture Funding


This post is by Kareem Aly from Thomvest Ventures - Medium

How Should a VC Investment Strategy Pivot During the COVID-19 Crisis Based on Past Downturns?

Pandemic forces fundraising founders to accept ‘discounts across the board’


This post is by Jonathan Shieber from Fundings & Exits – TechCrunch

Startup founders who are fundraising in this climate should expect venture investors to take a huge chunk out of their valuation expectations.

“What we’re seeing across the board is discounts,” says Mike Janke, co-founder of early-stage cybersecurity investment firm Datatribe.

Investors are still committing to new deals, he says, but they’re adding new terms and demanding lower valuations from companies as the cost of raising capital during the downturn. Janke, whose firm has several deals in the pipeline, says entrepreneurs should expect VCs to demand concessions like more frequent board meetings and large price cuts compared to what they’d previously seen.

“If you look at 2000 and 2008, venture always views [downturns] as the time to get good deals,” Janke says. “We’re looking at a 15% to 25% discount to do deals.”

In one instance, a company that turned down a $900 million acquisition offer is now in the process of raising a new round at a $500 million valuation, he says. “In 2019 it was just generally accepted that this company was worth over $1 billion.”

Deals are getting done, though. As the pandemic began to spread, Janke says most firms began triaging their portfolios to determine who would need to raise cash and who could remain afloat without an infusion. Now, firms are looking out and seeing what kind of opportunities there are in the broader market — if they can.

“Some of our peers in the Valley have up to 40% of their companies that need an infusion or some sort of bridge to get through,” says Janke. “These companies that had higher valuations that came out of the Valley have had to do more drastic cuts.” Startups that raised cash in markets outside the Bay Area have not had as much difficulty, he says, because they’re more efficient.

Saving, not spending, is the new hotness in fintech


This post is by Alex Wilhelm from Fundings & Exits – TechCrunch

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

Yesterday news broke that Robinhood is on the hunt for new capital at a roughly flat valuation, per friend of the blog Katie Roof. If you are a bit confused by the news, I understand. Robinhood went through a gauntlet of bad press and user complaints after it suffered from some embarrassing downtime back in March, and isn’t the capital market for private companies in rough shape?

But the round is more reasonable than you’d think, namely because Robinhood’s revenue has reached real scale, and, like other savings and investing-focused financial applications, it’s enjoying a boom in demand. Showing that there’s buzz in helping people save, let’s talk about Robinhood briefly and dig into some other metrics from its loose cohort of companies (including M1 Finance, more about them in a moment) .

Growth

What Will Happen To Deal Activity and Valuations During the Corona Crisis?


This post is curated by Keith Teare. It was written by Eddie A. The original is [linked here]

What Will Happen To Deal Activity and Valuations Near-Term During the Corona Crisis?

Given all of the turmoil in the markets over the past couple of months, we took a step back to understand if any lessons from the Great Recession could be applied to the current financial crisis. While much uncertainty remains, we are now at a place where we are starting to see the initial shocks from the Corona Crash take shape. There are many questions about what to expect when it comes to valuations and the level of deal activity in the next two quarters and beyond.

Nothing Stays The Same — Or Does It?

A lot has changed since the Great Recession — not only with series classifications, but also with the quality of companies, the amount of capital being invested into startups, and the sophistication of investors and entrepreneurs. While the COVID Crash is dissimilar from the Great Recession in many aspects, it is one of the most recent proxies that we have for predicting what will happen next. Using the aftershock analysis from the Great Recession (discussed further in the analysis), we would expect the following to happen to pre-money valuations in Q2’20 and Q3’20 respectively:

  • Q2’20 — Median pre-money Series A valuations will drop from $22M in Q1 to ~$17M in Q2 and the 3rd quartile will drop from $35M in Q1 to ~$23M in Q2: If we use 2008 as a proxy, we saw an interquartile range contraction (3rd quartile — 1st quartile) between Q3’08 and Q4’08 and a quick drop in the median. Applying this observation to Q2’20, we would project median pre-money valuations to fall roughly -22% and expect the third quartile to drop -33%.
  • Q3’20 — Distribution of Series A pre-money valuations should expand as companies adjust and investor appetite reemerges: It’s not all doom and gloom. By Q3’20, we should expect the distribution of valuations to expand again as companies have a chance to respond, make OPEX adjustments and remove some level of uncertainty. Even with the range expansion, overall pre-money valuations and deal count will remain depressed.

Back To The Future: What We Learned In ‘08-’09

This all sounds reasonable so far, but how did the lessons of The Great Recession guide these conclusions?

Methodology: While there is no perfect comparison, we took a look at the Q3’08-Q4’08 and used Series A pre-money financings as a proxy. We evaluated interquartile ranges, overall distribution, and medians (with exclusions for valuations more/less than 1.5x the interquartile range).

What Really Happened? Many people were faced with the same picture of dismal headlines and grim uncertainty. As Lehman Brothers filed for bankruptcy on September 15th, 2008, the shock-waves were felt through the market, leading to the worst decline in five years for the Dow. As the Fed began sorting through options, Q4’08 was looking pretty bleak and the public markets were taking a tumble. The drop in venture valuations shortly followed as median pre-valuations dropped ~22% and the 3rd quartile dropped ~33% from $14.3M to $9.6M in Q4’08.

As you can see with the scatter plots above, valuations in Q4 had a natural cap around $14M and the 3rd quartile was severely compressed. While there is some noise in the deal count collection for companies that have pre-money valuations available (deal count dropped ~50% between Q3 and Q4 in 2008 ), it appears that the venture market pressed “pause” on deals and migrated away from the right tail of pre-money valuations.

Another thing to point out is that the compression was further exemplified by the interquartile range decreasing from $9.7M in Q3’08 to $5.8M in Q4’08. Even more, in Q3, there was a positive skew of pre-money valuation — with a peak count of around $5-$7.5M and a long tail with roughly equal counts between $10-$12.5M, $12.5-$15M and $15–17.5M. By Q4, we saw compression in the spread of valuations with a weaker positive skew.

Let’s Make A Deal: By Q1 2009, we saw deal count increase slightly (+15%) with the third quartile jumping up 28% to $12.3M and the interquartile range increasing back to ~$9M.

While deal count continued to be impacted, investor appetite for richer priced deals re-emerged. This may have been due to a number of factors including higher-quality companies reemerging for funding, the emergence of aid and stimulus packages, and/or the reemergence of investors who were waiting for the dust to settle to put their capital to use.

What, So What…..Now What?

Let’s be blunt. We are in “uncharted territory” right now during the Corona Crisis. There are some days where it would be understandable if you didn’t want to look at the news at all since it is both shocking and depressing. The amount of wealth destruction in such a short amount of time is unprecedented. And it’s not at all clear at this time if the worst is behind or still ahead of us when it comes to financial recovery.

Let’s try to end on an optimistic note. As we saw in the Great Recession, once the initial drops are eventually over with, there will be an eventual rebound in deal activity and valuations as the strong survive. At this stage, it’s anyone’s guess as to how long that will take this time around and how the capital waiting on the sidelines and the Payment Protection Plan will impact the speed of deal count increases and valuations over the next few quarters. Here’s to hoping it’s a faster and more robust recovery than what we saw during the Great Recession. For now, let’s use this time to monitor the ever-changing situation and do our best to help our companies respond and ideally reemerge better on the other side of this.


What Will Happen To Deal Activity and Valuations During the Corona Crisis? was originally published in Thomvest Ventures on Medium, where people are continuing the conversation by highlighting and responding to this story.

What Will Happen To Deal Activity and Valuations During the Corona Crisis?


This post is by Eddie A from Thomvest Ventures - Medium

What Will Happen To Deal Activity and Valuations Near-Term During the Corona Crisis?

Given all of the turmoil in the markets over the past couple of months, we took a step back to understand if any lessons from the Great Recession could be applied to the current financial crisis. While much uncertainty remains, we are now at a place where we are starting to see the initial shocks from the Corona Crash take shape. There are many questions about what to expect when it comes to valuations and the level of deal activity in the next two quarters and beyond.

Nothing Stays The Same — Or Does It?

A lot has changed since the Great Recession — not only with series classifications, but also with the quality of companies, the amount of capital being invested into startups, and the sophistication of investors and entrepreneurs. While the COVID Crash is dissimilar from the Great Recession in many aspects, it is one of the most recent proxies that we have for predicting what will happen next. Using the aftershock analysis from the Great Recession (discussed further in the analysis), we would expect the following to happen to pre-money valuations in Q2’20 and Q3’20 respectively:

  • Q2’20 — Median pre-money Series A valuations will drop from $22M in Q1 to ~$17M in Q2 and the 3rd quartile will drop from $35M in Q1 to ~$23M in Q2: If we use 2008 as a proxy, we saw an interquartile range contraction (3rd quartile — 1st quartile) between Q3’08 and Q4’08 and a quick drop in the median. Applying this observation to Q2’20, we would project median pre-money valuations to fall roughly -22% and expect the third quartile to drop -33%.
  • Q3’20 — Distribution of Series A pre-money valuations should expand as companies adjust and investor appetite reemerges: It’s not all doom and gloom. By Q3’20, we should expect the distribution of valuations to expand again as companies have a chance to respond, make OPEX adjustments and remove some level of uncertainty. Even with the range expansion, overall pre-money valuations and deal count will remain depressed.

Back To The Future: What We Learned In ‘08-’09

This all sounds reasonable so far, but how did the lessons of The Great Recession guide these conclusions?

Methodology: While there is no perfect comparison, we took a look at the Q3’08-Q4’08 and used Series A pre-money financings as a proxy. We evaluated interquartile ranges, overall distribution, and medians (with exclusions for valuations more/less than 1.5x the interquartile range).

What Really Happened? Many people were faced with the same picture of dismal headlines and grim uncertainty. As Lehman Brothers filed for bankruptcy on September 15th, 2008, the shock-waves were felt through the market, leading to the worst decline in five years for the Dow. As the Fed began sorting through options, Q4’08 was looking pretty bleak and the public markets were taking a tumble. The drop in venture valuations shortly followed as median pre-valuations dropped ~22% and the 3rd quartile dropped ~33% from $14.3M to $9.6M in Q4’08.

As you can see with the scatter plots above, valuations in Q4 had a natural cap around $14M and the 3rd quartile was severely compressed. While there is some noise in the deal count collection for companies that have pre-money valuations available (deal count dropped ~50% between Q3 and Q4 in 2008 ), it appears that the venture market pressed “pause” on deals and migrated away from the right tail of pre-money valuations.

Another thing to point out is that the compression was further exemplified by the interquartile range decreasing from $9.7M in Q3’08 to $5.8M in Q4’08. Even more, in Q3, there was a positive skew of pre-money valuation — with a peak count of around $5-$7.5M and a long tail with roughly equal counts between $10-$12.5M, $12.5-$15M and $15–17.5M. By Q4, we saw compression in the spread of valuations with a weaker positive skew.

Let’s Make A Deal: By Q1 2009, we saw deal count increase slightly (+15%) with the third quartile jumping up 28% to $12.3M and the interquartile range increasing back to ~$9M.

While deal count continued to be impacted, investor appetite for richer priced deals re-emerged. This may have been due to a number of factors including higher-quality companies reemerging for funding, the emergence of aid and stimulus packages, and/or the reemergence of investors who were waiting for the dust to settle to put their capital to use.

What, So What…..Now What?

Let’s be blunt. We are in “uncharted territory” right now during the Corona Crisis. There are some days where it would be understandable if you didn’t want to look at the news at all since it is both shocking and depressing. The amount of wealth destruction in such a short amount of time is unprecedented. And it’s not at all clear at this time if the worst is behind or still ahead of us when it comes to financial recovery.

Let’s try to end on an optimistic note. As we saw in the Great Recession, once the initial drops are eventually over with, there will be an eventual rebound in deal activity and valuations as the strong survive. At this stage, it’s anyone’s guess as to how long that will take this time around and how the capital waiting on the sidelines and the Payment Protection Plan will impact the speed of deal count increases and valuations over the next few quarters. Here’s to hoping it’s a faster and more robust recovery than what we saw during the Great Recession. For now, let’s use this time to monitor the ever-changing situation and do our best to help our companies respond and ideally reemerge better on the other side of this.


What Will Happen To Deal Activity and Valuations During the Corona Crisis? was originally published in Thomvest Ventures on Medium, where people are continuing the conversation by highlighting and responding to this story.

How does an early-stage investor value your startup and how can you influence it for the better?

In this post, our Managing Partner, Carlos, provides an update and further considerations for founders questioning how an early-stage investor values a startup? If you want to know how to maximize your valuation and drivers behind the boundaries of possible valuations for your company then read on!

Photo by NeONBRAND on Unsplash

In my previous post, I covered how macro and geo contexts, amongst several factors,  determine the relativistic value of a company to an investor on exit, and how traditional finance-driven valuations methods (DCF, etc) were inappropriate for early-stage startups even if some of the elements that drive those finance-driven valuation methods were still applicable, such as expected revenues. I also covered how several factors about your company can influence what valuation you might be able to achieve. To kick-off, let’s revisit those points.

The key drivers for maximizing your valuation possibilities are:

  1. Excellent metrics. As different types of

    Continue reading “How does an early-stage investor value your startup and how can you influence it for the better?”

Airbnb’s New Year’s Eve guest volume shows its falling growth rate

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

It’s finally 2020, the year that should bring us a direct listing from home-sharing giant Airbnb, a technology company valued at tens of billions of dollars. The company’s flotation will be a key event in this coming year’s technology exit market. Expect the NYSE and Nasdaq to compete for the listing, bankers to queue to take part, and endless media coverage.

Given that that’s ahead, we’re going to take periodic looks at Airbnb as we tick closer to its eventual public market debut. And that means that this morning we’re looking back through time to see how fast the company has grown by using a quirky data point.

Airbnb releases a regular tally of its expected “guest stays” for New Year’s Eve each year, including 2019. We can therefore

Continue reading “Airbnb’s New Year’s Eve guest volume shows its falling growth rate”

A Teaching Manifesto: An Invitation to my Spring 2020 classes


This post is by Aswath Damodaran from Musings on Markets

If you have been reading my blog for long enough, you should have seen this post coming. Every semester that I teach, and it has only been in the spring in the last few years, I issue an invitation to anyone interested to attend my classes online. While I cannot offer you credit for taking the class or much direct personal help, you can watch my sessions online (albeit not live), review the slides that I use and access the post class material, and it is free. If you are interested in a certificate version of the class, NYU offers that option, but it does so for a fee. You can decide what works for you, and whatever your decision is, I hope that you enjoy the material and learn from it, in that order.

The Structure

I will be teaching three classes in Spring 2020 at the Stern School of Business (NYU), a corporate finance class to the MBAs and two identical valuation classes, one to the MBAs and one for undergraduates. If you decide to take one of the MBA classes, the first session will be on February 3, 2020, and there will be classes every Monday and Wednesday until May 11, 2020, with the week of March 15-22 being spring break. In total, there will be 26 sessions, each session lasting 80 minutes. The undergraduate classes start a week earlier, on January 27, and go through May 11, comprising 28 sessions of 75 minutes apiece. 
  1. The Continue reading “A Teaching Manifesto: An Invitation to my Spring 2020 classes”

A Teaching Manifesto: An Invitation to my Spring 2020 classes

If you have been reading my blog for long enough, you should have seen this post coming. Every semester that I teach, and it has only been in the spring in the last few years, I issue an invitation to anyone interested to attend my classes online. While I cannot offer you credit for taking the class or much direct personal help, you can watch my sessions online (albeit not live), review the slides that I use and access the post class material, and it is free. If you are interested in a certificate version of the class, NYU offers that option, but it does so for a fee. You can decide what works for you, and whatever your decision is, I hope that you enjoy the material and learn from it, in that order.

The Structure

I will be teaching three classes in Spring 2020 at the Stern School

Continue reading “A Teaching Manifesto: An Invitation to my Spring 2020 classes”

Why Gross Profit Is More Important Than Revenue

I’ve been thinking a lot about gross profit (and gross margin) lately. Yeah, I know I can be riveting, but stay with me.

When I was in Boston a while ago (it was very cold, so it must have been January), I had a wide-ranging conversation with Eric Paley. This was before the IPO Summer of 2019 when all conventional valuation metrics have entered the land of “suspension of disbelief” which is short-term good and long-term well-we-will-see-…-eventually

One of our conversational threads was about how to value companies. We ended up talking about using Gross Profit, instead of Revenue, to do valuation analysis.

We’ve been doing this for a long time at Foundry Group. Since we invest across a number of different themes, we’ve had to deal with very different revenue and gross margin profiles since the beginning, whether we realized it or not.

For the purpose of clarity,

Continue reading “Why Gross Profit Is More Important Than Revenue”

Startups Weekly: Will the real unicorns please stand up?

Hello and welcome back to Startups Weekly, a newsletter published every Saturday that dives into the week’s noteworthy venture capital deals, funds and trends. Before I dive into this week’s topic, let’s catch up a bit. Last week, I wrote about the sudden uptick in beverage startup rounds. Before that, I noted an alternative to venture capital fundraising called revenue-based financing. Remember, you can send me tips, suggestions and feedback to kate.clark@techcrunch.com or on Twitter @KateClarkTweets.

Here’s what I’ve been thinking about this week: Unicorn scarcity, or lack thereof. I’ve written about this concept before, as has my Equity co-host, Crunchbase News editor-in-chief Alex Wilhelm. I apologize if the two of us are broken records, but I think we’re equally perplexed by the pace at which companies are garnering $1 billion valuations.

Here’s the latest data, according to Crunchbase: “2018 outstripped all previous years in terms of

?

Continue reading “Startups Weekly: Will the real unicorns please stand up?”

Raise softly and deliver a big exit

 In the world of venture capital, the prospect of a successful “exit” looms large in the minds of investors. A VC’s business model is less about the money that goes into a startup than it is about what comes out. It’s true that most companies fail to exit gracefully, and of those that do, surprisingly few exit by going public. Read More

Squarespace reportedly raises about $200 million at a $1.7 billion valuation

 Squarespace, the 14-year-old platform that makes it easy for essentially anyone to build their own website, is raising about $200 million from General Atlantic, valuing the company at a $1.7 billion valuation, Bloomberg reports. The plan with the funding is to buy stock from early employees and investors, giving them a way to cash out if they’re not trying to wait around for an IPO. Read More

Context is key for valuations

business, urban, office, corporate, banking, stocks, finance, adult, success, comparison, choice, growth, sustainability,  teamwork, cooperation, community, boardroom, brainstorm, concept, levels, problem solving, solution, individuals, leadership, miniature, funny, humorous, giant, tiny, big and small, strategy, fun, studio, trust, partnership, agreement, responsibility, responsible, reliable, protection, big idea, big picture, the big idea, unity, men only, suit, standing, growth, scale For most of the past five years, investors in software companies prized revenue growth above all else. Investors were more than willing to overlook near-term profitability (or lack thereof) in favor of an acute focus on growth. As a result, entrepreneurs were encouraged to invest in building massive sales teams as quickly as possible to accelerate revenue growth, regardless of the cost. Read More

Valuation metrics show weakening for the fourth straight quarter

Dollars on a green background The law firm Fenwick & West quietly released its third-quarter venture capital survey this past Friday, and its findings aren’t exactly shocking. At the same time, they hint at problems to come for some startups.
The survey, which analyzed the valuations and terms of financings for 149 Bay Area companies that raised capital in the third quarter, showed that 71 percent of those… Read More

Signs point to a contraction, but no one’s bursting venture capital’s bubble

bubblepop Regardless of the economic climate, the real job of any investor is to help entrepreneurs build meaningful companies and technologies. The best investors that we know don’t try to time the market, and neither do the best entrepreneurs. We have to keep at it. Read More

Ontario Teachers’ Pension Plan Invests in Indian Startup Snapdeal

Workers dispatch purchased goods to customers at Snapdeal’s Fulfillment center at Bhiwandi on the outskirts of Mumbai, Nov. 5, 2015.
Subhash Sharma/Zuma Press

Indian e-commerce company Snapdeal.com on Monday bucked a slowdown in startup investments in India, securing $200 million from the Ontario Teachers’ Pension Plan and others.

The investment takes the company’s valuation to $6.5 billion.

Snapdeal.com, the online marketplace owned by Jasper Infotech Pvt., was most-recently valued by investors at $5 billion, after it raised $500 million in August from Alibaba Group Holding Ltd., Foxconn Technology Group and SoftBank Corp.

Across India, executives at tech startups Continue reading “Ontario Teachers’ Pension Plan Invests in Indian Startup Snapdeal”

Doomed-i-corns: Unicorns Seemingly Reach a Tipping Point

Unicorn Magic This morning, the law firm Fenwick & West published new findings about all the U.S.-based unicorn financings that took place during the last nine months of 2015. It’s rife with interesting nuggets, but perhaps most fascinating is that in the fourth quarter of last year, half of the 12 rounds it tracked featured valuations in the $1 billion to $1.1 billion range — and with… Read More

Tech Valuations In 2016: The End Of The Line For Sloppy Growth

pink fungi growth What’s going on in technology investing right now? Is this another 2001, when tech imploded? Another 2008, when the wider world crashed but tech powered through? Or is it like Facebook in 2012, a valuation blip and a chance to buy? Anecdotes about dead unicorns are not enough. An explanation has to start with a framework and a qualitative description of what is driving the markets… Read More