Inflation is rising and so are interest rates. The risk-off trade is continuing in public markets and technology stocks are getting battered. The median EV/Revenue multiple has fallen from around 16x at it’s highs in 2021 to around 7x today, below the pre-COVID median (which was around 8.5x between 2017 and 2019). This bearish sentiment is certainly trickling, actually flooding, into private markets where later stage firms in particular are looking at cash burn, profitability possibilities and unit economics much more closely than projections of growth and blue sky. The tech layoffs page has certainly been busy in the last two months in particular; there have been layoffs at close to 75 companies in June already (and we are only half way through the month) vs. around 70 companies in May and less than 25 companies in April. Notably, as I’ve discussed, the crypto sector has been particularly hard hit and Coinbase announced earlier this week that it would be laying off 18% of it’s team (around 330 people). Talent has been hard to come by for most early stage companies over the last 2-3 years in particular and I’ve got no doubt that great people will find work again at tech companies that have sustainable business models.
However, it’s not all doom and gloom – and the media, in general, don’t report this part. Deals are still being done today. A lot of them. I’ve spoken to VCs in Australia, the US and Europe over the last few weeks and all are still deploying capital. A few themes have been recurrent through these conversations:
Focussing on portfolio companies first so that they understand the funding markets have changed and assisting them to make changes to business plans, models etc. and ensuring they have enough runway under these new business plans;
Still deploying capital and see this as a great time to invest at reasonable valuations;
Taking more time to do due diligence and not feeling pressure to deploy capital in 1-2 weeks as they may have in 2021;
The phrase “Operating Leverage” has been used in many conversations – great tech companies have always had high gross margins but this discipline may have been lacking in the last couple of years; and
Seeing an opportunity to onboard great talent at an earlier stage that may not have been available in the last couple of years.
Seemingly Limited Partners are not abandoning the tech sector either. Potentia has oversubscribed on the fund raise of it’s second fund, raising $635m (more here). Potentia targets growth and pe-style later stage tech investment opportunities – and more likely those that haven’t been caught up in the current later stage pull-back because of their sustainable business models and consistent cash flow.
Capital Raises…that piqued my interest
Pixellot, an Israeli provider of automated sports video and analytics solutions, raised $161m. Democratisation of a service is a one of the best use cases for technology and Pixellot allows the long tail of sports bodies, leagues and teams to broadcast high quality video of games without spending millions on production crews.
Swoop, a global online funding platform for SMEs and advisors, has raised $9.4 million. I’ve blogged multiple times about the requirement for more funding options in the Australian market, particularly credit and Swoop makes it easier to see all the options in one place.
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Tech Pique (17 June)
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Mixed Signs
Inflation is rising and so are interest rates. The risk-off trade is continuing in public markets and technology stocks are getting battered. The median EV/Revenue multiple has fallen from around 16x at it’s highs in 2021 to around 7x today, below the pre-COVID median (which was around 8.5x between 2017 and 2019). This bearish sentiment is certainly trickling, actually flooding, into private markets where later stage firms in particular are looking at cash burn, profitability possibilities and unit economics much more closely than projections of growth and blue sky. The tech layoffs page has certainly been busy in the last two months in particular; there have been layoffs at close to 75 companies in June already (and we are only half way through the month) vs. around 70 companies in May and less than 25 companies in April. Notably, as I’ve discussed, the crypto sector has been particularly hard hit and Coinbase announced earlier this week that it would be laying off 18% of it’s team (around 330 people). Talent has been hard to come by for most early stage companies over the last 2-3 years in particular and I’ve got no doubt that great people will find work again at tech companies that have sustainable business models.
However, it’s not all doom and gloom – and the media, in general, don’t report this part. Deals are still being done today. A lot of them. I’ve spoken to VCs in Australia, the US and Europe over the last few weeks and all are still deploying capital. A few themes have been recurrent through these conversations:
Focussing on portfolio companies first so that they understand the funding markets have changed and assisting them to make changes to business plans, models etc. and ensuring they have enough runway under these new business plans;
Still deploying capital and see this as a great time to invest at reasonable valuations;
Taking more time to do due diligence and not feeling pressure to deploy capital in 1-2 weeks as they may have in 2021;
The phrase “Operating Leverage” has been used in many conversations – great tech companies have always had high gross margins but this discipline may have been lacking in the last couple of years; and
Seeing an opportunity to onboard great talent at an earlier stage that may not have been available in the last couple of years.
Seemingly Limited Partners are not abandoning the tech sector either. Potentia has oversubscribed on the fund raise of it’s second fund, raising $635m (more here). Potentia targets growth and pe-style later stage tech investment opportunities – and more likely those that haven’t been caught up in the current later stage pull-back because of their sustainable business models and consistent cash flow.
Capital Raises…that piqued my interest
Pixellot, an Israeli provider of automated sports video and analytics solutions, raised $161m. Democratisation of a service is a one of the best use cases for technology and Pixellot allows the long tail of sports bodies, leagues and teams to broadcast high quality video of games without spending millions on production crews.
Swoop, a global online funding platform for SMEs and advisors, has raised $9.4 million. I’ve blogged multiple times about the requirement for more funding options in the Australian market, particularly credit and Swoop makes it easier to see all the options in one place.