Adam Hardej

Oct 13, 2022·Newsletter

Bunch Of Sell Outs

Bunch Of Sell Outs

It's been a wild ride for venture backed growth and it looks like we may head into a period of consolidation. In plain terms, the tech companies that have lots of money (from profits) are going to buy the tech companies that used to have lots of money (from VCs).

One of the most interesting things about this is how clearly the pullback from unprofitable technology companies is playing out in the public and private markets simultaneously. On the public side we see a clear separation of value between profitable and unprofitable. The Nasdaq 100 is trading down ~30% while the GS Non-Profitable Tech Basket is down closer to ~60% since January. It seems like an obvious delineation now, but back in January these two groups traded side by side (graph here). It's not as easy to pull data on the private side, but the same dynamic applies.

Profitable companies continue to have access to financing while unprofitable companies watch their runway shrink with each day that passes. Not so long ago, unprofitable tech cos could easily extend their runway through VC backing and prioritize growth over profit. This growth financing allowed upstarts to stand tall against incumbents who might look to take them off the market through acquisition or competition. In this new funding environment however, the tides are shifting quickly.

For some high-growth high-burn startups a poorly timed 6-month lull in financing can spell doom. When VC turns their back, the financier of last resort often looks like that incumbent the scrappy startup was shaking their fist at a couple of months before. The word on the street is that we have a "massive set" of deals heading our way ranging from $200M to $1B. These acquisitions will vary widely in terms of outcomes for investors and founders. The dreaded yet way-better-than-nothing "soft landing" and "acquihire" playbooks are out to play and it will be interesting to watch who ends up where.

The ugly part of this is that while some startups will find new homes - others will be left to die.

“When we die, our [dev team] becomes [open to work], and [big tech] eats the [dev team]. And so we are all connected in the great Circle of [Tech].”
- Mufasa

Other stonky stuff to be aware of:

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