Podcast Summary
Central banks raising interest rates lead to M&A activity: Central banks increasing interest rates cause economic slowdown and M&A activity as large companies buy smaller ones for growth
Central banks raise interest rates to curb inflation and cool down the economy, which may lead to unemployment. This counterintuitive measure aims to prevent the damaging effects of out-of-control inflation. The current economic climate is characterized by rising interest rates, and as a result, we've seen an increase in mergers and acquisitions, with large companies buying smaller ones to secure growth. The recent acquisition of Splunk by Cisco for $28 billion is a notable example of this trend. This week on "This Week in Startups," J Cal discussed these topics and took questions from viewers on the latest tech news.
Companies facing funding challenges lead to increased M&A activity: Great companies are bought, not sold. Tools increasing revenue and legendary leadership insights are valuable in a down market.
The current economic climate is leading to increased mergers and acquisitions (M&A) activity, as companies consider selling due to funding challenges. However, great companies are typically bought, not sold. Three companies recently went public due to external pressures, including Arm, which raised a $50 billion valuation, and Clavio, which offers personalized customer communication and saw a $9 billion valuation. In a down market, tools that increase revenue become even more valuable. Additionally, legendary figures like Howard Schultz offer insights into leadership through Masterclass, providing valuable knowledge for entrepreneurs. Instacart, a popular food delivery service, is an example of a company that thrives in various market conditions, offering quick delivery for smaller orders and efficient service for larger ones. Entrepreneurs may face self-doubt, but maintaining commitment and conviction is crucial for success.
Instacart's Shift to Advertising Revenues: Instacart's focus on ad revenues indicates its potential as a powerful advertising platform for CPG brands, with an estimated worth between $6B and $9B, suggesting undervalued stock and growth potential.
Instacart's business model is shifting towards ad revenues as groceries may not be a profitable business for them. The flat gross transaction volume and increasing ad revenues indicate that Instacart is becoming a powerful advertising platform for consumer packaged goods (CPG) brands. This is similar to Amazon, where ads can appear directly in the shopping cart and are more effective due to their proximity to the transaction. Instacart should aim to make no profit on sales and instead focus on getting as much share of the cart as possible. The value of Instacart can be estimated using a price-to-earnings ratio, and based on current profits and industry comparisons, Instacart could be worth between $6 billion and $9 billion. However, it's currently trading at around $8 billion. This suggests that Instacart's stock may be undervalued and has potential for growth.
IPOs benefit LPs in the venture capital ecosystem: Successful IPOs enable LPs to reinvest in the venture capital industry, boosting the ecosystem. Recent IPOs like Instacart and Clavio have restarted the cycle, and SoftBank's ARM acquisition provides added benefits for Vision Fund LPs. However, concerns arise over targeting advertisers instead of addressing issues directly.
The recent surge in IPOs is beneficial for venture capitalists and Limited Partners (LPs) as it boosts their confidence to invest more in startups. The LPs, which include institutions like universities, foundations, and high net worth individuals, receive returns from successful IPOs, enabling them to reinvest in the venture capital ecosystem. The current IPO drought has limited this cycle, but recent successes like Instacart and Clavio have started the process anew. Furthermore, SoftBank's acquisition of a 25% stake in ARM at a high valuation has provided an added bonus for Vision Fund LPs. The Washington Post's handling of the Dave Portnoy situation raised concerns about vindictive virtue signaling and targeting advertisers to damage a company, rather than addressing the issue directly with the individual in question.
Discussion of tortious interference and manipulative journalism tactics: Reputable news organizations should prioritize transparent and ethical reporting practices to maintain credibility and avoid damaging business reputations or eroding public trust through manipulative tactics like baiting or taunting.
The discussion between Nick and Dayport raised concerns of tortious interference and manipulative journalistic tactics, which can damage business reputation and erode public trust. The Washington Post, as a reputable news organization, should ensure transparent and ethical reporting practices to maintain credibility. The use of baiting or taunting tactics to manipulate responses from individuals or organizations is not acceptable journalism and can be perceived as trying to destroy rather than inform. The underlying causes include a generation of journalists prioritizing advocacy over reporting and the loss of advertising revenue to online competitors. It's crucial for media outlets to prioritize truth and transparency to regain public trust.
Investing in Blue Chip Art through Masterworks: Uncorrelated Returns and Accessibility: Blue chip art investments offer uncorrelated returns and can be accessed through Masterworks, providing historical positive returns up to 35% annually without requiring millions or art expertise. AI technology can disrupt industries and founders may benefit from being in tech hubs for increased exposure and opportunities.
Investing in blue chip art through platforms like Masterworks offers an opportunity for uncorrelated returns, even during market downturns. Blue chip art has historically shown positive returns, with annualized net returns reaching up to 35% this year. Masterworks securitizes these pieces and sells shares to investors, allowing access to fine art investments without the need for millions of dollars or art expertise. AI is another technology that can disrupt existing businesses, from booking flights and restaurants to accessing VC funding. While there are VCs outside Silicon Valley, first-time founders may benefit from moving to tech hubs for increased exposure and opportunities.
Navigating economic downturns as a top startup: Despite economic downturns, top startups have a good chance of getting funded. Reach break-even, have a clear path to profitability, and present a unique value proposition to secure investment.
Even if you're in a smaller market or facing economic downturns, if your company is among the top 1%, you have a good chance of getting funded. The current economic downturn is predicted to last between half a year and two years based on historical data, and we're currently in the seventh quarter of this period. The labor market is softening, which could lead to decreased consumer spending and lower inflation. For startups, it's crucial to reach break-even and have a clear path to profitability. Venture capitalists sift through thousands of applications each year to find promising investments by using databases like theirs and looking for unique value propositions.
Making informed bets and actively managing a diverse portfolio: Successful investing requires hiring researchers and analysts to evaluate startups, investing in top performers, and continually monitoring progress. Coriant offers customized investment and family office solutions.
Successful investing involves making a large number of informed bets and actively managing a diverse portfolio. The speaker hires researchers and analysts to meet with and evaluate startups based on specific criteria, investing in those with the greatest potential. They aim to own significant stakes in the top performers and continually monitor their progress. Additionally, they're currently exploring opportunities in the cloud kitchen space, using a similar approach to support food entrepreneurs. Coriant, a wealth management firm, can help individuals achieve their financial goals by providing customized investment and family office solutions.
Affordable shared kitchen spaces for food entrepreneurs: Cloud kitchens offer cost-effective solutions with shared facilities, software support, and quick delivery logistics, allowing food entrepreneurs to launch brands without expensive storefronts or long-term leases.
Cloud kitchens, a concept by Travis and Diego's companies, offer an innovative solution for food entrepreneurs by providing affordable, shared kitchen spaces with quick delivery logistics. These kitchens, often located in warehouses near major intersections, eliminate the need for expensive storefronts and long-term leases. The cloud kitchen model also includes software support, potentially helping to launch the next great American food brands. Regarding AI regulations, while there is ongoing debate, it's essential to strike a balance between encouraging innovation and ensuring safety. Open-source projects and transparency can help mitigate concerns. However, as AI capabilities advance, there is a need to address potential threats and develop AI to counteract malicious uses. Elon Musk's involvement in discussions with lawmakers is a positive step towards thoughtful and proactive regulation.
Discussing the future of the company and cost-saving measures: Founders should have open conversations about the future, consider cost-saving measures, focus on essential tasks, and make informed decisions through thoughtful discussions.
Being thoughtful and having open conversations with team members about the future of the company, including potential employment displacement, is crucial. Founders can also save costs by learning to do marketing themselves, outsourcing non-essential tasks, and hiring employees at reasonable salaries in locations where the cost of living is lower. Essentialism, or focusing on what is essential for the business, is also important. When it comes to disagreements internally, having a clear division of labor and emotional maturity are key. The CEO ultimately makes the decision, and team members should argue each other's sides before placing a bet on the best solution. Additionally, founders can consider religious laws, such as the prohibition of interest in Islam, and find creative solutions, such as waiving interest or donating it to a cause, to comply while still raising funds.
Weighing Perspectives and Changing Course in Business Decisions: Co-founders should have open and empathetic discussions, document decisions, consider societal impact, and be willing to reverse unpopular decisions.
Making important business decisions involves weighing different perspectives and being open to changing course if necessary. Co-founders should have honest and empathetic discussions about their differing opinions, and document their decisions for future reflection. Additionally, society plays a role in the success of startups, with some cultures more supportive of entrepreneurship than others. A recent book recommendation is "Unreasonable Hospitality" about the restaurant 11 Madison Park. The speaker also touched on the importance of de-escalating disagreements with board members and being willing to reverse decisions. Lastly, the speaker shared his experience with live streaming on Zoom and expressed plans to do it more frequently.
