At the end of “Planet of the Apes” (1968), the human protagonist realizes that the alien world he crash-landed upon is actually post-apocalyptic Earth.
For many first-time founders in fundraising mode, the current market correction for publicly-traded tech companies has been similarly jarring.
Once investors started shaving value from high-flying stocks, it changed the game for early-stage valuations, says Navin Chaddha, managing partner at Mayfield.
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Looking back at the burst of the first internet bubble in the early 2000s and the 2008 financial meltdown, Chaddha notes that we can expect roiling public markets and “geopolitical challenges” to inform the size of seed and Series A rounds.
“If you are at the inception stage, we are primarily evaluating your team to make sure the product is a pain-killer and not a vitamin.”
Conditions change, and so do investor expectations, which means founders should reframe their thinking about acceptable entry valuations and revisit their spending plans. If I were starting up today, setting aside cash for hiring bonuses would be a much higher priority than buying Herman Miller Aeron chairs.
As Chaddha notes, “it is easier to go up than down.”
Thanks very much for reading TC+, and have a great week.
Walter Thompson
Senior Editor, TC+
@yourprotagonist
After Anaplan, which SaaS company will private equity target next?
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Over the last six months, the share price of planning software company Anaplan dropped more than 22%, which explains why private equity firm Thoma Bravo just announced plans to acquire it for $10.7 billion.
Ron Miller and Alex Wilhelm studied the transaction to see “if Thoma Bravo is paying a premium for this company,” but they also looked at the larger question — is this “the beginning of a trend of private equity taking aim at vulnerable SaaS firms?”
Why so many SaaS companies are launching their own media operations
Image Credits: Peter Dazeley (opens in a new window) / Getty Images
Content as a service?
In the last few years, Salesforce, Hubspot, Shopify and other enterprise companies have begun scaling their own media operations.
Online audiences are accustomed to consuming well-produced videos, podcasts, infographics and other media. As a result, simple blog posts lost their luster years ago, found reporter Ron Miller.
To see what startups can learn from SaaS’ new approach to content marketing, he interviewed several analysts and experts.
“If I’m a CMO, I have to ask how I get access to these audiences,” said Robert Rose, founder and principal analyst at The Content Advisory.
“I can either continue to rent it through the access that Facebook or Google gives me, which are increasingly walled gardens, or I can start to build it on my own or acquire it.”
Be an entrepreneur who leads with transparency
Image Credits: fermate (opens in a new window) / Getty Images
Founding a tech company isn’t like starting most small businesses: no one expects a plumber to show 3% month-over-month growth, for example.
Tech entrepreneurs are under pressure to build a team, regularly ship new products, and quickly capture revenue so they can provide a return to their investors. So it’s not surprising that sometimes, they let ethics fall by the wayside.
Entrepreneur and investor Marjorie Radlo-Zandi says the “fake it till you make it” mindset is a useful motivational tool, but it’s not a basis for a sustainable business strategy:
The founder of a company I invested in secretly kept two sets of books: one with correct historical financials, and another with numbers inflated more than 10 times actuals. Sales and product performance had fallen short. His solution was to present the inflated financials to investors.
Zendesk’s latest problem is an activist investor
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After stockholders rejected Zendesk’s plan to acquire SurveyMonkey’s owner Momentive earlier this year, activist investor Jana Partners is now trying to shake up the company’s board, Ron Miller and Alex Wilhelm reported.
“The tension between external and internal parties likely comes from precisely how much the company will be worth in the future, and whether or not there is a price that a larger company will pay that Jana and others like, and the company’s current leaders will accept,” wrote Ron and Alex.
“The more optimistic the current Zendesk management is, the harder it will be to find that price.”
New data underscores a slowing e-commerce market
Image Credits: Nigel Sussman (opens in a new window)
E-commerce boomed after middle-class consumers turned to online shopping and grocery delivery during the pandemic.
But two years on, that growth is slowing as the world recovers, which indicates that “future e-commerce activity was pulled forward, instead of the larger digital commerce pie growing thanks to long-term changes to the economy,” wrote Alex Wilhelm in The Exchange.
Analyzing data from e-commerce giants like Shopify, Pinduoduo, Alibaba and Amazon, Alex shares his insight into the slowing state of e-commerce in 2022.
