The (Real) VC Hockey Stick
PelosiCapital.insider, Jeff Hands Over the Reins, Psychedelic Business
Happy Sunday ☀️
Q2-21 has ended setting a range of new records in the venture capital world. The facts that Tiger Global averaged 1.3 VC deals per day (!) and that 136 new unicorns were created this quarter miiiight suggest that the venture environment is as hot and competitive as it ever was. VC funds need to be faster (by doing due diligence quicker or less thorough) and pay higher valuations in order to get a seat at the table of sought-after businesses. What a great time to be the founder of a tech company.
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The global amount of VC funding over the last 2 years reminds me of the infamous VC hockey stick; with the difference that this one is actual, not budgeted. It is the result of governments printing a seemingly infinite amount of money and investors seeking returns in the private markets.
With so much capital available, even less-promising start-ups receive funding which would not have been able to raise money a few years ago.
Who benefits? Founders. Early investors. A lot of jobs are created, so to some degree also the general public (although mostly people skilled in tech or sales)
Who pays for it? Also the general public through A) higher taxes and B) higher inflation; + the generation which will have to clean up the mountain of debt
Remember that $10 billion cloud contract from the US government to one of the major cloud providers? Microsoft initially won, then Amazon fought the decision, and now neither company will get the deal. Instead it looks like there will be a split-deal including both Microsoft and Amazon. More here. After the decision was announced, Amazon's shares rose 4.7%, increasing Bezos’s net worth by $8.4 billion.
Information advantage? Nancy Pelosi (speaker of the US House of Representatives) disclosed a big, suspiciously timed bet on Amazon call options, made a few weeks before the Department of Defense canceled the $10 billion cloud-services contract with Microsoft in favour of a split-deal with Amazon.
Pelosi also disclosed that her husband, Paul, exercised Alphabet call options, which were purchased just a week before Congress advanced 6 antitrust bills (of which Alphabet was a target). Shares then increased 3.2% on the decision.
The Pelosi’s average return from stocks and options over the last year is 56% compared to the S&P’s impressive 36%. However some sources indicate that, on average, (US) politicians are not better at picking stocks / do not outperform the market. Nevertheless, it can be interesting to occasionally have a look at their disclosed stock trades. (original ledger for US House of Representatives)
Jeff Bezos officially hands over the reins. What’s on the agenda for Andy Jassy as new CEO of the $2 trillion giant? Ensuring the company can plug along after pandemic-fueled growth, fighting government antitrust actions and growing unionization efforts among its massive workforce. More here.
Antitrust scrutiny on Big Tech M&A continues to march on. Three examples, only from this week:
Biden signed an executive order this week that encourages regulatory agencies such as the FTC to go further in trying to rein in the outsize power and influence of companies like Amazon, Apple, Google and Facebook. More here.
The FTC opened an in-depth investigation into Amazon's $8.5 billion acquisition of MGM. This suggests that even acquisitions in industries where Amazon doesn't have a strong position are going to be scrutinized by the FTC under new head Lina Khan. More here.
Chinese market regulators said yesterday that they would block Tencent’s $5.3 billion sized plan to merge the country's top two videogame streaming sites, Huya and DouYu, on antitrust grounds. More here.
Trump is suing Twitter, Facebook and YouTube stating that they violated his First Amendment rights banning him from their platforms. As the former head of federal government, how could he know that the First Amendment is intended to protect citizens from censorship by the government, not the private industry? More here.
Android users in the US and the UK spend more time on TikTok than on YouTube. The average user spends 24.5 hours a month in TikTok in the US and nearly 26 in the UK. More here. A good, high-level overview of TikTok and the drivers of its impressive growth: Link
States across the US are rolling back criminal laws for psychedelic substances, leading to a flood of new venture capital flowing into psychedelic startups.
The NFT boom continues as global NFT sales reached $2.5 billion in the first half of 2021, up from just $13.7 million in the first half of 2020. More here.
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Earnings season is coming up. Twitter and Snap are releasing second-quarter results on July 22. Google is slated for July 27, while Facebook is reporting a day later. Pinterest is releasing results on July 29.
Active Investments
Pexip (PEXIP) - Target price: $15. Analysis
The company released a high-level Q2 update this week:
ARR grew by 41% YoY to $92.7 million. This is good but not great.
Net revenue retention was 101%, down from 104% last quarter. This is not good but increased churn was to be expected with more people returning to the office. Many large enterprises and government organizations (key customer group) are likely to keep a hybrid office/work-from-home policy, so there will be a permanent positive effect for the company.
Pexip secured a 3-year contract with NVIDIA and a few other large customers
On the day of the announcement, the share price dropped by 16%. The company’s valuation is now 5-6x NTM revenues compared to the industry average of 15x. At the same time financial performance update was good/ok, but certainly did not warrant a 16% drop. It reminded me of The Curse of Beating Earnings, which I wrote about a few weeks ago, where the share price of cloud companies dropped significantly on the day they released their Q1-21 earnings results, even if the outperformed or met market expectations.
Unlike many cloud software companies listed on the Nasdaq or the NYSE, Pexip is listed in Oslo, Norway. This means it receives less attention from market analysts and it is a little more difficult to buy shares in the company (you need a broker that lets you trade shares on the Oslo Stock Exchange (OSE or OMXNO)). However, this also implies that if / when the company would re-list / dual-list in the US, the additional attention and ease of access could be very beneficial for existing investors.
I continue to be bullish on the company and plan to hold on to the stock until at least the end of 2022. So this week’s price drop represented a fantastic buying opportunity and I doubled down at NOK 61 / sh.
Docebo (DCBO) - Target price: $70. Analysis
Bill.com (BILL) - Target price: $100. Analysis
ECOMI (OMI) - Target price: MOON. Analysis
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🎮 Tencent Games has been using facial recognition to enforce China’s rules on how much time people under 18 can spend playing video games.
🕺 A former FBI agent deciphers body language.
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I am long DCBO, PEXIP, OMI and short BILL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
I am not a registered investment, legal or tax advisor or a broker / dealer. All investment / financial opinions expressed by me are from personal research and experience and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.