E158: Global trade disrupted, Adobe/Figma canceled, realtors sued, Trump blocked
Dec 23, 2023
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Ryan Peterson, Founder and CEO of Flexport, dives into the recent disruptions in global trade due to Houthi missile attacks in the Red Sea, detailing their far-reaching economic impacts. He contrasts current shipping challenges with those experienced during COVID. The discussion also touches on significant M&A failures like Adobe's canceled acquisition of Figma, the changing landscape of startup funding toward profitability and smaller exits, and the groundbreaking class action lawsuits reshaping residential real estate.
The cancellation of major M&A deals and prolonged regulatory uncertainty create challenges for VC-backed companies seeking liquidity through mergers.
The primary path to liquidity for startups becomes IPOs, but limited underwriting and research coverage, along with revenue generation challenges for banks, make it difficult for companies to go public.
Possible solutions to address the challenges in the M&A landscape include a change in the regulatory environment, alternative routes to going public like direct listings or SPACs, and building stronger, more profitable companies.
The decision by the Colorado Supreme Court to disqualify former President Donald Trump from the state's presidential primary ballot based on the 14th Amendment could have unintended consequences and be a cause for concern.
Deep dives
Chilling Effect on M&A in Silicon Valley
The cancellation of the Adobe Figma merger after a 15-month review process and the unwinding of the Illumina and GRAIL merger highlight a concerning trend in the M&A landscape. With a lack of confidence in deal approvals and prolonged regulatory uncertainty, acquirers and targets may be hesitant to pursue mergers. This creates a challenging environment for VC-backed companies seeking liquidity through M&A. As a result, the primary path to liquidity becomes IPOs, but the current capital market conditions, including limited underwriting, research coverage, and revenue generation challenges for banks, make it difficult for companies to go public. This logjam in M&A and limited IPO paths may have a chilling effect on venture capital investment and returns in the innovation economy.
M&A Landscape Challenges
The current M&A landscape presents two significant challenges for startups. Firstly, with the lack of viable M&A options, the majority of exits rely on IPOs, which require a more robust and conducive capital market environment. However, the current capital markets in the US are not fully equipped to support the influx of IPO liquidity, with limited underwriting, research analyst coverage, and revenue generation constraints faced by banks. This limits the IPO path as a viable liquidity option for startups. Secondly, the protracted regulatory processes and uncertain outcomes discourage companies from pursuing M&A, as evidenced by the cancellation of significant deals like Adobe Figma. These challenges create a need to re-evaluate capital allocation, business models, and strategies to navigate the evolving landscape.
Searching for Solutions
To address the challenges in the M&A landscape, several possibilities arise. First, a change in the regulatory environment towards a more favorable stance on M&A could stimulate deal activity, although this would likely require a shift in political or policy dynamics. Second, alternative routes to going public, such as direct listings or SPACs, may provide more options for liquidity, even if they don't align with the traditional IPO model. Lastly, building stronger, more profitable companies that prioritize sustainable growth and capital efficiency can position startups for successful IPOs and mitigate the impact of limited M&A options. However, these solutions require a collective effort from regulators, banks, and entrepreneurs to address the challenges and create a more favorable landscape for venture capital investment and liquidity.
Implications and Considerations
The evolving M&A landscape, characterized by regulatory hurdles and limited IPO paths, necessitates careful considerations for startups and investors. Entrepreneurs may need to adapt their strategies to build sustainable, profitable companies that have the potential for successful IPOs. This may require raising smaller rounds of funding or optimizing capital efficiency. Investors may also need to reassess risk allocation and allocate smaller portions of their portfolios to the innovation economy, given the challenges surrounding liquidity. Additionally, exploring alternative investment vehicles and strategies, such as direct listings or SPACs, could offer new opportunities for liquidity. Overall, navigating the changing landscape requires agility, innovation, and a long-term perspective to achieve successful outcomes.
Colorado Supreme Court disqualifies Trump from state's presidential primary ballot
The Colorado Supreme Court, made up of justices appointed by Democratic governors, has barred former President Donald Trump from the state's presidential primary ballot. The court used Section 3 of the 14th Amendment to disqualify Trump, stating that anyone who had taken an oath to support the Constitution and later engaged in insurrection against the US cannot hold federal or state offices. This is the first time the 14th Amendment has been used to legally disqualify a presidential candidate. Critics argue that this decision could backfire, energizing Trump's base and solidifying his support for a potential 2024 presidential run.
Lawsuits against National Association of Realtors highlight artificially inflated commissions
Recently, a federal jury in Missouri ordered the National Association of Realtors (NAR) to pay $1.8 billion in damages to home sellers due to allegations of conspiring to artificially inflate commissions. This decision could have wide-ranging implications as additional class-action lawsuits against the NAR are seeking a total of $13 billion in damages. The traditional 6% commission on home sales has been called into question, with advocates arguing that the current system restricts competition and prevents innovation in the industry. Critics also claim that the 6% commission is a tradition rather than a rule, as other countries have managed with much lower commissions. This ongoing legal battle reveals the potential need for reform in the real estate industry.
The implications of disqualifying Trump from state's presidential primary ballot
The decision to disqualify former President Donald Trump from Colorado's presidential primary ballot based on the 14th Amendment has elicited strong reactions. Critics argue that this decision sets a dangerous precedent, as it deprives an individual of their right to run for the presidency without a proper conviction or due process. Some view this move as part of a broader effort to limit Trump's political influence and deny him the opportunity to run for office again. However, supporters of the decision believe it is necessary to address concerns related to insurrection and protection of democracy. Regardless, the divisive nature of this issue and the potential impact it may have on future elections is a cause for concern.
The impact of Colorado Supreme Court's decision on Trump's electoral prospects
The Colorado Supreme Court's decision to disqualify former President Donald Trump from the state's presidential primary ballot may have unintended consequences. Some argue that this decision could inadvertently strengthen Trump's support base and galvanize his bid for the Republican presidential nomination in 2024. Others see it as a partisan move that could discourage political participation and fuel perceptions of bias within the judicial system. The decision is likely to be appealed to the Supreme Court, where a definitive ruling on the interpretation of the 14th Amendment may be made. Overall, the political and legal ramifications of this decision remain uncertain and subject to ongoing debate.
(0:00) Bestie intros: Jason comes in hot, All-In's new Chairman Dictator, Holiday party recap, and more
(7:54) Understanding the trade disruption in the Red Sea: Houthis, global impact on trade, the dicey geopolitical situation, and how this compares to COVID freight prices with Flexport's Ryan Petersen
(35:55) Major M&A deals called off, downstream impacts of a hawkish regulatory environment
(54:15) The new era of startup building: less capital raised, less overhead costs, more profitable, smaller exits with higher founder/employee ownership percentages
(1:17:01) Bombshell class action lawsuits against the NAR and other real estate brokerages, how this could change residential real estate in the US
(1:31:58) Colorado bans Trump from primary ballots
