E146: Did the Fed break the VC model? Plus IPOs, M&A, revaluing unicorns & more
Sep 22, 2023
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The hosts discuss the current GOP primary landscape and its candidates. They recap the All-In Summit 2023, highlighting the insights gained. The recent surge in IPOs and acquisitions like Cisco's $28 billion deal for Splunk raises questions about the 'great reopening.' They dive into whether the Federal Reserve has disrupted the VC model and the valuation of unicorns. Exciting advancements in autoimmune disease treatment also take center stage, showcasing potential game changers in healthcare.
Instacart's IPO construction, with a small float and lack of anchor buyers, contributed to the stock breaching its issue price and facing challenges in market valuation due to reliance on advertising revenue.
The IPO market has not seen the expected reopening yet, and it remains to be seen whether other big companies will go public amidst the current challenges and market dynamics.
Assessing a company's fundamentals, including revenue growth, profitability, and sustainable business models, is vital for evaluating its true value beyond the IPO hype.
The reliance on advertising revenue can raise questions about sustainability and value, highlighting the importance of considering factors such as take rate, competitive pressure, and diversification of revenue streams.
Deep dives
Instacart's IPO and Concentrated Float
Instacart's IPO had a small float, less than 10%, which resulted in a concentrated ownership among a large number of organizations. This led to downward pressure on the stock when retail investors began buying and mutual funds sold their shares. The IPO construction, with a small float and lack of anchor buyers, contributed to the stock breaching its issue price. The market valuation of Instacart is facing challenges due to the company's heavy reliance on advertising revenue, which may not be as favored by investors as core e-commerce revenue. Additionally, questions arise about the declining take rate and potential competition from heavyweights like Walmart and Amazon. Overall, the IPO market has not seen the expected reopening yet, and it remains to be seen whether other big companies will go public amidst the current challenges and market dynamics.
The Impact of the Software Recession and Consumer Market
The past year has seen a software recession, with growth forecasts for SaaS companies being cut in half on average. However, the consumer market has remained strong, while the enterprise segment has struggled. There are concerns that the consumer market may also face challenges, with high levels of credit card debt, increasing interest payments, and a slowdown in real estate transactions. This could impact consumer spending and lead to a restructuring of personal balance sheets, similar to what the enterprise segment has experienced. This dynamic could have implications for the IPO market, as well as how limited partners view venture funds and their investment strategies.
The Importance of Business Fundamentals in IPOs
While the focus often centers around the IPO price and short-term market performance, the true value of a business lies in its fundamentals. The performance and value of a company should be evaluated in the context of its core business and long-term potential, rather than solely weighing the immediate stock price. Factors such as revenue growth, profitability, and sustainable business models should be carefully considered when assessing the worth of a company beyond the IPO hype. Additionally, IPO construction should prioritize a realistic float size, anchor buyers, and a focus on long-term value creation.
Insights on advertising revenue and market dynamics
The reliance on advertising revenue can raise questions about the sustainability and value of a business, as advertising multiples have contracted and competition in the ad market is fierce. The market may scrutinize companies that heavily rely on advertising revenue given its volatility and sensitivity to economic conditions. It is crucial to assess the company's take rate, competitive pressure, and the ability to maintain pricing power within the ad market. Market performance and expectations may shift if the company demonstrates the ability to diversify revenue streams or maintain a strong take rate despite challenges in the advertising market.
New Approach to Treating Autoimmune Diseases
A recent study published in the journal Nature highlights a breakthrough technique for potentially addressing a wide range of autoimmune conditions. Researchers at the University of Chicago have discovered that by glycosylating antigens, or attaching sugar molecules to proteins, and introducing them into the liver, the immune system can be retrained to recognize these proteins as safe, preventing the attack that leads to autoimmune diseases. This technique has shown promise in animal models for type 1 diabetes and multiple sclerosis, and opens up new possibilities for developing targeted therapeutics for various autoimmune conditions.
Potential Impact on Autoimmune Disease Treatment
The discovery of this new approach to treating autoimmune diseases has the potential to revolutionize the field. Instead of relying on presenting antigens before autoimmunity develops or suppressing the immune system as current methods do, this technique re-regulates the immune system by introducing glycosylated proteins to the liver. By stopping the immune system from attacking its own proteins, this approach could provide a safer and more effective treatment for conditions like lupus, rheumatoid arthritis, MS, and more. With further research and development, specific therapeutics tailored to different autoimmune conditions could be developed.
Addressing the Challenges of Autoimmune Conditions
Autoimmune conditions present significant challenges for patients and healthcare providers. Current approaches often involve presenting antigens before autoimmunity develops or suppressing the immune system, both of which have limitations and potential side effects. The new technique discovered by researchers at the University of Chicago aims to tackle these challenges by retraining the immune system to recognize its own proteins as safe. By doing so, the immune system can be prevented from attacking the body and thus alleviate the symptoms and progression of autoimmune diseases. This breakthrough could bring hope and potential relief to the millions of individuals affected by autoimmune conditions.
