June 21, 2016
In the inaugural edition of the PitchBook SoundOff, four of our writers tackle four hot topics in the VC, PE and M&A industries—Uber vs. the competition, Brexit, Twilio's IPO and a possible tech M&A boom.
Warning: There's a fair amount of snark and attempted humor.
Here's our roster (pictured on the right, clockwise order starting at the top left):
Adley Bowden, VP of Analysis & Market Development
Kyle Stanford, Senior Financial Writer
Adam Putz, Senior Financial Writer
Kevin Dowd, Financial Writer
Be sure to offer your own thoughts in the comments section below.
Bowden: From my perch in the upper left of the U.S., Uber has the clear momentum, but my hunch is that in the rest of this world that's not such a given. If the availability of capital were to shut off for Uber, I think others might gain momentum as it seems Uber’s key strength is its fundraising and cash-burning prowess.
Stanford: Can ‘the users’ be an option? Rides around town are infinitely cheaper now than when taxis were the only way to get home from the bar. I guess, though, probably the field. All of these companies are banding together against Uber with the app partnership, and all can basically raise money whenever they want.
Putz: Uber—doesn’t that mean super in German? I rest my case. Wait? It’s more complicated than that—all right…
I don’t see how Uber can win everywhere, and everywhere is where Uber’s trying to compete. For example, Apple’s recent investment of $1 billion will only cover a year’s spending for Uber in China alone. That’s unsustainable. If Uber burns through so much cash to open up markets for people just to get around, will they scale well and, in time, will early adopters develop patterns of use and preferences for Uber’s services over other options? I doubt it.
Dowd: We can assume the average velocity of the cars used by the varying rideshare companies evens out. While the numbers seem awfully tightly protected, I’m guessing that Uber’s many rivals have more combined cars on the road than Uber does on its own. Therefore, a simple calculation of mass multiplied by velocity reveals that the field, in fact, has greater momentum. #Physics
Bowden: Nay, push come to shove, the Brits are not the rebellious type.
Stanford: Nay? I think my guess is as good as anyone’s. With everything that has happened in the EU over the past couple of years, with debt crisis and immigration craziness, it wouldn’t be hard to imagine the people voting leave. For similar reasons, the U.S. will have “Donald J. Trump” on our next election ballot... let that sink in.
Putz: I’ve spent a LOT of time thinking about this question, but not nearly as much time as I’ve spent living in the U.K., fortunately. So, I’m tossing the data and the polls and the lure of Boris Johnson’s fluffy blonde locks aside and saying "nay!" Leaving is just such a terrible idea, the people casting the vote are a historically sensible electorate averse to risk and, above all, the leave campaign is so nakedly xenophobic that I’ve got to think when it comes right down to it, the voters will prove how tolerant and inclusive a place the U.K. really is. In this way, the late Labour MP, Jo Cox, was more representative of the U.K. at large than even her proud Yorkshire constituency of Batley and Spen.
Dowd: It’s a tough thing to predict the behavior of millions of people, particularly when every opinion poll out there seems to lean a different way. The key question the media has completely overlooked, though, is this: How would a “leave” vote affect the Queen’s royal corgis?
Bowden: It will be priced to pop and therefore seemingly do well. This will bring out other tech companies, but a late summer stock market correction will push down tech stock valuations again and put a hold (again) on unicorn IPOs.
Stanford: Twilio has had some solid growth over the past two years, but if it prices at the midpoint of its expected range, the raise will value the company almost flat to its most recent private valuation. Hard to say that’s a win for IPOs. The last U.S. unicorn to IPO was Square, which saw its valuation drop almost $3 billion at IPO. Not the recent history that’s going to make others eager to enter the public markets.
Putz: The more interesting part of the question is the latter bit. But to take the first: really well, sort of. The trend of late here is to… Actually, I’m punting.
Dowd: Between the company’s $166 million in annual sales and the fact it still lost nearly $40 million last year, there’s evidence in both directions. I lean toward pessimism. Either way, though, it’s hard to imagine any single listing having too significant an impact on the IPO market as a whole.
Bowden: Yes. The tech industry is ripe for some consolidation and growth M&A, but first burn rates are going to have to come down and valuation expectations will need to head a bit lower. The LinkedIn deal is exactly the type of deal we foresaw and expect to see more across the full value spectrum this year.
Stanford: If he means, “continue along the same trend,” then, yes, I agree with Marc Andreessen. Tech exits by buyouts and M&A have increased every year from 2010 until last year, which saw just a slight drop from 2014. If he means, “1H 2016 has seen slow M&A activity in the tech space and that will pick up during the second half,” then I guess I still agree. This year has been slow for exits of all types, and I can’t really see it getting slower.
Putz: M&A is the new IPO. And I’m not a subscriber to the Gospel according to Marc or anything. Personally, I’m a John man myself. "In the beginning was the word"—I love it! Words first, things for them to name second. Brilliant stuff! At any rate, I looked into it and found that, although certainty can only come with time, his basic assertion looks right. M&A activity in this space has picked up over the last four years, with the picture looking a bit different when thinking about VC-backed M&A exits, but doesn’t look like it’s stopping. Indeed, a week that started with huge news of Microsoft’s acquisition of LinkedIn ended with news of Microsoft’s acquisition of Wand Labs. I suspect we’ll see more deals of the smaller, strategic sort like this one in the future.
Dowd: I’ll leave the soothsaying to Andreessen and stick to the stats. And while 2016 deal count is lagging behind the recent torrid pace, it's not by much. If that predicted uptick does occur, it likely won’t be reflected in this year's numbers.