Morning Markets: In our examination of some technology business trends, have we been too negative?
Read the tech press lately, especially its financial subset, and you might think that the worlds of startups and venture capital were teetering on the brink. The list of this is long: WeWork’s implosion, valuation erosion at Uber and Lyft, worry about unprofitable IPOs, you know the mix of headlines.
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A little lost in the conversation is the fact that things are pretty darn good for startups today, at least regarding access to capital, the IPO window, and valuations. Despite recent Crunchbase data and projections showing that there are select weak spots in the global venture scene (Series B rounds domestically, Series A rounds more generally) capital abounds and private investors are still gleefully pumping capital into companies, confident in good chances for outsize future returns.
Reading just this column you might also wind up with too negative a tale. I’ve written lots about WeWork (no apologies there, it’s a fascinating business case and as I’ve decided to avoid business school, consider the pieces my homework) and SaaS multiples, the latter of which picked up some pushback from Jason Lemkin. Lemkin said, in response to our Friday piece concerning software valuations, “enough with the glass half empty stuff,” adding in a later tweet that “[SmileDirectClub is] still worth billions [while] cloud multiples remain strong, if off all time highs.”
This is indisputable.
So what gives? You can view the key difference between Lemkin’s point and my own through the lens of differing perspectives. I’ve noted that SaaS multiples have compressed some; Lemkin’s argument is that they remain historically elevated. We’re both right, but I’m more focused on the change in contrast to Lemkin’s view from the bottom of the cup.
I wanted to raise the point here as a reminder that we’re always looking at the latest happenings and news, which means that we don’t have the luxury of zooming out to the full historical landscape each day. That said, our recent run of quarterly reports does zoom out, and I recommend you read any of the entries that you haven’t.
Thus while it is true that SaaS stocks ended Friday at their lowest ebb since Q1 2019, having given back their summer gains, it’s also true to report that Slack’s trailing price/sales ratio is still over 20x, recent declines in stride.
You’ll have to decide which side of the glass-half-full, market-half-bearish divide you prefer; there is probably more good news than bad in the market today on the whole. If that’s rational or not is a topic for another day.
Illustration: Dom Guzman