A few months back, I shared that 2021 was a gargantuan year for IPOs, with 1,035 of them—the highest number I could find in the last quarter century. 

In 2022, we saw just a fraction of that number of IPOs, 181 to be exact. As of the writing of this post, we’ve had 114 IPOs in 2023, which means we’re tracking for fewer than in 2022.

A few weeks ago, I shared my thoughts on the draft S-1 filings by Instacart and Klaviyo in anticipation of going public (see here and here). This week, both companies held their IPOs (NASDAQ: CART and NYSE: KNYO). Both offerings are complete, and the companies are now trading on public stock exchanges.

I suspect that venture capital investors and founders of late-stage tech companies will closely watch how both companies perform in the public markets over the next few weeks. If their stock prices are flat to up, we could see an increase in the number of technology companies filing to go public and maybe even see more IPOs in 2023 than in 2022. If their stock prices fall materially, I wouldn’t be surprised if 2023 is another year of declining IPO activity as companies elect to wait for better conditions in early 2024.

For better or worse, these companies will likely have a material impact on upcoming IPO activity and technology investor sentiment.

When early-stage founders pitch investors, the process can be long and exhausting. They end up pitching countless investors in hopes of one or two saying yes. By employing a bit of scheduling strategy, they can improve their chances of getting a yes.

Great pitches are the result of practice. The more you pitch, the better you get. The more you pitch, the more you realize what isn’t resonating and adjust. The more unanticipated questions you get, the more you incorporate the answers into your deck (or an appendix). After countless reps, the pitch flows smoothly and you’re more confident. The chances of getting a yes are better.

Most founders aspire to have a particular investor on their cap table. Maybe it’s an angel investor or venture capital firm with industry expertise and relationships. When you pitch your first-choice investor, you want to put your best foot forward. You want them to be blown away by your pitch (or at least interested enough for another meeting).

Because practice leads to a great pitch, it may not make sense to schedule your preferred investor early in the fundraise process. If you do, they’ll get a pitch that still needs work. Instead, pitching the investor you really want to land after you’ve done more reps pitching other investors and fine-tuning the pitch can be a good idea.

Scheduling meetings with several investors is great, but you want to be thoughtful about when you reach out and schedule time with your first choice.

One thing I’ve noticed is lots of media reports about IPOs being priced at valuations below their most recent private fundraising round. Instacart is an example. A few founders and friends trying to make sense of this asked me about it. Why would you take a company public at a valuation materially below its valuation in your last VC fundraising round?

The answer can sometimes be related to needing to raise more capital but being unable to do so privately because of cap table complexity. I recently listened to Bill Gurley, a famous VC investor, articulate why IPOs can be the easiest way to raise capital when a company has a complex capitalization table.  

For anyone interested in understanding this topic better, Bill shares his thoughts in this clip and this one.

Today a friend sent me a link to an interview on a topic I’m interested in. I’d never have known about this interview if he hadn’t shared it. I listened to it, and it was terrific. I got lots of ideas from it and shared it with others. We ended up having a great text exchange about the interview.

Today was a reminder of the power of sharing links to interesting information. (I define “interesting” as being about a topic the recipient has expressed interest in.) It’s such a good way to build and maintain relationships. Essentially, it’s curation. Sifting through information, selecting the most value-added items, and presenting them to others gives them something of value and leaves a positive impression of you in their mind. It also saves them a massive amount of time. Said differently, it’s a simple way to offer value to others and stay top of mind with them.

I came across a press release announcing Instacart’s Series A funding round. The 2013 post noted that Paul Buchheit participated in the round and that he was the creator of Gmail. I wasn’t familiar with Buchheit and did some research. He not only created Gmail but also cofounded FriendFeed, which Facebook acquired, and is a Partner at Y Combinator. I also found a chat he gave to Y Combinator founders several years back.

Buchheit gave background info about himself and how he went from midwestern college student to Y Combinator. And he shared what he learned as one of the first twenty or so Google employees and from building a social start-up that competed with Facebook.

One of the insights he shared during his chat has stuck with me. The thing that helps companies become $100 billion giants: sitting on top of an exponential change in the world. A massive shift in society has happened or will happen. These companies recognize this and build a solution that capitalizes on the change. In this portion of his chat, Buchheit went on to give examples of companies and the exponential change they benefited from. 

Buchheit’s insight is spot on. To take it a little further, the companies recognize an exponential change that will create a new market that will expand rapidly. They build a solution for this new market and ride the wave. As the market leaders and hopefully first movers, the companies get pulled along as the market grows because of this exponential change in the world.

A great insight from someone who’s been inside multiple billion-dollar companies as an early employee (Google/Alphabet) and investor/advisor (Instacart, Doordash, Coinbase) and been acquired by one (Facebook/Meta).

This is my one-hundred-eighty-first weekly reflection. Here are my takeaways from this week:

•  Surveying B2C – I had a great chat with a few entrepreneurs who own businesses that sell to consumers (B2C). These conversations provided ground-level information in real time on what’s happening with consumer spending habits. Anecdotal, but still helpful.  
• IPOs and fundraising – Arm Holdings, a semiconductor company, went public this week. Next week or the one after that, Instacart and Klaviyo could go public. A few early-stage founders I know officially kicked off their fundraises this week. The next few weeks of IPOs and fundraising will likely have an impact on public and private market investor sentiment.
• Rational decision-making – I’ve been thinking about a conversation I had with a seasoned entrepreneur. I think I’m going to start asking myself and others, “Is this a rational decision?”

Week one hundred eighty-one was another week of learning. Looking forward to next week!

I had a great conversation with a seasoned entrepreneur this week. Part of our chat revolved around rational decision-making. We’ve both observed exceptional entrepreneurs and investors in our social circles. Many of them have a particular trait that has contributed to their success: they can make rational decisions consistently. This doesn’t mean they lack empathy or emotion. To the contrary. But they don’t let those feelings affect their decision-making. Their decisions are based purely on reason or logic.

In a bit of experience sharing to drive the point home, this entrepreneur described how he’d made an irrational decision that cost him a few million dollars. He went on to say that had he been using sound reasoning, he likely would have made a different decision and pocketed those millions.

At the end of our chat, we agreed that consistently making rational decisions is the exception, not the norm. Those who naturally possess this trait have a superpower that helps them in making business and investing decisions.

I received an email about a small SaaS business that’s for sale. It has a few hundred thousand dollars in revenue and is profitable. I was curious how the market is valuing small companies like this, so I read through the email. Here’s what I found:

• $594k revenue (I assume trailing twelve months)
• $39k monthly recurring revenue
• Revenue has declined since purchase by new owners in 2020
• 1500+ customers
• ~$600 customer lifetime value
• 4.8% revenue churn (I’m assuming annual)
• $240k seller’s discretionary earnings (SDE)
• $750k asking price (i.e., 3.1x multiple on SDE)

If I were in the market for something like this, I’d have lots of questions for the seller, especially about the quality of the revenue and profits.

One thing that got me thinking was that this business was purchased in the last three years or so and has seen the revenue decline. I wonder about the cause—is this a case of customers seeing less value in its solution, or is it less-than-stellar management by the current owners? Not an easy question to answer until you dig into the business, but depending on the answer, the business could be a great investment opportunity or a less than ideal one.

I wonder how many small businesses have been purchased in the last three years and have been declining since then? How many have turnaround potential and will be put up for sale in the short or medium term? 

Over the last few weeks, several things have been top of mind for me. I had a feeling they were related, but the connection wasn’t clear, and why they stayed top of mind wasn’t exactly clear either.

This week, I decided to get some clarity by writing about them. I created a document and recorded in it my thoughts about all these ideas. Over a few days, I ended up crystalizing my thoughts about each of them and uncovering a connection between all of them.

I already knew there’s power in writing, and this document reminded me of it. Writing helps me refine my thoughts and uncover connections and insights that I’m not conscious of. The process also better prepares me to orally explain my thoughts to others.

I think of writing as a mental clarity tool that’s accessible to everyone, yet few take advantage of it.

In many VC firms, someone leads each potential investment. This deal lead develops conviction about the company by learning as much as they can about it. Once they’re convinced the firm should invest, they turn their energy toward convincing others in the firm of the merits of investing.

This effort usually involves preparing an internal deal memo that details what the deal lead has learned about the company and lays out the case for an investment. To those who see them, these memos provide a rare glimpse of how VC firms evaluate a company for investment.

These deal memos are often protected work product that VC firms don’t publicize. Bessemer Venture Partners, though, has made deal memos about some of their successful investments—Yelp, LinkedIn, Pinterest, Shopify, and others—available for public viewing. These memos aren’t recent and likely have been scrubbed, but they still provide a great perspective on how Bessemer’s deal lead evaluated each company for investment.

If you’re interested in reading Bessemer’s deal memos, you can do so here.