joschmo

Depends on the audience. Am I having a ground-truth level conversation with my deal team? Then everything is neutral. No positive or negative tones. Just assessment of what is good and bad, what could go right or wrong, and the process to build the probabilistic fan of outcomes that drives our target returns.

To my investment committee? We're in sell mode and using the positive coded language you outline. "We see $350M in day 1 synergies (this means fire thousands of people immediately). $600M by the end of our 180-day plan. And $1b by completion of our value creation plan 365 days post-close. This builds in a 1.8x floor for cash flow growth even if we're delayed in synergy realization and frees up cash for our go-to-market investments. Given the current GTM org returns $1 of ARR for every $1 spent, and our current market analysis of total whitespace, we plan on investing 30% of every dollar saved into our sales and marketing initiatives and additional 5% in a product refresh focused around key sales rep pain points like UI/UX and ease of use."

Even when we're selling to our IC, it's still very factual because these people are professional BS-detectors.

It's macro-good and micro-bad.

On the good side, I was allowed to view this from the perspective of spreadsheets and board meetings and see the net gains. And also do follow-up analysis that showed the least product people retiring or moving to lower quality work while the most productive went on to do 10x better things.

The dark side isn't pretty. We still had to lay off tens of thousands, affecting hundreds of thousands indirectly localized to a handful of communities and cities. I've decimated neighborhoods before by the literal definition (10%+ move out to find work in other cities). And the data tells us that at least a couple of those people will die as a result of the layoffs at the 10K+ scale. Can't talk macro-productivity when that's happening. Too tone deaf.

I'm trying to be descriptive, not prescriptive. It's a black hole because these machines will acquire anything and feed it through the cash flow machine. Massive waves of layoffs because there will be multiple 1K+ layoffs coming over the next year or two as they execute the integration plan.

Massive waves of layoffs are bad for most people and usually great for the company but I won't put a value judgment on it. Some think it "leaves them free to pursue more productive things" and others think "that person is going to struggle for a while due to corporate greed for cash flow." Candidly, I've done several of these deals before where we merge two companies of similar complexity and lay off 50-70% of the combined headcount. The company almost always turns out better for it. Things are that inefficient past a certain FTE size.

For those laid off, it's a different story. An internal analysis done by consultants my team hired 3 years after a multi-stage layoff of 10K people found that >50% of those affected were materially worse off and only 10% were better off. Statistical analysis on the strongest prediction of negative outcomes was age. Nothing else was even close to as relevant.

The cost portion is right but good will from these companies degraded a decade ago. The game is now to do anything at all costs to prevent churn and downsells whether that's bribery, lying, cheating, stealing, lawsuits, etc.

This is a completely different universe from VC, Tiger, Figma or even the public markets. Software companies like this (low growth, high cash flow) got absolutely eviscerated in the public markets over the last decade so they would never consider that. And TIBCO is about 20 years out from the growth they needed to attract VC money or money from Tiger. Won't bother with the Figma exit comparison. The universe of buyers after this company will either be a mega-club deal with a mix of PE firms, pension funds, sovereign wealth funds, etc. or one of the hulking B2B software giants I had mentioned.

No matter how you want to couch it, PE firms got away with this one. They're content to grow the topline 4-8% per year and cash flows 10-15% (the real metric that matters because the company isn't growing enough to ever be valued on a revenue multiple but will be valued on an EBITDA or FCF multiple). At roughly 15,000 combined headcount today, I'd expect that number to be under 10,000 in 24 months.

You're right that it's not paying out Vista much if anything at all when you account for fees, but it's still a nine-figure sum of new money in, which is lifeblood for these zombie B2B software companies to get a few more shots on goal to fix their situation.

Background on the deal. TIBCO was acquired by Vista Equity Partners 8 years ago and has been a disaster investment. Growth never picked up despite their investments in product, technology, sales and marketing. As a result, TIBCO was stuck selling better software from acquisitions to their existing customer base. Large cap private equity investors like Thoma Bravo, Silver Lake and Blackstone noticed TIBCO's failures making it difficult for Vista to exit their investment. TIBCO has been perpetually on the market for sale since 2017.

Vista's "solution"? Vista managed to push a portion of the equity to Evergreen (Elliott Management's PE arm), and are building a Broadcom or CA Technologies style mammoth of legacy software by calcifying their technology in F500 and low-technology end markets. Their next merger to further feed the beast is Citrix.

Today's problem? The merger requires billions in debt to pay Citrix's public shareholders, which is put on the merged company's new balance sheet. The market was great when the deal was signed almost a year ago and when the large banks signed up to syndicate (sell to smaller investors) the entire debt balance. Unfortunately, as the debt syndication process was underway, the market turned and the typical investors in these huge tranches of LBO debt were no longer interested. That means the big banks were left to fill the balance of what they couldn't syndicate (contractual requirement) by taking on that bad paper themselves. It's bad paper because the banks commit to the LBO investors they'll get the investors to sign up at a 4% interest rate when any investor would probably ask for 7.5-9% now. Believe 8-10 banks are stuck holding something like $2-3 billion.

The Resolution. Deal got done and the LBO investors forced the banks to eat the losses. Now this black hole of a company will continue to grow until it gets foisted on a company like Broadcom or IBM that would be happy to churn out billions in cash from it. PE firms win. Merged company wins. Banks lose. Employees will lose as massive waves of layoffs are done to "eliminate redundancies" because they won't need two complete HR, finance, IT, legal, etc. teams. And billions in cash flow will be generated as a result.

That's a really interesting question as I rarely think of a company from pre-seed to series C as having profitability. If they have the cash on balance sheet to do smart M&A, it would only be worthwhile if the company had the human capacity to source, diligence, and integrate without compromising the core product. Integrating is the most important part of that because that's where all of the value is generated and tends to eat a ton of everyone's time. That's going to be series C/$20M+ of ARR at the earliest usually. Even then it's buying a team or niche technology, not a complete product/business/ So the answer to M&A is a yes with a lot of caveats.

Otherwise, if you are a profitable, late-stage company, why would you raise money at all? Either spend your profits down close to 0 to achieve business goals and only raise some money if you've got non-dilutive ROI (i.e. the margins on this new spend are superior or equal to existing margins in your profitable business and you are in land grab mode). Or just be comfortable with your current trajectory because of how well-defended you are financially. From a risk management perspective, founders should be able to live with going from $10 to $20M in ARR this year at break-even instead of $10 to $30M by burning $5-20M if it means your business gets to continue existing.

I would say $2 at $20M post-money was a very average round last year (I think the median from the top 50 seed funds was very close to this and average was slightly higher). I was hearing a lot of $3 at $30 and several $5 at $50s.

This is an ideal time to raise seed money. Many funds have moved heavily down market away from the big Series B/C's of 2020/2021. You now have a lot of tourists at the seed stage who are obligated to deploy capital and even if it is at 10-20% of the previous rate, that's still five $2M seed rounds for every $50-100M series B/C that used to get done. You won't get a killer valuation like 2020/2021, but you will have plenty of opportunities. My recommendation is to look for a SAFE and hope the market clears in 2-3 years when you go to raise your A round (this implies you need to give yourself 2-3 years of runway with your seed money and/or get to $1M of ARR faster on decent unit economics).

Some very juicy seed and series A money is being thrown around ignorantly by the same people that caused the last bubble. I've had 2 close friends / family raise their seed rounds in the last 4-6 weeks.

Three things to be aware of:

1. VCs will take their time doing real diligence on your market / team. This means it will take 1-3 months from initial outreach instead of 1-3 days.

2. You should also be raising seed money from angels that are executives/fellow founders at your early customers / pilot partners. Ideally you fill a $2M seed round with ten $50-100K checks from these people and a great seed fund that will be value add-oriented.

3. Raise as much money as you can. In 2021, this was terrible advice. Now taking 15% dilution is not the end of the world if it is how you stretch to your next raise vs the 8-10% dilution of yesteryear.

To play devil's advocate, the reason a private equity firm should use a continuation is that it wants to hold an asset past the fund's 10-year life because the asset is continuing to perform very well. 10 years ago, many private equity firms felt heartburn from letting big software winners go after 5 years because that's the typical fund cycle.

In reality, LPs and GPs would have been better off reliably holding the same growing asset for 15-20 years as the company went from $10M in EBITDA to $250M. Why take a 3x in 5 years when you can get a 25x in 15 years? The annual compounding works out to be roughly the same. The only issue is your fund structure so you trade it amongst yourself every 3-5 years at a 3-4x mark that makes you look good to your investors. The growth is usually there so it is not a lie though liberty may be taken with multiples which expanded rapidly over the last decade.

This phenomenon has been used aggressively, perhaps too aggressively, in software and particularly software roll-ups where you can comfortably compound 20-30% EBITDA growth annually between 10-15% organic growth (half or more of which is just price increases) and an aggressive M&A strategy that drives higher margins.

That said, this article is raising an early and important alarm bell to the broader public, who have a vested interest because their pensions are invested in these firms, that certain firms may be using it too aggressively. When I scan the broader PE landscape, the firm that has used it to the most success is Clearlake Capital. I don't have insight into their whole portfolio but have heard criticisms that they overuse it. Or that their is incestuous trading of assets between them, TA Associates, Hg, Insight Partners, FP, Thoma, and a handful of others.

$107K in Berkeley for someone with 2 kids won't lead to a lavish lifestyle in the hills, but it should be very doable on a budget so I don't quite understand that complaint. This reads a bit like someone who is used to a more elevated lifestyle in the private sector not understanding how middle or working class people live.

Is it the belief that someone who's entire job is teaching at a research oriented university should be paid similarly to those with greater academic credentialing (PhD) and who balance both teaching and research? That seems to be the implication here. And I don't disagree that teaching is undervalued, but Pamela Fox seems to want the higher status without the 5-6 year academic journey and brutal selection process to get tenure track positions. And academia doesn't reward great performance like the private sector so doing a great job as a lecturer would never elevate her to that upper track.

It is sad to lose great teachers but a part of me finds it hard to sympathize. This reads like a very smart person not doing their homework on the way a system works though ample public resources are available to find out.

I disagree pretty strongly, but obviously your experience is your own. If you are going into a hotly contested investment process, are you going to get away with asking for big uncomfortable changes? Probably not as you'll lose the round.

If you are already invested? I find it's pretty easy as I really am only looking to back people who are open-minded, receptive and coachable in the first place as I hope I am. One of the most common criticisms I make is that someone backed the wrong head of sales, head of growth, etc. and folks almost always hear me out because I can be quantifiable (sales metrics) and bring a solution (someone better).

As an investor, of course I clam up. I spend my days looking at the world in terms of risk-adjusted returns and cost benefit analyses, so why would I take a human capital risk? My entire business is based on my reputation and I've seen what happens to the men who get comments like "not the best with women at conferences" or "don't get him too close to your wife." It's limiting beyond your career.

I can count on two hands the number of women I would feel comfortable giving the exact same feedback to as I would a man. Women I can be candid with are women that I have 5+ year relationships with, have backed in some way, and who know I am truly looking out for them.

And the solution is blatantly obvious, but completely unpalatable. Let men grow the same way we believe women and minorities should be allowed to. A male engineering manager being too harsh with a female junior dev is a learning moment for the director of engineering to help the manager, not fire them.

And crucially the line is shifting more and more about what's "obviously fireable." Turns out harsh criticism of the quality of someone's work and the lack of improvement are rational, not an ad hominem. Those things are fixable. But criticism from powerful parties is now scrutinized as dangerous based on identity rather than for the content of the criticism.

UiPath vs. Automation Anywhere was a hotly contested debate amongst the growth investor set for the last 3-5 years but the massive distance UiPath has put between it and AA in the last 12-15 months is remarkable.

Dubious on the very long-term value of the company as SaaS providers continue to eat away at some of its core use cases in banking / financial services, and both large RPA vendors have had some disastrous deployments outside of their core industries but there's so much value in replacing massive BPO spend in financial and professional services oriented enterprises. This one's a winner in the near to mid-term at the very least.

Sounds exactly like an article being written about the Mission in 2009

One of the few things I appreciated about finance was how clear the hierarchy system was. 3 years as an analyst, 3 as an associate, 3 as a VP, 3-5 as a director with promotion to managing director based on hitting clearly defined fee generation markers, and then an eat-what-you-kill model as a managing director with a clear % take rate on what you brought in.

And banks have accelerated the early years path to compete with tech and private equity by including accelerated 2-year paths at the analyst and associate levels for top bucket performers. Now these banks are still hemorrhaging junior talent now more than ever, but that's probably more of a function of lifestyle (80-100 weeks for your first 5-6 years before things start settling down).

The review cycles are generally okay (not good by any stretch) but manage to capture whether or not someone's impact is outsized and worth accelerating. So a great job of finding the 8-10/10s but pretty poor at delineating between 4-7s.

Not possible to use that model in engineering organizations (at least the ones I've seen) because there isn't an apprenticeship model in tech as in finance so it is harder to promote a 7/10 performer every 3 years reliably because they may not be capable of doing the next job due to specialization and less linear skillset building.

You've astutely noted the difference between what people think is happening in a direct listing and what actually happens.

People think founders are sticking it to Wall Street. In reality, the exact same mechanics are playing out with an IPO but without any downside protection for the company.

1. Strong liquidity position from several recent rounds of fundraising so they do not need the cash

2. Well recognized brand amongst the investor class / product serves the investor class (similar to a Peloton) so the company would not suffer from a lack of recognition that may plague a Snowflake or Databricks. Allows investors to get comfortable with the story more quickly and through an accelerated process rather than your traditional testing the waters period + roadshow

3. Diversified cap table with many well-known long only and mutual fund names invested already involved

As a long-time former banker, Instacart is 100% the right candidate for a direct listing and Goldman / Morgan Stanley are likely currently pitching them on it if not beginning anchor investor meetings. It's a win-win from the bankers' and company's perspective.

The company feels good about avoiding the "perceived loss" from a day 1 IPO pop (not really how it works but it makes founders feel better) and pay slightly less on a total fee basis.

The bankers make more on average because they aren't splitting up the fee pie with 10 other banks and they don't need to backstop the IPO in case things go south on day 1 so they avoid major risk. There's a bit of a relationship loss in not handing hedge funds free Day 1 returns, but those relationships will last given how strong the IPO pipeline is and how much free money has been handed to the hedge funds.

Tencent is the most likely buyer given their history of building fast follower games. Likely to be some useful components here. Other fast follower studios like Mihoyo could scrape some value, but $6M RMB is no joke to add to a budget of their size.

This is a breath of fresh air in comparison to HN's typical ignorance on IPOs. I can see why it wouldn't be popular here.

A mix of the theoretical grounding of the activity with the on-the-ground realities of filling up a book and mechanics of how it happens. The IPO isn't perfect, and is in need of a software-defined overhaul, but does have clear value. We'll see if Carta's Xchange product can live up those goals.

My first thought was that this couldn't possibly be hedge funds reaping the gains of a Republican government because the hedge business is doing pretty miserably. How could their funds be collapsing and still be insider traders?

But thinking about it further, there is still a category of hedge funds at the absolute top like Lone Pine, Viking, and D1 that are doing exceptionally well. D1 is newer but the others continue to defy the odds year after year while their peers collapse.

And I could probably name 20 funds in total like that. So maybe fewer funds are participating but they are doing it better?

As someone that's raised money for SPACs, been an advisor to SPACs and sold companies to SPACs, the answer is a resounding no. Most VC-backed companies, whether in tech or biotech, don't need the strategic shift that's core to a SPAC thesis. You usually get bought by a SPAC when you need new management to come in and kill darlings for long-term health, not as an option to go public.

The folks that think it's a method to avoid day-one price pops are mostly incorrect. Price pops are intentional as selling 10% of your company at a discount fills up the IPO book much faster and causes 10x+ oversubscriptions. This signals strong demand to the majority of very large asset allocators who come in post-IPO. Those investors psychologically overvalue day-one pops years into the stock's public lifetime. I've had conversations with heads of tech investing at many $100bn+ funds who mention day-one pops when they enter a stock 5 years post-IPO. Doing the math, strong market confidence in your company pays dividends when you're selling the other 90%.

You are being downvoted because there's no evidence to corroborate what you are saying. Just edit with a link to articles/proof if your statements can be substantiated.