A Tale of Two Platforms
Meta lost 25% of its value in 24 hours. Twitter moved to close the deal with Elon Musk as its stock neared $54. Both founders have a vision. Whose will win? Discuss…
Content from @elonmusk, @finkd, @noahpinion, @stratechery, @seedcamp, @ttunguz
Contents
Meta
Twitter
9 Predictions for Data in 2023
Apple’s new App Store tax on ads is a direct shot at Meta
Generative AI Startups Attract Business Customers, Investor Funding
Chips and China
The end of the system of the world - by Noah Smith
The Rise of Real-Time Collaborative Tech : Seedcamp
Mobileye stock rises 40% in its return to a public market in chaos
Stability AI CEO, After Ruffling Feathers of Researchers, Discussed $1 Billion in New Financing
Andreessen Horowitz’s Flagship Crypto Fund Takes A Beating — Report
Tech unicorn start-ups valued at $1 billion now rare in Silicon Valley
Snowflake
Elon Musk
Editorial
Mark Zuckerberg has a history of making bets on the future of his company. His acquisition of Instagram and later his acquisition of Whatsapp are two outstanding and successful examples. Underlying each was a recognition that mobile was - at that time - replacing the web as the center of gravity for human engagement with each other. This threat was a threat to social networks as they then were. Zuckerberg steered Facebook into the mobile world and built a very impressive foundation for the current business.
But the very act of doubling down on mobile played into the hands of the two companies that would later threaten Facebook’s business - Apple and Google. Every time we pick up our smartphone one of these two companies owns the user interface. Facebook is just an app and so is reduced to a bit part.
Meta’s current obsession with face masks derives directly from that fact. From Zuckerberg’s point of view, the smartphone is a prison for his products. His vision is to own not just an app, but the user interface and operating system. He abandoned a Facebook smartphone years ago. The Metaverse is his attempt to redefine the devices we use to engage with each other and his chosen path is a VR facemask.
as CBS News reported:
For the first nine months of the year, Meta lost $9.4 billion on its metaverse unit, Reality Labs. It expects the unit to have "significantly" wider operating losses in 2023, the company said on Wednesday.
Investors are skeptical because, at least so far, consumers aren't exactly flocking to the fledgling metaverse.
Analysts predicted $30 billion of total losses on the initiative by the end of next year.
While there is no doubt that Facebook/Meta would benefit if the entire human race moved from the smartphone to a facemask as the primary interface to digital life, that is not a likely outcome. The weirdness alone means it will not become a widespread human behavior. It is far more likely that smartphones will remain the primary interface until there are excellent augmented reality devices. Probably decades away.
As we wrote last week, the developments in web3 and generational and compositional AI are more important short-term drives of change.
At this point, enter stage-left, carrying a bathroom sink, our very own Elon Musk. “Let This Sink In” was the Tweet accompanying the video of his entrance to Twitter HQ on Wednesday (see this week’s Tweet of the Week).
An hour ago it was reported that Musk is now in charge and that the CEO and CFO have been fired, or have left.
Also, on a fun-packed day, Musk tweeted an open letter to Twitter advertisers that contained the following:
The reason I acquired Twitter is because it is important to the future of civilization to have a common digital town square, where a wide range of beliefs can be debated in a healthy manner, without resorting to violence. There is currently great danger that social media will splinter into far right-wing and far left-wing echo chambers that generate more hate and divide our society.
In the relentless pursuit of clicks, much of traditional media has fueled and catered to those polarized extremes, as they believe that is what brings in the money, but, in doing so, the opportunity for dialogue is lost.
That is why I bought Twitter. I didn’t do it because it would be easy. I didn’t do it to make more money. I did it to try to help humanity, whom I love. And I do so with humility, recognizing that failure in pursuing this goal, despite our best efforts, is a very real possibility.
Twitter, unlike Facebook, really can be a common digital town square. The vision is both worthy and palpably good. Elon’s vision is one I can get behind and want him to deliver. End it can evolve on current and future platforms.
Twitter becoming a private company may be enough to enable its transformation to begin.
I predict its future will be brighter than its past. Facebook’s? Not so much.
Also this week, a fabulous “9 predictions for data in 2023” from Tomasz Tunguz, and a look at generational AI from the WSJ. Ben Thompson writes a wonderful piece on “China and Chips” and Noah Smith offers a long but important essay on the future of the world through the prism of the rise of China. Enjoy
Video & Podcast
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A Tale of Two Platforms
Meta says it will lose even more money on the metaverse in 2023
A year later, Meta’s pivot to the metaverse is proving even more expensive. Reality Labs is losing more money than ever, Facebook’s parent company disclosed in its latest earnings report.
Reality Labs, the unit that oversees the company’s virtual and augmented reality projects, lost $3.7 billion in the third-quarter of 2022, a jump from a $2.6 billion loss a year ago and $2.8 billion last quarter. Reality Labs has lost more than $9 billion so far in 2022. And the company’s finance chief said the trend is unlikely to reverse anytime soon. “We do anticipate that Reality Labs operating losses in 2023 will grow significantly year-over-year,” outgoing CFO Dave Whener said in a statement.
That’s significant because Meta’s massive investment in Reality labs has already proved costly for the company. Meta reported earlier this year that it lost $10 billion on Reality labs in 2021. The company also confirmed that the “next generation of our consumer Quest headset” is expected to launch “later next year,” an apparent reference to a Meta Quest 3.
But CEO Mark Zuckerberg said investing in “the next computing platform” remained a top priority. “This is a massive undertaking and it’s often going to take a few versions of each product before they become mainstream,” he said. “But I think that our work here is going to be of historic importance and create the foundation for an entirely new way that we will interact with each other and blend technology into our lives.”
Dear Twitter Advertisers pic.twitter.com/GMwHmInPAS
I wanted to reach out personally to share my motivation in acquiring Twitter. There has been much speculation about why I bought Twitter and what I think about advertising.
Most of it has been wrong.
The reason I acquired Twitter is because it is important to the future of civilization to have a common digital town square, where a wide range of beliefs can be debated in a healthy manner, without resorting to violence. There is currently great danger that social media will splinter into far right-wing and far left-wing echo chambers that generate more hate and divide our society.
In the relentless pursuit of clicks, much of traditional media has fueled and catered to those polarized extremes, as they believe that is what brings in the money, but, in doing so, the opportunity for dialogue is lost.
That is why I bought Twitter. I didn’t do it because it would be easy. I didn’t do it to make more money. I did it to try to help humanity, whom I love. And I do so with humility, recognizing that failure in pursuing this goal, despite our best efforts, is a very real possibility.
That said, Twitter obviously cannot become a free-for-all hellscape, where anything can be said with no consequences! In addition to adhering to the laws of the land, our platform must be warm and welcoming to all, where you can choose your desired experience according to your preferences, just as you can choose, for example, to see movies or play video games ranging from all ages to mature.
I also very much believe that advertising, when done right, can delight, entertain and inform you; it can show you a service or product, or medical treatment that you never knew existed but is right for you. For this to be true, it is essential to show Twitter users advertising that is as relevant as possible to their needs. Low-relevancy ads are spam, but highly relevant ads are actually content!
Fundamentally, Twitter aspires to be the most respected advertising platform in the world that strengthens your brand and grows your enterprise. To everyone who has partnered with us, I thank you. Let us build something extraordinary together.
- Elon Musk (@elonmusk)06:08 - Oct 27, 2022
Now Elon Musk says he won’t fire 75% of Twitter’s staff
Elon Musk told Twitter employees Wednesday that he’s not planning on laying off 75% of staff when he takes over the company, Bloomberg reports, citing “people familiar with the matter.” This is a walk back from what Musk reportedly said last week. The celebrity executive denied the previously reported number when he addressed employees at […]
Now Elon Musk says he won’t fire 75% of Twitter’s staff by Rebecca Bellan originally published on TechCrunch
Essays of the Week
9 Predictions for Data in 2023
Yesterday, at the Monte Carlo Impact Summit I shared my 9 Predictions for Data in 2023. Here are the slides & I’ve embedded them below.
These are my 9 predictions. A year from now, I’ll score them to see how I did.
Cloud data warehouses (CDW) will process 75% of workloads by 2024. In the last five years, CDWs have grown from 20% of the workloads to 50%, with on-prem databases constituting the remainder. Meanwhile, the industry has grown from $36b to $80b during that time.
Data workloads will segment by use case into three groups. First, in-memory databases like DuckDB will grow to dominate local analysis even for massive files. CDWs will retain classic BI & exploration uses. Cloud data lakehouses will serve jobs operating on massive data & jobs that don’t require the fastest latency - and do it at half the storage price.
Metrics layers will unify the data stack. Today, there are two different forks in data. The first fork uses ETL to pump data into a CDW, then to a BI or data exploration tool. The second fork, the machine learning stack, is identical save for the outputs: model serving & model training. The metric layer will become the single place metrics & features are defined, unifying the stack & potentially moving model serving & training into the database.
Large language machine learning models will change the role of data engineers. I recorded a video of myself writing code to produce charts & embedded it in the presentation. The video shows Github Copilot magically creating a chart for the DuckDB star growth. Copilot ingests a comment, writes the code, even adds my custom theme function. When I execute the code, it works. Technologies like this will push data engineering work to a higher plane of abstraction.
WebAssembly or WASM will become an essential part of end-user facing data apps. WASM is a technology that accelerates browser software. Pages load faster, data processing is speedier & users are happier. Every major browser supports WASM & consequently, anyone producing a data app for an end user will use it.
Notebooks will win 20% of Excel users. Of the 1b global Excel users, 20% will become prosumers, writing Python/SQL to analyze data. They will do it in notebooks like Jupyter, which are easily shared, reproducible & version controlled. Those notebooks will become data apps used by end users inside companies, replacing brittle Excel & Google Sheets.
SaaS applications will use the CDW as a backend for both reading & writing. Today, sales, marketing, & finance data exist in disparate systems. ETL systems use APIs to push that data into the CDW for analysis. In the future, software products will build their apps on top of the CDW to take advantage of centralized security, faster procurement processes, & adjacent data. These systems will also write back to the CDW.
Data Observability becomes a Must Have. Software engineers measure the success of their efforts through up-time. 99.9% or three-nines of up-time means only 1 incident per 1000 hours. Today’s data teams see 70 incidents per 1000 tables. Data teams will align on data uptime/accuracy metrics & drive to the three-nines equivalent, using data observability tools to measure their performance.
The Decade of Data Continues. Data startups raised more than $60b in total in 2021 more than 20% of all venture dollars raised. We’re still in the early innings of this foundational movement.
Thank you to the Monte Carlo team for the opportunity & the audience for the great questions at the end. I’ll post the video of the presentation when it’s live.
Apple’s new App Store tax on ads is a direct shot at Meta
Just when I thought the relationship between Apple and Meta couldn’t get more hostile, here we are.
On Monday, Apple quietly updated its App Store rules to require that iOS developers use in-app purchases — and thereby give Apple 30 percent — on “sales of ‘boosts’ for posts in a social media app.” This primarily affects Facebook and Instagram, which let people pay to boost the reach of their posts. It’s the first time Apple has directly taxed advertising in iOS apps.
Meta, of course, isn’t happy. Company spokesperson Tom Channick sent The Verge the following statement: “Apple continues to evolve its policies to grow their own business while undercutting others in the digital economy. Apple previously said it didn’t take a share of developer advertising revenue, and now apparently changed its mind. We remain committed to offering small businesses simple ways to run ads and grow their businesses on our apps.”
“Apple continues to evolve its policies to grow their own business while undercutting others in the digital economy”
Paying to boost posts is a common feature across not just Meta’s apps but other social apps like Twitter and TikTok. The difference for Facebook and Instagram is that they currently don’t use Apple’s in-app purchase system for boosting posts while Twitter, TikTok, and others do. I’m told that, several years ago, Apple pressured Facebook to start routing these boosted post payments through the App Store and Facebook resisted. (You can read more about that in this great story by Salvador Rodriguez at The Wall Street Journal.)
Still, Meta is accurate to say that this policy on paid boosts is, at least publicly, an about-face from Apple. Last May, during the Epic v. Apple antitrust trial, App Store boss Phil Schiller testified that the company had never taken a cut of iOS developer ad revenue. Going forward, that won’t be true anymore.
Based on my conversations with Meta employees, the new policy shouldn’t have a material impact on the company’s revenue. But there is concern about the precedent set and that Apple will eventually require the same rule for Meta’s standalone ads manager app. Thanks to Apple’s current logic, that app is currently exempt from having to use in-app purchases for boosts because the ads that are bought aren’t displayed in the app itself.
Generative AI Startups Attract Business Customers, Investor Funding
Startups developing business applications from artificial-intelligence software that generates original text and images are capturing the attention of corporate technology leaders—along with big investors.
Known as generative AI, the applications use data-intensive AI capabilities like deep learning and neural networks to recognize underlying patterns in different types of books, articles, photos, drawings and paintings gathered from a massive collection of digital sources. Based on keyword prompts, generative AI platforms can then mimic these sources to produce fanciful stories and pictures of their own.
At first glance, generative AI might seem like more of a curiosity than an enterprise-technology tool, said Peter van der Putten, director of the AI Lab at software firm Pegasystems Inc.
“Creating cute pictures of a corgi in a house made of sushi isn’t exactly a profitable business case, at least not for large enterprises,” Mr. van der Putten said. And yet, he said, “generative AI startups are popping up left and right, in areas such as marketing, support, service and other content creation.”
Jasper, an Austin, Texas-based startup launched last year, has developed a generative AI platform designed to auto-generate promotional blog posts and other marketing materials.
Amid a sharp decline in venture-capital investing deals, Jasper last week announced a $125 million Series A fundraising round, which set its private-market valuation above $1 billion, the company said. Its investors include Insight Partners, Coatue and Bessemer Venture Partners.
Other generative AI startups offering enterprise applications include Replikr, a New Zealand startup that uses generative AI to create customer-service avatars, and Dutch startup Musico Ltd., which can be used to create original copyright-free advertising jingles. GoCharlie.AI, an early-stage startup based in San Francisco, in May launched a generative AI marketing assistant designed to create promotional social-media posts…
Intel may not be the most obvious place to start when it comes to the China chip sanctions announced by the Biden administration three weeks ago (I covered the ban in the Daily Update here and here); the company recently divested its 3DNAND fab in Dalian, and only maintains two test and assembly sites in Chengdu. Sure, there is an angle about Intel’s future as a foundry and its importance in helping the United States catch up in terms of the most advanced processes currently dominated by Taiwan’s TSMC, but when it comes to exploring the implications and risks of these sanctions I am much more interested in Intel’s past.
Start with the present, though: two weeks ago Intel CEO Pat Gelsinger announced a restructuring of the company, with the goal of putting more distance between its design and manufacturing teams. From the Wall Street Journal:
Intel Corp. plans to create greater decision-making separation between its chip designers and chip-making factories as part of Chief Executive Pat Gelsinger’s bid to revamp the company and boost returns. The new structure, which Mr. Gelsinger disclosed in a letter to staff on Tuesday, is designed to let Intel’s network of factories operate like a contract chip-making operation, taking orders from both Intel engineers and external chip companies on an equal footing. Intel has historically used its factories almost exclusively to make its own chips, something Mr. Gelsinger changed when he launched a contract chip-making arm last year.
Back in 2018 I wrote about Intel and the Danger of Integration:
It is perhaps simpler to say that Intel, like Microsoft, has been disrupted. The company’s integrated model resulted in incredible margins for years, and every time there was the possibility of a change in approach Intel’s executives chose to keep those margins. In fact, Intel has followed the script of the disrupted even more than Microsoft: while the decline of the PC finally led to The End of Windows, Intel has spent the last several years propping up its earnings by focusing more and more on the high-end, selling Xeon processors to cloud providers. That approach was certainly good for quarterly earnings, but it meant the company was only deepening the hole it was in with regards to basically everything else. And now, most distressingly of all, the company looks to be on the verge of losing its performance advantage even in high-end applications.
That article was primarily about Intel’s reliance on high margin integrated processors and its unwillingness/inability to become a foundry serving 3rd-party customers, and how smartphones provided the volume for modular players like TSMC to threaten Intel’s manufacturing dominance. However, it’s worth diving into the implications of Intel’s integrated approach relative to TSMC’s modular approach, because it offers lessons for the long road facing China when it comes to building its own semiconductor industry, highlights why the U.S. is itself vulnerable in semiconductors, and explains why the risk for Taiwan has increased significantly…
The end of the system of the world - by Noah Smith
A critical point has been reached; decoupling is for real this time.
This is a big-think, “sweeping overview” sort of post. I find myself writing more of these recently, not because there aren’t little interesting news items or econ papers or debates to focus on, but because big things are happening very fast in the world right now, and I want to try and keep track of them.
The system of the world, 2001-2021
After the end of the Cold War, the United States forged a new world. The driving, animating idea behind this new world was the belief that global trade integration would restrain international conflict. At first this rested on a Fukuyama-type “end of history” theory that political and economic liberalization would follow globalization, but as it became clear that various bureaucratic one-party oligarchies and petrostates (most notably China and Russia) were resistant to the end of history, the hopes for trade became more modest — at least countries that depended on each other economically would not fall into active conflict.
We didn’t just pay lip service to this theory; we bet the entire world on it. The U.S. and Europe championed the admission of China into the World Trade Organization, and deliberately looked the other way on a number of things that might have given us reason to restrict trade with China (currency manipulation in the 00s, various mercantilist policies, poor labor and environmental standards). As a result, the global economy underwent a titanic shift. Whereas global manufacturing, trading networks, and supply chains had once been dominated by the U.S., Japan, and Germany, China now came to occupy the central place in all of these…..
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The Rise of Real-Time Collaborative Tech : Seedcamp
In 2007, Chris Wanstrath and PJ Hyett were sitting in a small SF apartment, building websites for CNET on Ruby on Rails. The more they used Rails, the more suggestions they had for improving the open-source project. But as was the industry norm back then, the open-source initiative was managed by a group of trusted coders who had explicit permission to commit changes. Anyone wanting to contribute to the central code had to go through them. Over time, Chris and PJ felt that they were spending more time lobbying for the change than actually identifying and coding the change. Fed up with the process, they decided to build their own repository: Logical Awesome LLC.
Logical Awesome turned into GitHub, and today, more than 83M developers use it daily to build and collaborate. GitHub made coding a team sport. It changed the way coders build and collaborate with one another.
One year later, two Facebook engineers had a mission to kill email at work. Dustin Moskovitz and Justin Rosenstein quit their jobs, and Asana was born to help anyone within a company communicate and collaborate more efficiently. In the following years, Miro and Trello were built to communicate ideas and manage projects in real time. Figma and Notion quickly followed, changing the way people design and manage knowledge.
The first : Collaboration as a Product
Github revolutionised an industry by enabling more collaboration, albeit on an asynchronous basis. While Github was pushing for this foundational shift to happen, Asana, Miro, Trello, and Figma began applying synchronous multiplayer features to product ideas. They became category-defining companies that paved the way for the first wave of real-time collaborative software. They built real-time multiplayer features at the core of their offering, which differentiated them from incumbents. And even though we’d argue that Figma and Miro’s collaborative features are nowadays an enhancer rather than the main value driver of the software, multiplayer features are what drove their initial development and adoption.
The second : Collaboration as a Feature
Today, we aren’t trying to convince ourselves of the need for collaboration within the workplace. A COVID-induced shift to hybrid work, the consumerisation of B2B SaaS, and a familiarity with the first wave of collaborative software have opened the floodgates for more multiplayer products. We’re now seeing a shift in collaborative tech being baked into products beyond design and productivity. We call this shift from collaboration as a product to collaboration as a feature the second wave of collaborative tech. Companies that haven’t traditionally thought of themselves as collaboration-first are now deciding to adopt multiplayer features on the application layer to improve their product’s user experience and build virality into their business (much more on this here). Supply chain, tax, and even life sciences are seeking to give their customers a more frictionless, data-centric, and integrated experience, whether their users are sitting next to each other or oceans apart.
At Seedcamp, we are excited by the impact collaborative tech is having on dozens of verticals, for companies small and large. Below we highlight a few companies which we have backed and/or admire, all using multiplayer collaborative tech to enhance their products….
News of the Week
Mobileye stock rises 40% in its return to a public market in chaos
It’s impossible to raise the dead. But Mobileye’s Wednesday IPO demonstrates that the market to list public companies hasn’t lost all of its vital signs just yet.
Mobileye stock had a nice first day, rising nearly 40% to close at $28.97. The Intel-controlled company sold roughly $860 million worth of stock at the IPO and sold an additional $100 million to General Atlantic. It priced the issue at $21, a dollar above the top end of the $18 to $20 a share it was hoping to get.
Intel CEO Pat Gelsinger was careful not to call Mobileye’s return to the public markets a capital raise at an event earlier this week, describing it instead as a decision designed to move it into the market.
There’s truth to what Gelsinger is saying: The original reason Intel planned the IPO was for financial engineering — to unlock for Wall Street the value in the fast-growing autonomous driving unit while the rest of Intel figures out how to correct years of dysfunction. Two separate stocks, but still one company (Intel controls Mobileye still).
Intel had once hoped to bank a valuation of $50 billion but later revised that down to $30 billion before settling on the roughly $20 billion market value that it actually managed to achieve. For context, Intel bought the then-public Mobileye for $15.3 billion in 2017.
In a lot of ways, Mobileye’s was a textbook IPO for Wall Street. Mobileye ticked all of the boxes a banker would need to in order to achieve a successful offering in previous years, including lots of investor interest during the road show, pricing above the range, a healthy pop on the first trading day.
Stability AI CEO, After Ruffling Feathers of Researchers, Discussed $1 Billion in New Financing
Emad Mostaque, the former hedge fund manager who made his startup, Stability AI, one of the most visible standard-bearers of software that creates original images from simple text descriptions, could soon test the limits of hype around the new technology.
After raising $100 million of venture capital in three successive equity funding deals in the last two months, most recently at up to a $1 billion valuation, Mostaque recently told investors he wanted to raise an additional $1 billion of capital at a multibillion-dollar valuation, according to two people with knowledge of the founder’s comments.
While Mostaque told The Information in an email on Tuesday that he’s “not raising” more money, he didn’t respond to questions about the comments he made to some investors. His ambition to raise more funding is particularly notable because the British entrepreneur has been making claims about Stability’s momentum compared to an older rival, San Francisco–based OpenAI. And Mostaque recently kicked up a dust storm among other artificial intelligence startups over his description of the company’s role in developing a prominent machine-learning model for AI-created imagery.
THE TAKEAWAY
Startup taps open-source software to create images from text
It inked three funding deals in last two months
Other AI startups have groused about CEO’s claims
In the email, Mostaque said there was “lots of incoming interest” from investors “but…just done a round and are making nice revenue. We don’t even have a [pitch] deck :).”
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Andreessen Horowitz’s Flagship Crypto Fund Takes A Beating — Report
Venture capital firm Andreessen Horowitz, one of the early movers into the crypto and blockchain market, has been hit with a blizzard in this crypto winter.
The Wall Street Journal reported Wednesday the firm’s flagship cryptocurrency fund lost 40% in value in the first half of the year, according to people familiar with the matter.
Andreessen Horowitz’s debut $300 million crypto fund raised in 2018 had been on track for a 10x return, The Information previously reported. One investment from that fund includes Coinbase, which went public last year. Coinbase shares have tumbled 77% since its debut.
The slowdown
The drastic drop in value comes as crypto is facing several headwinds. Crypto prices have sunk from their November highs, with Bitcoin losing more than 60% since then. That decline was brought about by economic concerns ranging from ballooning inflation and rising interest rates to a wobbly public market.
The private market also has faced its own tumult. After a record-setting 2021, venture capitalists and growth investors have pulled back significantly, as they look to rebalance portfolios and codify their current investments through rocky economic times.
Even Andreessen Horowitz, which has evangelized crypto at every turn, has slowed its investment cadence in crypto and blockchain in recent quarters, according to Crunchbase data. After making 53 deals in those sectors from Q4 2021 to Q2 of this year, the firm made only nine deals in the recently completed third quarter.
Tech unicorn start-ups valued at $1 billion now rare in Silicon Valley - The Washington Post
SAN FRANCISCO — The hot social media network BeReal — which is gaining steam with young people as a casual alternative to Instagram — recently raised money, a key milestone on the path of any successful start-up.
It had all the elements of a buzzy start-up, like Snapchat, Clubhouse and Pinterest before it. It was popular with college students and even beat out social media video rival TikTok on Apple’s App Store. But when a report this month confirmed how investors valued the company, it was reportedly worth in the ballpark of $600 million — far short of the “unicorn” status of more than $1 billion many of its predecessors earned in frothier times.
A billion dollars may seem to be a big bet, but unicorn status for years has helped young companies attract employees and media attention, as well as offer founders runway to pursue new ideas and cachet with potential partners. Many now-established start-ups such as Airbnb and Uber that have shaken up long-standing industries depended on deep-pocketed investors to cover losses while they struggled to compete.
As employee layoffs, CEO resignations and belt-tightenings eliminate some of the excessive perks for which tech companies are known, investors here minted only 25 companies worth over $1 billion each in the third quarter of 2022, according to the venture capital research firm CB Insights. A year ago, there were more than five times as many new unicorns.
The drop is a harsh dose of rationality that is much needed in an environment that rewards big promises and falls prey to hype, investors said….
Tech unicorn start-ups valued at $1 billion now rare in Silicon Valley The Washington Post
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Startup of the Week
When Snowflake went public in 2020, it had the kind of valuation that leads commentators to reach for terms more extreme than “nosebleed”—177x trailing sales, which is the kind of multiple companies can get when they’re just testing out a new product, but one that almost never applies with a revenue run-rate in the hundreds of millions. In the two years since then, Snowflake has experienced both the good kind of multiple compression (their revenue run-rate was $532m at IPO and is $1,989m as of last quarter) and the bad kind (the stock is down by a third).
Snowflake still trades at a valuation that would make a growth investor circa 2018 blanche. It’s priced at 32x last year’s sales. Before 2020, Servicenow, previously the canonical example of a growth company that earned a premium multiple at a mature state, rarely cracked 20x. But Snowflake is also a business with extraordinary topline metrics. Not only has revenue grown, but the dominant factor in that revenue growth is net dollar retention. In general, enterprise companies that can hit 130% net dollar retention—i.e. for every $100 spent by customers last year, revenue from those customers alone is $130 this year inclusive of customers whose spending dropped to $0—are in a good position and get a premium valuation. Snowflake’s average dollar retention has been around 175% from mid-2018 to present, and its decline has been gradual. The company does expect dollar retention to decline eventually, as more of their customers mature, but it hasn’t happened just yet.
Put another way, if you take that net dollar retention and compound it out on a quarterly basis, a customer who did $100k in revenue as of the second quarter of 2018 would be producing $933k in revenue as of last quarter.1
Understanding this growth means understanding what, exactly, Snowflake is selling. The company describes it as a “data cloud”: they’re offering ways for customers to store and query all of their data on top of existing cloud services like AWS, Azure, and Google Cloud Platform. Within that category, they’re solving several problems at once: multiple inconsistent data sources that don’t talk to each other, manual processes for scaling storage and compute resources, and rules for determining who can access what. Not to mention the problem of querying terabytes or even petabytes of customer data in a performant and reliable way.
This means that Snowflake’s growth happens in at least four dimensions:
Acquiring new customers.
Getting new users within a single customer. A credit card company might start by storing transaction data in Snowflake, then move their marketing data in—and then might discover that they can target new offers to existing customers more cost-effectively by incorporating spending behavior. (A customer who switches their grocery shopping from Whole Foods to Walmart might be in the market for a personal loan to consolidate other debts, or might be moving into a financially-cautious phase where they’re interested in high-yield savings accounts.)
Organic growth from usage-based revenue as customers grow and run the same queries on more data.
Slightly-less-organic usage growth as customers discover that more questions they have can be answered with a single SQL query. This can mean a behavioral change among business analysts and corporate strategy types, but it can also mean adding nontraditional users. When the sales team gets tired of emailing requests for information, they might decide that having one team member spend a few hours learning what SELECT statements do is a worthwhile investment.
