Tech/Deal Discussion

How do you find GM adjusted Payback

(previous Q S&M spend) / (Net New ARR in Q x Gross Margin) x 12 Shows number of months it takes for a SaaS business to payback their fully burdened CAC on gross profit basis

Why would you invest in a negative NPV project?

1.

What did the survey say were the biggest pain points with existing FP&A solutions ?

1. Automation 2. Collaboration 3. Integrations 4. Implementation

Why is SaaS benficial

1. Cost efficient 2. Scalability 3. Access Anywhere 4. New Versions

Difference between this and traditional credit cards?

1. Credit cards are issued by banks and offer a line of credit with interest charged whereas BNPL is typcally 0% APR with no hidden fees 2. Real-time approval process, digitally native and seamless experience tied to online commerce - Much lenghtier approval process for credit cards 3. Credit Card comapnies usually charge a fee of around 1.3% to 3.4% of each credit card transaction in processing fees. - usually charge merchants a merchant discount rate, taking a fee of each transaction

3 Macro Trends

1. Crude oil volatility as a result of the potential of russian energy supplier being sanctioned - saudi arabia hiked prices and supply librya was disrupted and prices of oil hit $130 a barrel 2.Inflation 3. Increasing risk of data breaches resulting from cyberattacks Semi relationship between US china and Taiwain (TSMC is very important asset, stakes are very high if CHina invaded Tawain, but we are now looking to catch up to Tawain

What were the most important things?

1. Ease of use 2. Integrations 3. Self-serve reporting capabilities 4. Collaboration and Excel-like UI

Macro Trends

1. Everythign in Russia has led to rising costs for 2. Semi relationship between US china and Taiwain (TSMC is very important asset, stakes are very high if CHina invaded Tawain, but we are now looking to catch up to Tawain 3. Inflation which may not be transitory because cash was put into the hands of consumers and directly into the economy as a result

What do you think of x deal?

1. Gain more market share in x space 2. Revenue syngergies (cross and upsell) 3. Geographic expansion 4. Product Expansion Maybe industry consolidation?

White Label Solutions Differentiate?

1. Help retailers keep their branding and take full ownership of their customers' experiences 2. Can still enjoy increased conversion, larger customer bases, and increased AOV 3. Control and configure their own solution that can help prevent redirects and extra logins and create a more seamless user experience

What are key drivers to high multiples/valuations in software?

1. High growth 2. Headway for future growth so TAM 3. Unit economics of the business, margin profile, LTV/CAC, sales efficiency, logo or dollar-based churn, CAC payback period, ACL

Why do tech companies use SBC?

1. High growth stock is valuable 2. Paying out less in cash 3. SBC also helps employees feel more ownership in the company (less tangible)

What makes the SaaS business model attractive?

1. High margin recurring revenue (margins of 75 to 80%) 2. Scalability (repeatable nature of the offering and ability to create the software once and sell it an infinite amount of times with little incremental COGS or direct labor) 3. High operating leverage (limited to upfront development and marketing costs)

What questions would you ask when looking at a SaaS company?

1. Market Size? 2. Who is the target customer? 3. Is the company a market leader? 4. Deal Dynamics? 5. Is there counter positioning here 5. What kind of moats surround our business? 6. Switching costs? 6. Network economies? 5. Exit Strategies? (sponsor, IPO, strategic, what kind of strategic or who potentially?) 6. Specific Metrics? ARR growth, Margins (Rule of 40), net dollar retention, churn (customer or logo), LTV/CAC, magic number

Name 3 Macroeconomic Trends

1. Rising inflation caused by rising demand coming out of COVID, lingering supply-chain disruptions and labor shortages created a perfect storm for price increases 2. Federal Open Market Committee is looking for a way to tighten monetary policy without the economy crashing. Fed trying to increase rates to fight inflation, but also not undermine a strong labor market 3. Labor Constraints: extreme labor challenges in the U.S. with many retiring early and an aging population. However, prime-age labor participation is expected to rise driven by improving childcare, falling health risks, and rising wages

Why don't B2C players go after B2B?

1. They see themselves as strong consumer brands, more than just a payment method, but a shopping experience for customers 2. Bussiness purchases are more complex and ticket sizes can be 10x higher - Complex because the type of business can vary dramatically and so financing considerations are always changing

What does a sell-side advisor look for in a company?

1. historical growth (organic vs. inorganic) 2. Recurring Revenue 3. Retention (gross and net) 4. Sales efficiency (bookings/s&m) 5. TAM size and growth 6. product differentiation 7. strength of management team

What is median projection for appropriate level for fed funds rate?

1.9% this year (1% higher than prediction in December) 2.8% in 2023/2024

What is the median projection for inflation at the end of this year? From FOMC participatns

4.3% this year 2.7% next year 2.3% 2024

How would you think about an Amazon spin-off

AWS growing at 40% YoY, cloud would be valued more highly, very hard to value parts of the business when they are combined - Potential for disruption his high, high innovators dillema, mature at this point

More BNPL M&A activity

Alliance Data acquires Bread Afterpay acquires Clearpay Afterpay acquires pagantis - Pagantis is a Spain-based BNPL provider - Pagantis has 1,400 merchants and 150,000 customers on the platform Afterpay acquires empatkali Zip acquires Twisto, Spotii, quadpay (403M), spotcap, partpay Affirm acquires paybright (264) Payapl acquires paidy (2.7B)

Difference between semis, software and internet? Name a company in each.

Anaplan Facebook Samsung

What is a cloud application

Any software application that is deployed in a cloud environment rather than being hosted on a local server or machine

What is a dependency?

Application Dependencies occur when technology components, applications, and servers rely on one another to provide a business solution or service

How do rate raises affect the economy as a whole?

As banks are charged more to borrow, banks will pass those costs onto their customers. This will help drive down demand Inflation slows as supply and demand balance

Collaboration tool in manufacturing?

Augury: provides AI-based machine health and performance insights - sensors capture and transmit data to the Augury Platform - AI detects issues, explains what caused them and prescribes a course of action - AI and support teams help users to prioritize and plan machine health activity - Users collaborate and act on guidance they've been given to improve health and performance of machines To understand the value of Augury you need to understand the pains points that are unique to manufacturing. Due to COVID-19 factories need a layer of machine health infrastructure with remote collaboration tools. Three keys to Augury's success: 1. It Prevents the knowledge gap. When a worker leaves, he takes the knowledge of a machine with him and others are left to start from scratch. Collaboration tools that monitor machine health can prevent that knowledge gap and help teams operate more efficiently 2. Data democratization. Augury makes remote machine health monitoring a reality by taking data and insights from machines in real-time and distributing them to all relevant production stakeholders so that all individuals can be informed and make data-driven decisions 3. Augury ties all of this together by providing the remote collaboration tools to help teams interact and make these data-driven decisions. Augury does all this on one platform to provide end-users with a seamless experience

Why tech?

Before heading to college and in high school I was able to do two internships one with a real estate PE firm and one with a family office in Utah. At the real estate PE shop I focused on evaluating new multi-family real estate investment opportunities. At Summit I worked on deals in the industrial and consumer sectors and while I enjoyed the quantitative nature of the work, the companies were not particularly interesting to me. However, when I interned with Battery Ventures and had the opportunity to focus on B2B SaaS it was night and day for me. I spent around a year and a half in total at Battery Ventures Peterson Partners and at Accel-KKR focusing primarily on B2B SaaS and loved my experiences there for three reasons: 1. People are usually more innovative and culture is dynamic within tech which I saw at AKKR and Battery Ventures 2. I'm a naturally curious person and and as a result an industry like technology that is constantly changing is very interesting to me as I can continuously follow how different competitive landscapes are shifting 3. Seeing archaic industries like construction retail be completely revolutionized by software and seeing how software could unlock new efficiencies was something really exciting for me As a result, I want to build a life-long career in finance, but within in the technology sector

Collaboration?

Being able ot collect inputs and distribute budgets more effectively Ease of use, ability to edit real time and from different users

What companies could be benefiting from conflict in Russia - which companies are most hurt by it?

Big tech as a whole has been enforcing regulation - snap, tiktok, netflix, 1. Social media companies and streaming services or really any company that has banned services in Russia All big tech is suffering with shares prices sliding this prevents it being from the magnet it has been in the past 1. Apple stopped search ads which is ability for developer to place ads for their apps in search results of app store 1. A lot of volatility in crude oil depending on whether or not russian energy supplies would be sanctioned 1. Cybersecurity companies - cyberattacks have become increasingly prevalent we even have some targeting us natural gas producers now - seeing crowdsourced cyberattacks on both sides - Ukranian cyber police soliciting volunteers to attack Russia - Ransonware groups in Russia Crowstrike, ping, Cloudflare can offer help and are even offering services for free Increasing concern of attack on teh U.S. with data breaches increasing over the past 10 years has led to demand for cyber solutions Saw Google announced it will acquire Mandiant

Tell me about a public company

Block: 1. Large and growing market, TAM for sellers is $85B in the U.S. and a $60B opportunity in the US for individuals 2. Unique customer value prop is that they have become this one stop shop for sellers providing 30+ products such as managed payments, POS +business tools and vertical specific software which only reinforces that recurring rev model 3. Strategy moving forward of moving upmarket to target larger businesses, continue developingnew products and use cases for both platforms and enter new markets internationally. Acquisition of Afterpay will help.

How would Bookings increase affect your model

Bookings have no effect on the financial statements Once billings increase Depending their cash collection policy, if cash is collected upfront, that would hit balance sheet immediately increasing deferred revenue and increasing FCF

Key software revenue terms

Bookings: when a contract to purchase goods or services has been signed and revenue is anticipated, no invoice sent, no cash exchanged, no services rendered - TCV: total value of booking including multiple years of maintenance & support or multiple years of subription -ACV: total annual value of the booking, only amount due on annual basis Backlog: bookings not yet invoiced Billing: when invoice is sent to customer which in turn means payment is due and rev expected - billing can take place at different times for license, maintenance & support / subscription, and professional services Revenue: when goods delivered or services provided Deferred Rev: goods or services billed but not yet delivered (aka unearned revenue)

Tell me about another space

Broader industry trend: traditional credit industry is transforming as strong growth in e-commerce and technological innovation pave the way for the proliferation of alternative payment methods, including BNPL options BNPL; Buy-Now-Pay-Later is a type of short-term loan that allows consumers to make purchases and pay for them at a future point in time over a series of usually 3 or 4 installments. with the first due at check-out. Merchant is paid in full at checkout and customer makes installment payments to the BNPL provider There are shorter-term products that are usually interest-free and longer-term products that may charge interest. Large and Growing Market: - Pandemic had a significant impact, but will lead the industry to rack up $680B in transaction volume by 2025 - TAM of around $22T with US making up over 20% of that - Expected to make up 4.2% of e-commerce transactions by 2024 Key Tailwinds - E-commerce growth over past two years increased demand for easy online financing options because BNPL products are native to online shopping - Younger Generation driving growth with desire to avoid credit card debt (65% of afterpay users in US are Gen Z) - Financial hardships brought on by COVID have forced consumers to look for more flexible financing options like BNPL - Rise of digital wallets, decline in usage of bank cards, and higher demand for mPOS solutions Unique CVP - Consumers enjoy favorable terms and a seamless experience 1. Loan Terms: - Consumers can completely avoid paying credit card interest and instead pay in installments 2. Convenience: - Process of applying for a loan and getting approved only takes a few minutes and can be done at the point-of-sale 3. Soft Credit Checks: - Many providers are giving access to POS loans regardless of credit score making BNPL available to a broader population For Merchant: 1. Increased conversion rates 2. Data shows that use of BNPL solutions also increases AOV 3. Retention, customers are more likely to return if they like the seamless nature of the experience I decided to segment the space into B2C solutions (where majority are) White Label solutions, verticalized and B2B BNPL Where I see room for disruption is within B2B payments. Pain Points in B2B transactions: 1. Corporates are almost always buying now and paying later to let them hold onto cash longer which forces sellers to wait longer to receive cash 2. Low approval rates for bank loans was a challenge for small business owners 3. More complex transactions - longer sales cycles, more personalization, and services bundled together making it difficult to instantly approve BNPL transactions - BNPL providers have a hard time quantifying the risk of extending credit on the spot 4. Credit approval process in B2B extremely outdated, manual and time consuming Benefits of B2B: 1. Higher volume of transactions 2. Higher AOV (as it has in B2C) 3. Increased sales efficiency 1. Improved cash flow for buyer 2. Low or no interest short-term financing option 3. All-in-one paperless experience

Tell me about another trend

COVID has forced workers to WFH more frequently which appears to be a trend that may stay for the long-term. As a result, there has been a rise in verticalized collaboration tools. Tools that dominate horizontal markets include things like Slack, Asana, Microsoft Teams, Trello and more. However, each vertical has its own unique set of pains, some being much more archaic than others. I believe each functional group should have its own system of collaboration that takes workflow off spreadsheets/email and onto a GUI: examples include InVision, AuditBoard, Whistic, Opal, Olio SnapDocs A vertical where I see potential for collaboration software is the manufacturing industry.

Responses ot weak currency

Capital flight where people put there money into more stable currencies. Russia has increased rates signficantly to control capital but could start a vicious circle, slowing down the economy, but rising incflation makes goods more expensive Ideally this will make Russia pull-back on their invasion of Ukraine

Another Unicorn?

Chargebee is a subscription management and recurring billing platform based in Walnut , CA. Subcription management helps SaaS companies idenitfy new revenue channels by experiementing with pricing models, upselling through additional features, and giving a unified view of all subcription and customer data 1. Company is well psoitioned now to bolster core plaotform and drive growth with new features such as pricing and selling models, new payment methods and reporting methods 2. With SaaS model, winners in their spaces are going to to be the ones who can retain customers which Chargebee helps them to do by trying new ways of business. Its more than just SaaS businesses entering the subscription space (taco bell) 3. With constant societal changes during COVID such as employees working from home, Chargebee supports experimentation, gives valuable real-time data helping companies to constantly be adjusting https://venturebeat.com/2022/02/01/subscription-management-platform-chargebee-nabs-250m-as-saas-soars/

What company would Amazon acquire?

Chewy: 1. Acquire Chewy to gain market share in the pet supplies market 2. Product expansion - Chewy carries more products in way of animal medication and has full pharmacy section on website 3. Target new end customers with products for farm animals not just house pets Walgreens: 1. YTD share price is down 15%, great opp. to acquire a strong asset at a lower valuation 2. Expand their physical presence, counter-move to Walmart's online delivery ambitions 3. put Walgreens in a more strategic position to compete against companies like CVS - In addition, Amazon's strong capital position could greatly help to accelerate the transformation of existing Walgreens stores into community healthcare services spaces. This would put Walgreens in a stronger competitive position against CVS Health, which is doing the same thing, and has become an integrated healthcare company. 3. Expand into healthcare and access additional customer data and trends

How would an increase/decrease in churn affect LTV to CAC

Churn increasing decreases LTV and as a result decreases LTV'/CAC

Why is SaaS more cost efficient?

Cloud services can be maintiaing and managing the aplpication for you so there's no IT overhead costs and SaaS application is typically consumed on a subcription-based model and that includes support On-prem model you have perpetual license you have large up-front cost and support ongoing seperately

Companies benefitting from pandemic, those most hurt?

Companies that have benefitted the most are Digital Collaboration tools which I believe are going to see continued growth beyond just COVID

Company I like in the space/company I'm following

Covered Care: Vertical BNPL solution for healthcare working to provide patient financing ot underserved Americans. Focused on elective procedures such as dental, audiology, ophthalmology, med spas, and veterinary up to $10,000 1. Taps into two markets that of healthcare and that of non-prime Americans 2. They are one of the first movers, and are winning because of higher approval rates, more affordable patient terms, and competitive discount rates to the healthcare provider - Compete against traditional players because they are focused on non-prime patients. Credit standards fo prim patient finance players prevent 50% of applicants from being approved 3. Have pivoted to also offering white-label solutions which has opened up an entire new set if potential customers 4. Major whitespace to provide non-prime financing solutions for other POS solutions as well

How would you value Amazon?

Digital Ocean - cloud computing for SMBs AWS may not be as nible as a result of not specializing, not an expert on all their products. All cloud providers have better products but people use AWS becaue its a one-stop shop. DEveloped products but have room to improve to acqurie companies like cloud databases to make their platform more developer-centric 1. Product Expansion 2. 3.

What are the triggering events to move from Spreadsheets to software solution?

FP&A complexity from company growth/scale Overall FP&A team size growing past a certain point

What stats show FP&A vendor stickiness?

Forecasting showed to be most sticky solution 35% of providers said that their FP&A software would be hard to move off of. Reason why that number was so low was because there are so many respondents not using any tools.

Why is SaaS more scalable?

Horixontally or vertically scale on demand If you need to add more databases or more compute power they will take care of that on an as needed basis

Tell me about a trend you've been following

Hybrid and Multi-Cloud trend: Trend Today - Today 92% of businesses have a multicloud strategy and 82% of large enterprises have adopted hybrid cloud infrastructure (hybrid cloud infrastructure is when there is a combination of on-prem, private clouds and multiple public clouds to give more control over where and how data is stored) What I see and Why - I see adoption rate of multi-cloud and hybrid cloud strategies continuing to rise in the coming year as there are significant benefits to using a multi-cloud environment to distribute your workload such as aligning your workloads with the cloud service that is best for the use case, failover capabilities for better redundancy and disaster recovery, avoiding vendor lock-in and pay-as-you go models - And many prefer hybrid models so that they have more control over how data is stored (keeping some on-prem servers for security while taking advantage of scalabile computing capacity of the cloud The Problem that will continue to arise However, picking multiple services, cloud providers and cloud environment can complicate your architecture design. This is because of the diversity of public cloud vendors, so increasing the number of CSPs means increasing complexity. - Cost Control. If companies lose track of where their applications are hosted or when they are not being run efficiently this can lead to thousands of dollars of cloud costs -Governance, compliance and security concerns - Interoperability of platforms. IT teams have to deal with siloed vendor tools lack of consolidated monitoring across cloud environments and other challenges that drive cloud costs and increase the administrative burden The Solution Companies that are today helping organizations to operate infrastructure in the cloud by creating multi-cloud infrastructure automation products that help companies to deploy and connect their applications to any combination of multiple cloud and on-prem environments

Who would acquire who in BNPL?

I see two paths happening The larger BNPL platforms are running out of ways to grow organically through merchant partnerships, and may start to look to grow more aggressively through acquisitions OR One could be the "commoditization" of BNPL wherein it becomes a product type that banks, card networks and other established financial institutions offer - I believe financial institutions will build out their own products given they already have an existing customer base (1), an understanding of customers' financial strength and spending patterns, multiple channels of engagement, and strong merchant relationships If there is an acquisition it will be a result of the crowded competitive field, and players looking to compete with Klarna, Afterpay, and Affirm: so maybe Zip going out and acquiring PerPay (both are focused on not checking credit scores) OR Larger player like Affirm looking for a horizontal integration move and acquiring a company that operates in consumer lending in an industry outside of retail. Affirm acquiring Covered Health and Affirm becoming this provider of all things BNPL in several industries OR Affirm acuqiirng Divido and their white-label solution to better cater to merchants who want to better control the customer experience

Players in the space

Klarna Affirm AfterPay (Now part of Block) Zip PayPal's Pay in 4 Sezzle Bread Sunbit Viabill Jifiti

Other problems with Excel?

Lacks workflows, repeatability, shareability, but benefits from flexibility and ease of use

What are the four main sources of revenue for software companies?

License: fees customers pay to own or have right to use software Maintenance & Support: Periodic fees customers pay to access upgrades, bug fixes and customer support - can range from 17-22% of license revenue - can automatically renew - can contain price escalators? Professional Services: fees customers pay to have software implemented configured or customized Hardware: may or may not supply hardware in a turnkey solution - low margins

What does price range have to be for new teams joining?

Majority of companies with <5 FTEs want a solution costing less than $25,000

What are some potential risks?

Many BNPL users are in better financial positions than users of the cash app. Success of the acquisition will be contingent on the flow of customers from the Afterpay platform to its Cash App ecosystem. Remains to be seen how many afterpay customers download cash app and remain loyal to the platform. For square having more sticky customers who have ability to spend more (afterpay users) means more revenue and reliance on square platform Increasing regulatory scrutiny that Afterpay will face different legal, regulatory, tax, licensing, and compliance requirements Afterpay's inability to obtain funding through receivables financing arrangements with financial institutions which are collectively called warehouse facilities. Growth could be slowed if it can't obtain that financing

Which company could microsoft (or any big tech company acquire)

Mattermost (answer is in the word doc)

How large does team have to be to move to software?

Most say 5 people, some 2 people, very few say 10 people

New Versions for SaaS

No need to update licensing or update manually the new version of your software, all taken care for you

Is a recession likely?

No. 1. Payroll job growth is high 2. Strong labor market 3. Aggregate demand is currently strong and forecasts expect to remain so Want to achieve price stability while maintaining strong labor market

What kinds of effects are rising commodity prices having on the economy?

Only adding to inflation risk: for example, nickel prices rising which contributes to rising prices for EVs Demand for EVs is rising as gas prices rise

Tell me about a space you're interested in

Overall Trend: Companies now targeting the lower-end more underserved segment of the market so SMBs vs the old-school enterprise strategy. We see companies starting out as low-end disruptors addressing simpler requirements for the under-served part of the market and then moving upmarket over time as disprution becomes more mainstream and offering becomes more mature In theory enterprise are more valuable customers but in practice its easier to build momentum going after SMBs Huge market for FP&A software, really any business that is currently using Excel for FP&A accounting and more (89% of businesses today in the U.S. which represents) The FP&A software market is estimated to be around $3B dollars and growing at a CAGR of 10% Industry tailwinds here include mid-market businesses investing third-party software to manage payroll, accounting, etc., increased adoption of cloud-based solutions and a need for transparency across departments - Large mid-market opportunity with 350k business doing 5 -99m in rev FP&A software is built for a variety of use cases including the following: Financial Close Management Budgeting and Forecasting What-if scenario modeling Reporting Consolidation I think there is a lot of opportunity amongst SMBs for new entrants to compete with legacy players and take market share (would love to talk about the opportunity I see there) Major players in the space are generally incumbents include: Oracle SAP Anaplan Planful Workday Two Opportunties Significant Greenfield greenfield in the SMB and mid-market among companies still running FP&A on spreadsheets (today 89% of businesses run on Excel, and 59% of businesses doing $25m in revenue or less currently use excel, opportunity to acquire customers at low CAC as businesses using no tools are 10%) Excel is prone to human error, a security risk, and is not flexible or scalable Pain/problem with existing solutions? - The problem with these legacy solutions is that they have long/distracting implementations, steep learning curves and require dedicated maintenance resources (which SMBs don't have) - Also require significant manual intervention to quickly run what-if scenario models The Pain here is that mid-market companies don't have the time, money and resources to dedicate to expensive, on-prem syst Next-gen tools that will win have the following key features: 1. Excel-based interfaces (analysts need something familiar to work in to make for easy adoption) 2. Short implementation times 3. Collaboration (data within a centralized database that can be accessed by the entire organization so all departments work with the same numbers, data updated real time) 4. Self-service maintenance and the ability to easily extend into revenue ops, sales ops and resource planning (meaning individual users have the power to build reports and perform data analysis rather than IT professionals) ideally they will also have lower price points to accommodate SMBs

Difference between a public and private cloud?

Private cloud - sometimes called a data center - reside on a comapny's own infrastrucutre and is owned by the company. There is no sharing of infrastructure. All responsibilities of managing it fall on the shoulders of the company Public Cloud - Hosted by a public cloud service provider such as AWS, Azure, Google Cloud. Enterprise data and application code reside on the CSP servers which can be shared in this multi-tenant like environment A lot like private cloud as a house and public cloud as an apartment

Tell me about another deal you've been following

Prophix Acquiring Sigma Conso Prophix is a cloud-based CPM solution which focuses primarily on budgeting, planning and forecasting and is based in Ontario, Canada. Sigma Conso is a FPM (financial performance management) solution based in Belgium. Meaning it focuses primarily on financial consolidation and close, management reporting, intercompany reconciliation as well as specialty solutions for IFRS 16 and iXBRL. Prophix is owned by private equity firm Hg Capital in London and this is the first instance of inorganic growth in Prophix's history There are a few reasons why I like the deal 1. The addition of Sigma Conso'stechnology and resources will strengthen Prophix's capabilities for consolidation and close 2. In addition Prophix will be able to expand their global reach with access to key geographic areas such as Europe and Asia 3. Chance to upsell existing customers with Sigmna Conso's solutions and cross-sell Prophix products to new customers (close to 600 new customers) In addition this acquisition will allow Prophix to gain market share and close the gap with CPM competitors with strong financial close and consolidation solutions such as Board, jedox, Unit4 and Workday (don't need to list out the companies, just have them in your back pocket) http://barc-research.com/prophix-to-acquire-sigma-conso/

List off 10 unicorns

Retool MX Harness Deliverr Snapdocs Persona Whatnot Patreon BitPanda Gong Bolt Financial Ramp

Software revenue model

Revenue streams include license revenue (margins typically 95%) Maintenance revenu (margins 70-90%) Service rev (margins around 15-30%) Hardware rev (gross margins 5-20%)

What was Afterpay's rationale for agreeing to the deal?

Revenue synergies accessing all of squares merchants and cash app customers and in addition, moving into North America

Why San Francisco?

San Francisco offers an opportunity for me to be at the center of technology and innovation and be a part of a dynamic culture that I felt when I was working with people based here at places like Battery Ventures and Accel-KKR that I won't get in New York I came to visit at the end of January to meet with people at the firm. I loved San Francisco, the warm weather, as an athlete I love to be outside and to be active. Cannot get that where i am from I grew up in NY and surrounding area and will be through my internships my desire to work in technology and my experience in San Francisco, I know I want to be there long-term

Contrarian View

Semis are now going into so many different devices: cars, phones, PCs, cloud data centers, laptops Demand is becoming so diversified and supply is becoming more expensive so it will become more of a steady growth business rather than a cyclical business with booms and busts Will still move around but less volatile than it has been in the past Depends on their place in the value chain: AMD hasn't really had a problem with the past 5 years Micron is a manufacturing company which still goes through boom bust cycles with trade war and pandemic on top of that

Can't banks do the same thing?

Several have started to: 1. Chase (My Chase Plan) 2. Citi (Flex Pay) 3. Citizens Bank 4. Goldman Sachs 5. ICICI bank 6. nab 7. RBC 8. Tencent 9. VISA

Tell me about another trend

Software for non-desk workers http://desklessworkforce2018.com/ https://whiparound.com/fleet-manager

Tell me about a deal you're following

Square acquisition of AfterPay Square was founded by Jack Dorsey orginially, original purpose was to provide merchants and small businesses with a way to accept credit card payments which was previously inaccessible ot many businesses. Its since expanded to include more than 30 distinct products to help sellers manager and grow their businesses. Have built a parallel ecosystem of financial services for individuals with the cash app. AfterPay is in a space called BNPL. They brought this concept to the forefront of a younger generation geared more towards e-commerce. Allows retail merchant clients to offer their customers the ability to buy goods and services on a buy-now-pay-later basis. Afterpay pays the merchant after taking their fee and then collects cash from the customer. There is no interest or fees other than capped late payment fees. $29B USD all-stock transaction EV/NTM 29.3x Rationale: 1. Network effects: AFterpay has created a network effect between consumers and merchants; Block is going to insert the cash app directly into that relationship driving adoption of cash app and increasing frequency with which consumers may use cash app which will create a moat for Afterpay and the Cash App and improve square's margins. payments made from the the cash app not from debit or credit cards will be very high margin for square. 2. Move towards a traditional banking services platform: With cash app square is attempting to build a similar fintech ecosystem for individualsand in the future the cash app ecosystem could replace a bank account for an individual. If you think about it if your trying to become a bank account for someone, with square you can already invest out of it, you can already pay out of it, you can already transfer money to other people which makes it sound like a bank account and once you have financial services this starts to sound like a traditional banking services platform. 3. Significant Revenue Synergies and Geographic Expansion: Afterpay was founded in Australia. A large presence in Australia, Asia, and Europe. Provides attractive roadmaps for both companies to expand internationally. Giving Cash App room for expansion beyond North America. Access to each customer base. Square can cross-sell its 30+ products to Afterpay's merchant and consumer ecosystem The deal will be accretive to gross profit, overall great opportunity to realize attractive growth synergies and invest behind afterpay's strong unit economics Opinion: 1. Bring consumer lending component to cash app and square seller ecosystem (expanding square and cash app's TAM immediately) 2. Opportunity for square to offer embedded financial services for merchants and consumers which I think is a giant step in becoming more of a modern banking services platform which is where I think Square is headed 3. Going to better connect the cash app and seller ecosystem to deliver more compelling products and services for merchants and consumers Excluding Synergies the deal will be accretive to gross profit in year 1 Based on Square's closing price of $247.26 and an implied transaction price of approximately A$126.21 per Afterpay share (a premium of 30.6% to Afterpay's latest closing price of A$96.66) Based on July 30th numbers - 22% premium over the 10-day volume-weighted average Afterpay share price Afterpay will end up owning 19% of the combined business How did stock price react? Square had best day since march jumping 11%, paying a 30% premium to Afterpay's last pre-announcement closing price - Square jumped from $247 to $280 AfterPay also jumped around 20% from $75 to $95 and is now hovering at around $45...why?

Google designing own Tensor Processing Unit specifically for Google's TensorFlow software

TPU just does one thing well vs CPU (wouldn't work in computer) its specifically for matrix manipulation which is simple arithmetic but it just does it on repeat

What is redundancy in the cloud?

The act of duplicating copies of your data, systems, and equipment so that if your cloud service becomes corrupted and unavailable, you have immediate and secure access to backed-up versions

Tell me about an IPO you've been following

The company priced the IPO at $80 after originally planning on a range of $68 - $72 (implying 12 - 13.5B around 35-37x NTM Rev) which represented a valuation of $14B and opening NTM Rev of 40x and share prices jumped 6.5% on opening day and closed at $85 ($15.3B, 44x NTM Rev) reached a high of $97. It's price is now ~$67, trading at an NTM EV/Rev of 27x representing mkt cap of $12B. 49% rev growth in Q3 HashiCorp builds infrastructure development tools for four processes: 1. Provisioning 2. Security 3. Networking 4. Deployment. Offers all of these products through an open-core model. In other words, HashiCorp is a key player in multi-cloud as it helps people manage several cloud service providers. It had $211M of ARR in 2021 with ARR run-rate of $292M which will continue to grow to $ 1.34B in 2026E assuming the company's NRR only decreases slightly over the next 6 years. In 2021 EBTIDA was (24%). . HashiCorp products have more than 100M open-source downloads in 2021 and currently have 2,100 paying customers HashiCorp wanted to go public to raise new funding to continue fueling growth of current products and to invest in development of new products such as HashiCorp Cloud Platform, HashiCorp Boundary and Waypoint. In addition market sentiments at the time were still favorable with great opening stock price jumps with open-source companies: Gitlab and Confluent, Datadog The deal was great for HashiCorp and well managed by bankers through timing, getting a great valuation. In addition market sentiments at the time were still favorable with great opening stock price jumps with open-source companies: Gitlab and Confluent, Datadog. However the company was evidently overvalued. I think the price today is more reasonable, but a recent sell-off of cloud shares has brought it down. I would stay away for now, but in the long run, I think it is a great buy as I see major growth in cloud adoption in the next 5 years, growth of a multi-cloud infrastructure model and hybrid model (where HashiCorp operates), and finally, growth in the global cloud services market which is expected to grow at around 16.3% Open-core business model - significantly lower S&M spend as a result of products and implementations being developed by the community but an opportunity to monetize on their enterprise offerings. INcredible network effects increase sales efficiency

What is CAGR and how do you calculate it

The compound annual growth rate ("CAGR") is the rate of return required for an investment to grow from its beginning balance to its ending balance. Put another way, CAGR is the annualized average growth rate. CAGR = ( Ending Value / Beginning Value)^(1/n) - 1

Why are semiconductor companies extremely cyclical? What is the name of the law behind this?

The semiconductor industry is famous for being a cyclical industry, due to the relatively short lifespan of semiconductor items, where technology becomes obsolete quickly when new and faster applications are developed law is called Moore's law stating the number of transistors on a microchip doubles every two years whereas computer costs are halved

What does fed do?

They act as the driver in a car wiht the car being the economy Two main goals at their meetings: 1. Ensure stable prices and low inflation 2. Make sure labor market is strong Can think of economy as a car and fed as the driver. Want to slow the economy down by increasing interest rates

What does it mean when the fed raises rates?

They are deciding whether or not to raise or lower the federal funds rate. It is not directly set by the fed Their goal is to set a target range by setting an upper and lower limit Upper limit: Interest on Reserve Balances (IORB) which is the rate of interest a bank gets on deposits that is keeps at the federal reserve Lower limit: Overnight Reverse Repurchases (ON RRP) Securities, like treasury bills, that the Federal Reserve lends to banks, usually for a day, while paying interest Effective federal funds rate is controlled by these two things

Why is a DCF not a good option for a young tech startup?

Too much guesswork about markets that potentially don't exist

Augury Competitors?

UpKeep Kloudgin DPSI Mobility Work Senseye Falkonry MicroMain Pedigree Technologies

B2B BNPL Company that you like?

Vartana: B2B BNPL provider based in SF with a focus on the technology sales market where sellers and buyers need to collaborate to complete the purchase and buyers need financing of greater than 12 months to purchase software or hardware 1. Allows sellers to boost revenue without compromising cash flow 2. Streamlined, co-branded customer checkout experience 3. What really differentiates them is their closing process management where they provide a centralized dashboard to manage the end-to-end deal process - robust payments platform you can use to empower your sales team with pre-approved payments plans Buyers can be instantly approved for $250,000 loans (need to provide some background information)

Other Players in the FP&A space?

Vena Solutions Mosaic Jirav Finmark OneStream Prophix Solver Infor Jedox Vareto LucaNet

Tell me about a unicorn you find interesting

Ways in which new social companies are monetizing. The traditional ad model has been dominant for decades, but primarily for incumbents (facebook, snap, twitter etc. ). Today we're seeing new entrants take on new monetization models. One model I'm interested in is live shopping. Verified sellers can go on the air at any time, hosting on-the-fly video auctions for their goods Whatnot is based in San Francisco, valued at $1.5B Started as a resale platform for solely funko pops, a type of collectible. Once the pandemic hit they leaned hard into live shopping pivoting into several collectables such as pokemon cards, pins, vintage clothing, sneakers and more. They take an 8% cut on each sale 1. Tailwinds such as immense COVID growth in ecommerce and social media have allowed Whatnot to raise $225M primarily in the last year 2. Gap in the market as creators and collectors attempted to do live shopping on platforms like instagram live which isn't built to handle payments or bidding 3. Have built a real moat with prominent sellers in multiple categories 4. Incentives align as platform takes a cut, third-party brand makes a sale, creator monetizes expertise, and consumer purchases products with higher confidence and entertainment value Live interaction is the benefit here and the fast-paced nature of the platform

Why is value of urssian currency important?

With interest rates rising, value of currency increases. When economy slows down the central bank is cutting interest rates to improve things and currency value falls Weak currency makes import purchases more expensive. This raises inflation and creates problems for business and Russia's currency has been falling signficantly over the past 8 years

Any evidence you have to back-up that thesis?

Yes - I actually put together a customer survey that we used to start gathering data for potential investment targets like Cube No company with less than 500 FTE uses Anaplan, only 19% use >500 FTEs Overall NPS scores for FP&A software as a whole is 28 86% of those surveyed use Excel 77% of respondents said they prefer a spreadsheet-like interface 93% want a product that integrates with Excel 95% want self-serve reporting

Access Anywhere

You can access SaaS applicaitnos anwhere All you need is a web browser and internet connectivity to be up and running with you SaaS application. No installation and no plugins involved

Tell me another deal in BNPL

Zip acquisition of Sezzle $491M all stock deal Background: Zip: New Zealand-based BNPL provider Sezzle: BNPL provider based in the U.S. with primary focus on SMBs with their new Sezzle Up platform which allows users to build their credit scores Overall the deal is expected to support sustainable growth and the path to profitability creating greater value for shareholders Rationale: 1. Product expansion and geographic expansion - U.S. is one of largest BNPL markets globally and continues to be highest priority for both Zip and Sezzle - Enhanced scale with 8.8m customers and 60.5k merchants in the U.S. - Expansion of customer base 2. Material cost synergies to be realized - Targeted potential EBITDA of benefits fo A$130M in 2024 of which 60-80 will be cost synergies - Reducing operating expenses and revenue and net transaction margin opportunities 3. Revenue synergies through combined merchant ecosystems - Expected to be accretive to revenue and EBITDA per share by 2024 - supports a strong path to profitability for Zip by 2024 assuming synergies can be realized Additional Details: 22% premium based $1.78/share Sezzle and 31.7% based on the 30-day volume-weighted average of Sezzle common stock Sezzle shareholders will own 22% of the combined company Pro-forma 8.8m customers and pro forma 60.5k merchants

What are cloud workloads?

any program or application that runs on any computer. Workload can also refer to the amount of work (or load) that software imposes on the underlying computing resources. Can be classified as static or dynamic. A static workload is always on and running, such as an operating system (OS), email system, enterprise resource planning (ERP), customer relationship management (CRM) and many other applications central to a business's operations. A dynamic workload is ephemeral and loads and runs only when needed.

Tell me about another deal

nCino acquiring SimpleNexus. $1.2B, $240M cash, 13.2M (Rev multiple of ~28.8x) 1. Background - nCino is a fintech company that provides a cloud-based bank operating system that it sells to financial institutions (nCino has transformed the process for commercial, small business and retail lending, treasury management and account opening) - SimpleNexus is a digital mortgage platform built to connect loan officers to their borrowers and real estate agents 2. Deal Rationale - Product Expansion: SimpleNexus technology will help nCino to extend capabilities to U.S. point-of-sale mortgage space and enhance their mobile and point-of-sale offerings - Revenue Synergies: There is an opportunity to accelerate adoption of SimpleNexus homeownership platform by banks and credit unions. nCino has over 1,100 customers that are banks of credit unions of which only 40 are SimpleNexus customers representing an incredible opportnity to up-sell existing customers 3. Opinion: - Short term consequence, total SAB of nCino will expand by $4B to $16B to further gain market share amongst competitors - Expanding into a U.S. mortgage market worth $16.6 trillion with the number of loan originations rising over the last 5 years - Only risk I see is the inability is upselling existing customer to the SimpleNexus product

What is cloud computing?

the practice of using a network of remote servers hosted on the Internet to store, manage, and process data, rather than a local server or a personal computer.