September 16 2022
- Sacks calls off MAGA brigade for JCal 🙂
- Adobe acquires Figma for $20B
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Largest private company acquisition in history
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It was valued at $10.1B last year
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So doubled valuation in a year from crazy market previous year
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Market hated the deal - Adobe lost entire purchase price in their lost stock price
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Adobe is paying 50 times instead of 8-10 times normal SaaS company
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But Figma is growing like crazy
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Founded 2011-2012 - very long wilderness period - private beta 2015, public launch 2016 - monetization turned on 2017 - so first 5 years no money for a 10 year old company - turned on enterprise in 2019 - these are scuttlebutt numbers
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This ARR ramp is phenomenal
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Triple Triple Double Double Double - first 5 years
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Figma is doing amazing - so not sure that its a bad deal for Adobe - they understand this market - they’re in the same market
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Adobe paid 12% dilution of their company to acquire a potential competitor
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$10B cash, $10B stock at the point the deal was announced
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Huge win for Figma CEO, investors, employees - classic Silicon Valley outcome - keeps us going!
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Adobe didn’t give so much stock that a shareholder vote would happen
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With stock price drop, its almost a $30B-$40B market cap hit
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Market is wondering if existing cash flows of Adobe are under too much pressure
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Could be a great story for Adobe - their single player mode product growing at 12% is now multiplayer mode that doubles - also desktop goes to cloud
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Adobe was charging $1000/year for creative cloud, now $25/month
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Shantanu is one of the best CEOs (since 2007 masterful playbook) of the last few decades
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Adobe could not afford a free cash flow hit in public markets - coz Figma has a free tier forever
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So they did a one time 12% stock dilution hit
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This is classic innovator’s dilemma - beyond a stage, you go from growth investors to value investors
- They want dividends and stock buy backs
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2 kinds of SaaS companies
- 1 thing - Workday
- Everything - Microsoft
- Can’t compete with Microsoft if you’re Slack
- Takeaway for entrepreneur - bucket competitors into former (Adobe is that style) vs latter (Microsoft)
- Compete against Adobe - monolithic vs Microsoft (bundle)
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Microsoft is unique in their ability to bundle
- Have Office
- Active Directory
- Outlook
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If they see a new competitor they’ll clone the product and give it away for free and pull the rug out from under the competitors
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They get you hooked on the bundle and then raise the price of the bundle
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Its anti-competitive
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Free until they drive out their competitor (runs out of business or can’t profitably make investments required to grow)
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You don’t hear a word about this from Lina Khan or Washington except Social media
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Google acquisition of YouTube is greatest managed of all time
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Canva should go public instead of selling because they’ll have an easier time competing against their opponents
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Its clear that anti-trust authorities in Washington have just a list of companies that they want to punish punitively - instead of stopping competition - their lens is only power
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Operating Systems monopoly is bad - Apple iOS, Google Android and Amazon white-labeling products
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Its clear Lina Khan is political - targeting Facebook due to political implications - not enforcing her own mandate of lessening future competition
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This deal will close because it doesn’t intrude on the political hot buttons of Washington
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Microsoft is a great company and great acquirer
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But Yammer disappeared after acquisition because their promotions ended because there was no incentive for sales org because its bundled and there’s no price - so Slack came along and won
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Promise to founder that you’ll be left alone lasts 2 years - golden handcuffs last that long - once you’re serious about integration, you lose your eyes and ears when you’re not actively selling into the market
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- Google acquisition of YouTube
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Google just bought the skeleton of a growth engine and then rebuilt everything with their own people - backend, frontend, etc
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They made a conviction bet into that business - invested billions of dollars for years before they started making tons of money later
- They were able to do so because of their extraordinary growth rate even while they were doing this
- Also dual voting for Larry and Sergey
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Now they have a $300B-$500B business
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Its a one-off acquirer and one-off acquisition
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Google acquired a flywheel
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Viacom CEO yelled at Google execs for stealing money off their content
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Maybe only MSFT could have built the technology that Google developed to do automatic takedowns
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Salar Kamangar #9 had amazing job at Google YouTube - him and Susan W were first 30 employees at Google - did a great job
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Figma growth rate is awesome - cool story of how VC tracks ARR - hockey stick took so long to get going
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They kept grinding for 5 years
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Grit is huge for entrepreneurial success
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2013-2014-2015 was hard to get a Series A, so easy for a young person to quit and go to Google
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Enterprise SaaS you need ultimate customer focus - which this CEO had
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- Friedberg TPB SPAC
- For 30 years we had reduced global undernourished to 600M, but now its spiked back up to 800M
- Brazil and Latin America are largest ag export market to the world
- Farmers there lack technology adoption
- So they are partnering with local ag retailers to drive up productivity in the region
- Agronomists are technical sales people - understand science and technology of farming - work with farmers - the retailer can influence farmer when new technology comes to market
- Big ag industrial companies - don’t sell direct - have to go through retailers
- US retailers make a lot of money - very advanced - this sophisticated behavior is concentrated in the US - need to expand this around the world
- $1.2B valuation
- Title 6 lawsuit filed against Pfizer
- If you take federal money you can’t discriminate
- Happening 1 month before Affirmative Action case against Harvard doing race based admissions
- 2022
- Roe v Wade
- Open carry
- Affirmative action repeal
- Huge change in 2022
- Conservatives are so organized, progressives are all over the place
- Karl Rove wrote this all up in 2000s - they will raise money and go after all these issues - they are going to do it
- Now gay marriage is going to be put to vote?
- Smart play for republicans is to just vote for it
- Don’t let the democrats change the issue from the economy that is out of control
- Democrats want to fund raise off of it
- Smart play for republicans is to just vote for it
- Fedex stock drop
- CEO said yes there’s a recession
- Probably new CEO reset expectations
- They have reduced their outlook
- 3 things going against them
- Amazon continues to build out local delivery infrastructure at great pace - they already have 25% market share
- Fedex has seen market share drop 8-9 years straight
- Vertically integrated player (Amazon) is putting a lot of pressure on them
- People do stuff digitally now so don’t ship stuff
- Docusign vs letters
- Recession is causing fewer orders
- Amazon continues to build out local delivery infrastructure at great pace - they already have 25% market share
- Recession
- Inflation report is much worse than people were expecting - its 8.3% instead of 8% (worst day in stock market since June lows)
- Stagflation - high interest rates and high inflation
- Biden is the first US president that says recession is necessary to keep Russia out of Ukraine
- Hard to say recession is now here - retail sales are very high
- Things might be good now but trajectory is bad
- American Generals were taking credit for this Ukraine counter-offensive (they never did this during the Cold War) - they are giving them intelligence and weapons and hand correcting the battle plans, re-writing their plans for them - doing everything except pulling triggers - this seems like playing with fire
- Reuters report says Putin rejected Ukraine peace deal from aide - happened as soon as war started
- Offer came only after invasion started
- Not only did it happen too late but it also didn’t come from the Americans
- Russian position on this - they gave ultimatum in December 2021 - they wanted written guarantee from Washington
- UN thinks that 345M people are at risk of starvation - so food crisis is real
- Corn is at record high prices
- Famine definition in UN is <1200 cal/day for a year
- We might be retracing our way all the way back 30 years to hunger crisis
- 10s - 100s of millions of people will starve
- If Putin can’t suffer loss of this war we can’t push him into a corner and not give him an off-ramp
- US needs to be thinking of “what is in our interest” - identifying so much with Ukrainians that losing sight of American interests
- If America is risking war with nuclear powered state there better be a vital interest at stake
- Rates will go 4.5-5% - Stan Druckenmiller is right - everyone who said inflation was transitory are wrong
- High rates will stay longer than people think - impact into 2024-2025 will not be great
- Putin has used 3rd parties and spartan troops in central Russia so its obscuring impact on main Russian population, else risk wrath of Russian mothers who are very well organized - so he is quite good at managing perception inside Russia - so war can go on for much longer than people think
- Sacks premiering new film on Salvador Dali with promotion from OpenAI GPT-3 DALL-E 🙂
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