Activant's Greene Street Observer No.3

Founders, Partners, and Friends

What if things won’t be as bad as we think? If someone told you SVB was going to collapse, and a few weeks later the S&P 500 was going to be down 15%, down 5%, or up 5%, I don’t think anyone would pick the up 5% option, yet here we are.

It is much easier to be a pessimist in this market, and in the short term perhaps that is correct, at least in the technology market. To get a better sense, we reviewed data from the peak of 2000 versus the peak of 2021.

By late 2021, there were a few companies trading over 100x revenue, like Snowflake and Bill.com, and a large number trading over 50x revenue, like Atlassian, Asana, CrowdStrike, SentinelOne, Monday.com, Doximity, and many others.

How does that compare to internet comps from early 2000? In terms of multiples of revenue, eBay was around 100x, Yahoo at 65x, and Healtheon, Priceline, Inktomi, and VerticalNet all traded ~40x. Astonishingly, the best cohort of companies back then traded at a lower multiple of revenue verses the SaaS comps of late 2021.

In the private market, 2021 surpassed any peak, on any metric (except number of IPOs if you exclude SPACs), of comparable metrics of late 1999 and early 2000. If the peak of the Dot-com period was surpassed by the high of ’21, what does that portend? During the Dot-com bust, after the wind was out of the sails by 2001, the private technology market didn’t really recover until late 2004.

There is clearly more pain coming in the private markets, as the excess capital needs to be flushed out – particularly for companies that raised money at excessive valuations of 2020-2021. Stripe just raised money at about 50% down from its last round. If Stripe is considered a harbinger of technology, then why isn’t everyone’s portfolio down 50% across the board? There is more at play here.

Whatever your outlook, the slowdown in the market is like a forest fire – a bit painful at the time but allows for growth in the future. The companies that grow out of the ashes of this environment – with strong DNA, that respect capital, and know their costs – will be better off in the long run.

Steve Sarracino, Founder & Partner

We’re excited to debut a dedicated home for Activant Research. The new site showcases our reports in more detail than ever before, with enhanced formatting, data callouts, PDF downloads, and more. All to make it easier to digest our research on the most exciting sectors in commerce today.

New Report: Internal Tooling

Our latest report from Jono Vickery and Rebecca Rodseth focuses on internal tooling. In today’s market, we think this sector is poised to take off, as everyone - engineering teams included - have to do more with less.

New Perspective: Derivative Risk

In March 2000, Cisco's market cap was over $1 trillion, adjusted for inflation. They were on top.

But as the dot com bubble burst, and many of their startup customers cut back or went under, revenue declined 20% the following year, putting their market cap at $151 billion - it was described as "a dazed prizefighter."

Why was Cisco hit so hard, so fast? Derivative risk. When a large portion of a startup's customers are also startups and the macro market tightens, between 30-60% of revenue is at risk of being cut back or altogether.

Our founder and partner Steve sees derivative risk as the biggest risk to today’s VC-backed startups. Read his full thoughts at the link:

Stay tuned for a Steve’s upcoming thoughts on why SaaS might be headed into a storm - and what lessons today’s software leaders can take from yesterday’s business models.

• On Monday 20th, we hosted twenty amazing fintech founders and leaders for a dinner in Las Vegas on the occasion of the Fintech Meetup conference.

• A week later in Vegas, we hosted Commerce Cocktails for Shoptalk.

• And on Sunday the 26th, Juliette and Andrew joined a panel at the Harvard Undergraduate Venture Capital Group 2023 Summit in Boston.

Stay tuned for info on some upcoming events in our Soho office!

Portfolio News

1. 98point6 reached an agreement with Transcarent, a consumer healthcare company, for Transcarent to acquire 98point6’s physician group and self-insured employer business. 98point6 will become 98point6 Technologies and focus on scaling their B2B business, empowering health and hospital systems across the country with cutting-edge digital primary care.

2. Simbe Robotics announced a partnership with BJ’s Wholesale Club, a leading operating of membership warehouse clubs, to deploy Simbe’s Tally inventory scanning robot chainwide, to all 237 BJ’s locations.

3. Maju Kuruvilla, CEO of Bolt, was on the Bloomberg Businessweek podcast to share his perspective on the consumer spending landscape and how Bolt is helping retailers supercharge their customer experience. [Timestamp: 20:30]

4. Activant advisor Scott Galloway covered Better’s new partnership with Amazon to allow employees to use restricted stock units as collateral against a Better mortgage on his ProfG podcast.

Activant is a global investment firm that partners with high-growth companies that are transforming the way the world makes, moves, and sells.

Founded in 2015, Activant has invested in category-defining companies like Deliverr (acquired by Shopify), Hybris (acquired by SAP), Bolt, Better, Celonis, Sardine, and many more.

The firm has $1.5B assets under management, and is headquartered in Greenwich, CT with offices in New York City, Berlin, and Cape Town.

The Greene Street Observer is published monthly from Activant’s office on Greene Street in New York City.