Dear all,
It’s great to be back from the summer break and to start this second part of the year with you.
I wanted to take a step back here and reflect on the first part of the year: so much has happened in both the Private Markets and Technology fields that we went through a whirlwind. Recent figures show the extent of the drop in late-stage and growth funding, and although the NASDAQ continues to show strong performance, keep in mind that companies out of the “Magnificent 7” are still strongly impacted from a valuation standpoint. On the other hand, money keeps pouring into the GenAI space.
I had the opportunity to attend a session on “Investing in The Technology of Tomorrow” at the Milken Institute Hamptons Dialogues, and it was great to confront perspectives with top minds across the VC to Buyout investment spaces. Here are my key takeaways so far this year:
The first change, which we frequently addressed here, is that brought by Macro, which has changed both the path to growth and to liquidity of most high-growth tech companies with the new imperative of “efficiency” and “profitability” as VC money has gradually dried up. Interestingly, all three companies who filed for IPOs last week – Arm, Instacart, and Klavyio – have hit the profitability milestone (See after for our S1 teardown of Klavyio). As these companies continue to grow and pursue disruption, finding the right path to liquidity for founders and investors appears critical, and we explore different routes in this month’s Medium article.
The second is the one brought by GenAI, which has radically changed the tech investing playbook in just a couple of months since ChatGPT was unveiled. There is a gold rush across the GenAI tech stack at the VC level, with still an unresolved question on the right choice for AI foundation models (open vs. closed, general vs. niche, etc.). For Private Equity investors, there is a massive opportunity (and challenge) to back those more traditional SaaS companies embedding GenAI at the heart of their tech stacks and creating the correct flywheel. A key point of attention is how this is changing the financial lecture of these models, with indicators such as the Rule of 40, which might quickly become obsolete (Stay tuned for our next article, on how GenAI is creating new assessment grids for SaaS companies).
But GenAI’s impact goes well beyond tech companies themselves, and my view here is that the profoundness of this impact on the broader economy is yet to be fully assessed. Per a recent Goldman Sachs study (see below), GenAI could cause labor productivity to rise 1% in the decade following widespread use. There is an open window here for established companies to take a (big) slice of the new GenAI-powered future. To reflect this change, we have chosen at the firm to embed GenAI resilience analysis in our work systematically. When performing Hybrid Growth Diligence, we will challenge the normativity of a company’s current and future profitability in light of this platform shift. We have already taken a similar approach to assessing Climate resilience.
More than ever, I am a fundamental optimist about what Tech can bring in the years to come, and I am genuinely excited to be able to take part in this massive transformation going on through building adequate frameworks of analysis and helping capital flow in truly resilient business models (which does not remove their inherent technological risk). The history of other inventions such as electricity, motor cars, and, more recently, the internet and the cloud suggest that GenAI will create new business models and transform existing ones to an extent that cannot be known today. And it is this uncertainty, and how we can help overcome it that is exciting.
On a more personal note, I am glad to have continued to build solid foundations for the firm in these times of adversity through building deep-sector and technical expertise across the field of Technology, and I will continue doing so in the coming months. I hope that our new website reflects this. Have a great read!