#7 – The “Silicon Valley bubble” bursts, why that is good news, and the IPO landscape in hardware vs. software and enterprise vs. consumer

We launch into why 100 Bn in value just evaporated from “Silicon Valley” and why that is a good thing for private companies and investors going forward. We discuss the rationality of public markets and go into the IPO landscape... B2B vs B2C, as well as hardware vs software. We analyse direct listings and why that may (or may not) matter. Finally, we discuss secret teams at Apple, the controversy around its Activation Lock and Amazon steadily making their role noticed in the Tablet market. Navigation: Silicon Valley bubble bursts? (02:18) Hardware IPOs continue to struggle, but public performance is not always bad (11:53) B2B vs. B2C IPOs (22:49) Direct listings (28:33) Apple’s (not so) secret satellite team (37:32) iFixit controversy (43:17) State of the Tablet market (47:20) Resources: WSJ, Silicon Valley adjusts to new reality as $100B evaporates - https://on.wsj.com/2TRGKYD Top Tier, B2B vs B2C IPOs - http://bit.ly/2INnoxz Tech Crunch, Hardware IPOs continue to struggle - https://tcrn.ch/2IQXZmJ CNBC, NYSE proposes allowing companies to raise fresh capital in direct listings - https://cnb.cx/39TjMWx Bloomberg, Apple Has Secret Team Working on Satellites to Beam Data to Devices - https://bloom.bg/39VjVsy Walt Mossberg, Apple has added the infamous "Activation Lock" to Macs, and it's going to cause tons of perfectly good laptops to go to waste -  http://bit.ly/2wYuGMe iFixit, Apple’s Activation Lock Will Make It Very Difficult to Refurbish Macs - http://bit.ly/33mrCWr Business Wire, Strategy Analytics: Prime Day and Alexa Catapult Amazon to #2 Tablet Spot Globally - https://bwnews.pr/38U1Nyb Our co-hosts: Bertrand Schmitt, Tech Entrepreneur, co-founder and Chairman at App Annie, @bschmitt Nuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedro  Our show:   Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news. Subscribe To Our Podcast Full transcription: may contain unintentionally confusing, inaccurate and/or amusing transcription errors Nuno: Episode 7.  In this episode, we're gonna discuss news around IPOs, initial public offerings, or exits, as we like to call them. We will be talking about , the de-mystification of venture capital and startups. And finally, we'll end up with some gadget news. Bertrand: Excellent Nuno, thank you.  Let's start with IPOs and as you say, sometimes we talk about IPOs and we equate that with exit. I think that might be actually  dangerous to think too much as an exit, at least from an entrepreneur perspective. Yes, from a VC perspective, but from an entrepreneur perspective, it's often a stepping stone, to getting bigger and getting, maybe out of your teenage years, but definitely an exciting time when it happens. Nuno: Correct. And you get to ring bells and do all sorts of funny things that are interesting.  Silicon Valley bubble bursts? (02:18) That said, sometimes reality sets in, which brings us to the first article today, which is the article on Silicon Valley, adjusting to the new reality as a $ 100 Billion evaporates, the Wall Street journal article. This article goes into quite a lot of detail on the significant haircuts that have happened with companies that have IPOed in the last few years. So companies that have lost a lot of value from their initial public offering price,  and also companies that almost IPOed and manage not to IPO and had significant hair cuts in their private market caps, with the case of WeWork being obviously, probably the most discussed one. Bertrand: Exactly. I think today in this article, actually the most value lost has been by private companies moving from one private round to another private round instead of an IPO per se. Nuno: And the interesting thing for me is that public markets, have been incredibly rational. So the question that I'm often asked are we in a bubble? I always say we're not in a real bubble in the sense of what happened around 2000, because public markets, unlike in the late nineties, public markets have been incredibly rational in their valuation of companies. And that justifies a lot of the haircuts we're seeing. It justifies that we've had some failed IPOs companies that really didn't manage to underwrite their IPO, because of that. So for me, public markets have come to the rescue and they are now, effectively pushing back on a lot of the late stage private market valuations, which were, let's say, rather silly. Bertrand: Yes, and they have been coming to the rescue and at the same time there's a question, is that usually 10, 20 years ago companies will have gone public much sooner in the life of the business, and here now, you could argue companies are going public much later, in the life of their business. So you could argue public markets now have way better tools and ways to analyze a business, because businesses going public are much more mature businesses. So there is less of a bet on the business than before. The bet is not just early on fully done by the private market as always, but even later on, at later stage it's still being done by the private markets. And in a way, public markets are not playing that part of the game anymore. They are just accepting companies when they are very mature, very predictable. And as a result, if it doesn't look like that, not predictable enough, not exciting enough, then I think it's an easier say for the market to give an opinion. Nuno: Yes. And there's this interesting chart at the end of this article that talks about the difference the haircut, on IPO value, versus the valuation of last round of venture capital. And we've had some really significant haircuts, companies like Cloudera, Blue Apron, Dropbox, Domo, Pinterest, and obviously companies that have stayed and remained private, like WeWork and Juul Labs, which have been very, very significantly pushed in terms of their valuation. Bertrand: And I guess for Juul Labs, given what's happening, it's probably even optimistic, that " only" 14 billion lost in market cap, I think their business model is fully truly at risk, all of it. Nuno: And the new federal law, I believe, announced that basically demands that you can only sell these products to 21 year olds or older. Bertrand: Yes. And they also restrict what type of flavors, should be made available. So there are a lot more restriction. But I think this graph doesn't share the full story. Because if I take a "Blue Apron" for instance, yes, there is some haircut between last round and IPO, but not by much actually, but you could argue this one end up being a big bad story in the public market. Moving from a $ Billion plus initial market cap, maybe even $2 Billion, to less than $100 million today of market cap. So even as we just said, we talk about public market being mature, realistic, the initial reception to Blue Apron was actually, I would say pretty good. But what happens, the following quarters was definitely a disaster. So you could argue Blue Apron really went public too soon. Their business model was still not clear enough, not valid enough. Nuno: And although the two of us, we're not experts in public markets, but obviously we understand the notion of underwriting. And so the propping up of the value when the company actually IPOes is sometimes linked to the institutional investors that are underwriting, or there are behind basically the company going public, unless there's a direct listing, we'll come back to that in a second. So in some ways, the propping up of value doesn't immediately go away when the company becomes public, because there are retail investors that are coming on to that round effectively. That's the last round, effectively. And that signal in the market stays there for a few days, we've seen. So it's very customary that you'd do an analysis beyond the first five days of the company being public, one month out, after the first release of earnings, as a public company and a few other options down the road. So in some ways, the market doesn't immediately adjust. Bertrand: Yes. And actually it goes even to the first six months. Because usually you have a lockup, for the first six months of post IPO, of shares, meaning insiders cannot sell their shares during the first six months, at least not in a traditional IPO process. So, that's also another thing that's happening. So it means that usually, the first six months are an early indicator, but nowhere near a clear indicator of what should be the true value of the company and how much supply and demand is truly there. Nuno: Yes. I think this is good. So I think it's good news that the public markets are being rational. I think it's great news that valuations are becoming, I would say, more realistic towards what companies are actually delivering in terms of profitability. the business model. That they're anchored around and how they make their money.  A little bit the case around WeWork is that a real estate company, or a tech company? I may think the market has spoken and has sort of said it is real estate, and therefore the multiples that which it trades need to be aligned with that market. So I think this is all great, and positive news. Bertrand: I agree. I think overall it's good.  It's not solving every problem, however. Because you still have probably in a way too much money now in the private markets. Because if the expectation was "easy IPO", a lot of money needed for a lot of private companies, and now we realize actually maybe not as much money is needed because the most crazy business models are "out" and now it's more about smarter growth, then what will happen? A lot of money chasing fewer deals, or a lot of money chasing as many deals,...