One of the “early” assessments of the current absurdity of valuations came from the legendary Scoot Galloway. He was challenged (and attacked) for his brutal & honest opinion for his first post labelled WeWTF. But fast forward, most of his predictions became reality:
- In the next 30 days, a series of explosive investigative journalism pieces will document breathtaking malfeasance at We. (Note: Reality)
- In the next 60 days, a state attorney general, SEC, or other regulatory body will launch a formal investigations into We. (Note: Currently in progress)
- Over the next 12 months, SoftBank’s Vision Fund will be shuttered. (Note: in the making. Read Most of SoftBank’s Vision Fund Unicorns will be Flops)
This new mantra started to swap over to start up hubs in Europe (with discussions on “path to profitability” at board meetings in Berlin & London) and it is only a matter of time when it arrives in Southeast Asia (SEA). Talking about SEA:
Personally, I like the platform and got some of my best deals (e.g. Triathlon bike or Golf bag) via the platform. In addition, I think the founders have done an excellent job in building the company across multiple markets – and they have done a really good job in fundraising. But I was surprised that they have not implemented a scalable monetisation model (such a small % on each transaction) already years ago. Instead they went for the holy death of any internet company: reach-based ad-model with untargeted display ads. Ouch.
The argument that it can be a Facebook-style targeting approach is slightly misleading as Facebook got 100x the engineers to make these ads personal and – even more importantly – they have 100x the data points to profile their user and thus personalise their ads. The reality-test: compare the listings on both platforms with the corresponding ads to judge for yourself.
Don’t get me wrong: it is a massive achievement to generate $7MM in revenue. And it is a massive milestone for any entrepreneur that should be celebrated. But a U$550MM valuation on $7MM of revenue and $25MM of loss? So a 78.5x multiple on the revenue of last year? What?!
- There is a delusion of growth capital: it is about frugality and capital efficiency. This means start ups will have to watch unit economics and then scale their business. Not the other way round
- Spending fast to grow fast is no longer feasible
- This is going to be a healthy correction for the tech industry
Personally, I am still heavily invested in tech and will continue to invest in promising early-stage start ups. But I am mindful that a correction will have to take place – even for my existing tech portfolio. As hard as it will feel in the short term, it will help the ecosystem to focus on the right thing in the long-term: building and scaling sustainable or self-sustaining companies. Companies that have a reasonable valuation based on business fundamentals and not as Adam Neumann (now ousted Founder/CEO of We) said in 2017: “Our valuation and size today are much more based on our energy and spirituality than it is on a multiple of revenue.” Amen.
I guess by now we all know how this ended for Adam Neumann and We: A slight correction of the previously $47b valuation or as Business Insider titled it “How WeWork spiraled from a $47 billion valuation to talk of bankruptcy in just 6 weeks“.
Disclaimer: This article is presenting an opinion about the current sentiment in the VC scene in Southeast Asia. This article is partially talking about carousell as an example as there is enough information publicly available for this company. I have a former loose business connection in the sense that I invested in a company (Duriana) which got acquired by carousell back in 2017.