Month: July 2023

Software business aren’t bad businesses, but many are run in a way that makes it difficult to decided their quality at first glance.

There is a trade-off between growing while making a loss (by investing in product development and sales & marketing) and getting high margins at lower growth (by increasing sales and marketing spend less aggressively and not investing as much in product development).

For ten years or so up until Q4’21 revenue growth was valued ahead of profitability. In addition to product and sales investments that made companies loss-making from an accounting point-of-view, inefficiency (like high G&A costs, very high stock-based compensation) and too many marginal projects with low expected returns snuck into companies. Inefficiency and marginal, low return projects should be minimized even in ‘growth mode’.

Going forward it makes a lot of sense to be more efficient in general and do fewer marginal projects. At the same time startups should continue investing in core product development and building strong sales & marketing teams. Investing in sales and marketing is something Nordic B2B SaaS startups specifically should invest relatively more in, even if it is a short-term cost.

Paul Graham: How to Do Great Work. Long article, by one of the founders of Y Combinator, on approach to do great work across different fields.

Redpoint has released The InfraRed Report: The State of Cloud Infrastructure with a focus on startups and public companies in DevOps & Developer Tools, Cybersecurity and Data & AI.

Eyeopening that cloud despite its fast growth to ca $450 billion in annual spend is just about 60% of annual on-prem spend.

Meta has released Llama 2, the new version of their open source large language model, including model weights and is free for research and commercial use.

It is no secret that Meta is investing heavily in AI, but I always find it interesting when a large company make a technology open source. It can be due to the goodness of their heart, but often it is to change the competitive situation by making the technology a commodity and weaken competitors.

Twitter has gotten a lot of criticism for worsening quality after the Elon Musk acquisition. That has not been my experience. The product experience is pretty much the same as previously, in the best of ways. A continuous flow of tweets that give an information flow from relevant people that I cannot replicate in any other social media.

A good point by Charles Hudson and one of the reasons why being able to “take pain” is so valuable as a founder. ”If you are a founder leading a company, you will encounter many situations where you have to deal with circumstances that are not your fault – you didn’t cause them, but they will impact your company and hence are your problem. They will block you from making progress if you don’t solve them.”

It’s quite amazing that Twitter’s advertising sales is apparently down ca 50 % since Elon Musk acquired the company. I didn’t think that was possible, unless you were trying to lose sales. To me the drop seems to be the result of cuts (and the way they were done) that hurt the company’s brand and trust with advertisers.

Norwegian technology company Kahoot! is going private. Goldman Sachs Asset Management, Lego Group-affiliated companies, General Atlantic (a current shareholder), and management are among the parties in the buyout.

The price is $1.7 billion for a company that did $41 million in revenue (+14% year-over-year) and $11 million in EBITDA in Q2’23.

That is about 10 P/S and 38 P/EBITDA. Seems like a fair price for other shareholders (it was a 53% premium to its stock price).

Dragos Novac‘s Sunday CET newsletter asked the question: is Europe a first tier market?

Scroll down to the Observations section for a longer piece on Threads vs Twitter and Europe as a continent not needed to build an Internet scale service (or rather a geography to launch in once you’ve got traction in the US and most other places ex-China).

“As Facebook showed this week, the EU is such an ‘innovative environment’ that dudes actually shipping interesting global products will rather make them unavailable by default to European consumers, or at best left at the bottom of the todo list. That’s because the EU market has become expensive and increasingly a pain in the ass to deal with – why allocate overheads for personalisation and spend $$ to comply to politics-driven rules when you can get to scale size without Europe, as Threads just did this week? This ‘Europe last, maybe never’ kind of product launch is a trend started by Google with Bard a few months ago, and likely to continue because of the risk of the EU hunting you down, while being available to Euro markets is expensive to begin with anyways. And a ‘first tier market’ such as Europe ends up as the last to adopt new tech, right?”

While Bard has now launched in Europe, this is a very good example of why regulation need to be smart and specific to not lead to economic welfare losses.

I’m getting push notifications that a bunch of large technology companies, outside the ‘Magnificent Seven’, are trading at their highest stock prices in a year’s time.

I think that is a good sign for startups and venture capital as that sends a strong signal where the new valuations after the Covid boom are. It will also likely make public companies more willing to start doing M&A again, as the shares are not ‘undervalued’.