Layoffs at Spotify

Spotify became the latest large technology company to annouce layoffs (about 6 % of ca 9,800 employees). The percentage size of layoffs is in the same range as Microsoft/Alphabet, but a bit lower than the ca 10 % layoffs done by other billion dollar revenue companies that have low profitability or are unprofitable (e.g. Saleforce, Twilio etc).

At this point it is still not clear how many of the layoffs will hit Stockholm. Given Spotify’s size in Stockholm, significant layoffs will likely impact the startup ecosystem (exactly how is to be seen, I can see both positive and neutral scenarios).

A slowly Acquired taste

The brilliance in the Internet’s enabling of niche content to become global due to low cost distribution and large platforms like YouTube, Spotify (in addition to the good old web) has is disruptive.

Lately I’ve been listening more to such a niche type of content, the show Acquired, which focuses on the stories behind startups, technology companies and venture. I’ve known about Acquired for a few years and been listening to individual episodes, but it seems like it is moving up in my priority inbox due to strong content and the understanding the hosts Ben and David have.

It is a long-style podcast (one or multiple episodes of more than an hour) that is widely popular.

An interesting aspect of digital content consumption is the barbel shape of its most popular content: on one side TikTok/Reels/Shorts that are very short (a brilliant format) and on the other hourlong, niche, detailed content (also a brilliant format).

Lower costs and lower revenue – problem not (yet) solved at Twitter

An interesting article about Elon Musk’s takeover of Twitter, based on interviews with Twitter insiders. According to CNBC the number of Twitter employees is now about 1,300, down from about 7,500 before the acquisition. Elon Musk says it is about 2,300 (both numbers exclude contractors, of which there are many not least moderation/support).

Other reports say Twitter has lost 40 % of its revenue compared to the same period in 2021.

I’m following the development primarily looking for learnings about two things.

Is there a general learning about a better trade-off staffing/revenue growth/profitability for consumer Internet companies with revenues from a billion dollars up to 20 billion dollars? I’m not sure, but it definitely could be one with less staff/slightly lower revenue growth/higher profit margins.

Will Twitter’s approach work for Twitter? On the cost cutting/layoffs side it seems to work from the point-of-view that the service is operating day-to-day. But the way layoffs has been done at Twitter seems to be a major reason to why advertisers are not spending as much. With the service operating at the same scale in terms of users, a 40 % drop in revenue should not happen at Twitter’s scale.

So while lower run-rate costs is a good thing, it looks like it would have been better business to implement the cost cuts in way that didn’t scare advertisers.

Layoffs for focus and higher profitability

Alphabet became the latest of the major technology companies to announce layoffs of ca 12,000 employees (or about 6 % of total staff). This followed Microsoft’s announcement of cuts of 10,000 employees earlier this week.

The situation of the very profitable technology majors are very different from the situations of unprofitable startups and scaleups doing cuts of 20-30 %.

It is not about getting to profitability, but increasing profit margins and optimizing how capital and talent are used in very large companies (100,000+ employees each). The goal is increased share valuation (for external shareholders and employees via restricted stock units programs), not securing corporate survival in the short-term.

Angry Shareholders?

The fact that there seem to be more acquisition offers of publicly traded tech/gaming stocks than IPOs in the Nordics is definitely saying something about the current sentiment. Playtika giving an indicative, non-binding offer to acquire Angry Birds-maker Rovio of €9.05 per share is a sign of this.

I have no opinion on if that is a fair offer, but I am reminded that often the devil is in the details.

According to Rovio’s board the indicative and non-binding part of the offer includes the following conditions:

“The Indicative Proposal that contemplates the making of a cash tender offer by Playtika is subject to a number of pre-conditions including, but not limited to, satisfactory completion of due diligence, final approval from Playtika’s Board of Directors, a unanimous and unqualified recommendation from the Board of Rovio as well as negotiation and entry into a combination agreement between Rovio and Playtika. Completion of any such cash tender offer would pursuant to the Indicative Proposal be subject to further conditions, including, but not limited to, approval by Rovio shareholders holding at least 90% of the shares of Rovio, and receipt of all necessary regulatory approvals.”

In short, Playtika can withdraw the offer for a bunch of reasons and unless the major shareholders of Rovio (the Hed family) really wants to sell, the current offer is not worth the pixels it was written on.

Trying to be a true partner

There are many ways to invest in private companies. Early-stage venture capital is one way to do it (and the best way for a very specific type of companies). But even within early-stage venture capital there are different approaches. At Alliance VC we have our point of view on how it is best done. We believe a partner-centric approach is the best way both for founders and investors and have expanded our thoughts on how to approach being a true partner in this Medium post.

Long-term profitability is not always seen in the short-term

Stockholm-based mobile games developer/publisher MAG Interactive released its financial results for its Q1 2023 today. The company had 97 million SEK in revenue for Q1 (which is a little less than €40 million per year).

Based on improvements in three key titles (Wordzee, QuizDuel and Tile Mansion), the company increased its marketing spend with 252 % year-over-year to 51.1 million SEK. This hurts the income statement in Q1 (going from profit to loss), but should lead to higher revenue in coming quarters as there are more users to monetize via in-app purchases and advertising.

It’s a classic lifetime value/customer acquisition cost strategy. The “problem” with such a strategy from an accounting point of view is that if things go really well and you are able to increase marketing spend significantly quarter-by-quarter (even as you keep a good LTV/CAC ratio), it is a challenge to be profitable. The reason being that revenue will be recognized over multiple quarters and years (the lifetime), while the costs are taken in the quarter the users are acquired.

Sometimes change takes time – online grocery edition

Consumer behavior changes slowly. According to Svensk Dagligvaruhandel (reported by Breakit, in Swedish) online sales of groceries dropped 20 % last year in Sweden. That obviously seems like a people “changing back” behavior as the covid pandemic ended.

But as interesting is that only 4.5 % of total grocery sales in Sweden were online, especially as other sectors (media including streaming and games in particular) have gone online and/or digital to very high degrees. The quote about the unevenly, even after 20+ years of widely available Internet, distributed future seems very relevant.

The pitch deck

As a venture investor, and previously as a CEO raising capital, the pitch deck is a central document to learn about a startup. Often it is the first introduction to a company, so saying it is important is to understate it.

The advice from venture capitalists on the content and structure of a good deck is quite similar and have been for a long time. See Inventure, Sequoia, Creandum and Local Globe.

Instead of reformulating all of this solid advice, I’d add some thoughts.

  • My personal preference is when the deck tells the reader on slide 1 or 2 what round/how much the company is raising. This helps me to evaluate the rest of the deck (which is different if you’re raising a pre-seed or Series A, don’t wait until the last slide to give the reader this information).
  • The team slide should go early, probably the first content slide, at pre-seed and seed. There’s no startup to invest in without the founders at those stages. And for a meeting it fits the normal flow of introducing yourself.
  • If you have traction, show it no later than slide 4 or 5. Especially in a deck you share to get a meeting. Traction says “this is working”, and that is an attention-grabber.
  • Keeping the deck short (12 slides) is a good way to keep it simple. Adding more slides often leads to more complexity, not more understanding. Once you have a meeting, have additional supporting slides in an appendix.
  • Even if you’re sharing via Docusend or Pitch, always provide a downloadable PDF option. It makes it easier for investors to share internally and move forward with a decision. It also makes it easier to invest in lines and not dots. Watermark the presentation if you’re concerned the investor will share the deck externally.

Activity is good, but not enough

Sifted lists the ten most active accelerators/early-stage investors in Europe in 2022. While activity is a good thing, there is a big difference between an active, high conviction early-stage investor and an accelerator/high volume-lower activity investor. Especially at seed stage.

A seed-stage startup is often best served by a combination of 1-2 more active investors and a handful of smaller angel investors. A large of cap table where no-one has real skin in the game is not the ideal situation.