Earlier this month Sam Altman lost the US$100k “Bubble Talk” bet made in 2015. On the other side of the bet was Michael de la Maza and monitoring the results was Danielle Morrill. While he may have lost the bet as a whole he did correctly predict two of the three criteria and missed the third by a factor of 15-20%. The spirit of the bet was to call out the 2015 news cycle in which a percentage of investors and journalists would seek to frame the environment as a “bubble”. What better way to call out a misalignment in incentives between the parties holding the microphone than skin in the game and a good ole fashion wager.
Sam rightfully pointed out in 2015:
The three propositions that had to be correct on January 1 2020:
The top 6 US Companies - Palantir, Airbnb, Dropbox, Pinterest and SpaceX worth just over $100B in 2015 will be worth at least $200B in aggregate on January 2020. FYI I am leaving out Snapchat because I couldn’t get verification of its valuation.
The group of companies as of 2020 is $30-40B less than the $200B.
Uber = $50.73B Market Cap on January 1 , 2020
Pinterest = $10.41B Market Cap on January 1, 2020
Dropbox = $7.44B Market Cap on January 1, 2020
SpaceX = $33.3B private valuation as of May 31, 2019
Palantir = $20-30B private valuation as of September 2019
Airbnb = $35B private valuation as of March 2019
Contributing factors include;
Mid-stage YC companies - Stripe, Zenefits, Instacart, Mixpanel, Teespring, Optimizely, Coinbase, Docker, and Weebly worth less than $9B in aggregate in 2015 will be worth at least $27B in aggregate
Stripe alone is valued at $35B as of September 2019
The current YC Winter 2015 batch—currently worth something that rounds down to $0—will be worth at least $3B on January 1 2020.
GitLab* = $2.75B private valuation as of September 2019
Razorpay = $450M private valuation as of June 2019
Atomwise = $150M private valuation as of March 2018
Chariot = acquired by Ford for $65M
Note: Acquisitions at any point between now and the decision date are counted as their acquisition value. Private companies are valued as of their last round that sold stock with at most a 1x liquidation preference or last secondary transaction of at least $100MM of stock. Public companies are valued by their market capitalisation.
The crux of the bet was the hyper-rationalisation of a rapid increase in valuations and revenue multiples, and comparing it to the 1999 correction. This does not take into account the reality of present day factors including:
The aforementioned points of difference are no more true than in SEA.
While the aggregate Total Available Market (TAM)of SEA may seem large, each market also has a level of friction that stands in the way of the style of monopolisation that we have seen in the previous decade.
A friction that is compounded by the current geopolitical environment which seeks to inhibit the disproportionate aggregation of the high growth service verticals that resemble search and social media.
Source: IMF October 2019 Data
The Compound Annual Growth Rate (CAGR) for the SEA internet economy is lifting disproportionately to early-stage investment with notable friction to globalisation. It stands to reason that we will not only see the Lyft style ceding of $12.9B from Uber (or Grab’s purchase of Uber’s SEA operations 2018), but increased M&A activity from domestic incumbents and a new generation of domestic listings as the retail investor market reaches new levels over the mid to long term.
A number of these markets continue to have a shortage of venture activity and terms for early stage funding-only investments which at times do not match best practice. (Outline in a recent post titled Dear Angel Investor). Some investors have been moving to the later rounds, which exacerbates opportunistic terms at earlier fundraising rounds where select investors have better the ability to source deals. The aforementioned provides an opportunity for those capable of relatively effective diligence and sourcing in nascent geographies, preserving effective governance and cap tables for the growth capital participants.
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