Contrary Research Rundown #82
The rise and fall of tech valuations, plus new memos on Mistral, LaunchDarkly, and more
On May 22nd, we're hosting our next Tech Talk with Ramp, Hex, Sourcegraph, Semgrep, Onehouse, and Weaviate in San Francisco. The evening will feature eng demos and conversations with senior leaders from the featured companies, followed by food and drinks. Register for the chance to join!
Research Rundown
Warren Buffett is famous for quoting his long-time mentor, Ben Graham, as saying, "In the short run, the market is a voting machine but in the long run it is a weighing machine.” In other words? In the short term, a company’s value can be determined by hype. In the long term, a company’s value is determined by business fundamentals. The same is true of startup valuations.
Often, private company valuations can represent a pulse on different hype cycles. During COVID, Hopin demonstrated a remarkable rise and fall that followed lockdown-induced commitment to virtual events, and their disappearance as soon as quarantine restrictions were lifted. From a high of $7.7 billion to a low of being bought by RingCentral for ~$15 million in cash.
Valuation reckoning has come for any number of businesses as many have struggled to live up to the 2020/2021 hype. Whether its public companies, like Robinhood, Uipath, or Twilio that saw their valuations fall from a high of $58 billion, $44 billion, and $70 billion respectively to market caps today of $11 billion, $14 billion, and $13 billion. And don’t even get started going down the rabbit hole on SPAC performance from that period. Then you have companies like Lacework, who, after having previously raised $1.9 billion in total funding, most recently at a valuation of $8.3 billion, but is now reportedly in talks to be acquired by competitor Wiz for “just $150 million to $200 million.”
Some would say these are macro trends, and every company is suffering if it isn’t within the bright hype spotlight of AI. But then you see examples like Ramp, or Rippling. Ramp, after raising at a 28% down round in August 2023, the company recently raised another round at $7.65 billion, nearly to its previous high. Rippling is reportedly in talks to raise $200 million in funding at a $13.5 billion valuation, up from $11.5 billion last year. Not every company is suffering when it comes to valuation.
Despite the high watermarks, its important to emphasize that no company is out of the woods just because they raise at a high valuation. Take Rippling, and the broader HR space as an example. With Rippling’s $13.5 billion valuation and Gusto’s last mark at $9.5 billion, there’s no shortage of highly valued companies in the space. Everyone is chasing the 900-pound gorilla in the space; ADP at ~$100 billion market cap.
While companies like Rippling and Gusto reportedly generated revenue of $350 million and $500 million respectively in 2023 or so, a similar company like Paylocity is valued at a market cap of $8.9 billion while generating $1.3 billion in 2023 revenue. Granted, Paylocity is growing ~30% year-over-year, while Rippling and Gusto are likely growing much faster, and pitching much bigger potential visions.
But the question remains for every company; in the long run, as the market becomes a weighing machine, will the company’s fundamentals and product expansion and market penetration be enough to justify the previous valuations they’ve raised at? Or will they fail to measure up?
Mistral AI develops open-source foundation models. The company also focuses on developing more efficient and cost-effective models, targeting the “performance-cost frontier.” To learn more, read our full memo here and check out some open roles below:
Solution Architect - Remote USA
Backend developer - Hybrid Paris/London
Applied Intuition offers a platform enabling clients to design, test, and validate their autonomous systems in a virtual environment before testing on the road. To learn more, read our full memo here and check out some open roles below:
Product Designer - Mountain View, CA
Application Software Engineer - Detroit, Michigan
LaunchDarkly provides a feature management platform designed to de-risk software releases, ensure targeted experiences, facilitate product experimentation, and optimize mobile releases. To learn more, read our full memo here and check out some open roles below:
Platform Engineer - Remote, US
Product Design Group Lead - Oakland, CA
Check out some standout roles from this week.
Snorkel | Hybrid/Redwood City, CA - Software Engineer - AI/ML Systems, Senior Software Engineer - Developer Experience
Method | Austin, TX, Washington D.C., New York, NY - Head of Customer Success, Full Stack Engineer, Software Engineer, Data, Product Manager
Zach Perret, the co-founder and CEO of Plaid, spoke in an interview about how the company originally built a consumer facing product before realizing the infrastructure they built for themselves was the much better product.
The founder of Telegram, Pavel Durov, shared in an interview that the company had grown to 1 billion users, 30 full-time employees, and has only one owner, having never raised capital other than issuing bonds.
Microsoft is reportedly making strides to dramatically ramp up data-center capacity, effectively doubling, and then quickly tripling.
Ate-a-Pie, a self-described “self aware neuron” outlined a thread explaining how to compare the cost of training models like GPT-4 and the subsequent revenue that can drive. Basically, if model performance can consistently drive massive revenue gains, the costs (no matter how large) could very well be worth it.
Nubank is reportedly considering becoming a cellular operator in Brazil. Given the number of users who are mobile-first, the move is likely an example of vertical integration to deepen the relationship with users.
Figma announced an expansion to its Dev Mode product that allows users to deliver component code directly to Dev Mode from your libraries using Code Connect. Figma CEO, Dylan Field, described this as potentially “one of the most meaningful announcements we’ve shared at Figma.”
After discussing Tome in last week’s Research Rundown, the company has now announced a 20% layoff, as the company refocuses to serve its product to enterprise customers.
Boom Supersonic recently announced the company had received “the first-ever Special Flight Authorization to Exceed Mach 1 from the FAA.”
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