Metadata
- Author: Benn Stancil
- Full Title:: The Whole Scheme
- Category:: 🗞️Articles
- Document Tags:: Startups,
- Finished date:: 2023-12-23
Highlights
This is not how anyone thinks about startup equity. Nobody—neither employees nor the early-stage VCs who invest in startups—value a startup’s equity by estimating the future dividends that the startup will pay its shareholders and plugging a bunch of numbers into a Black-Scholes model; they value the equity by guessing how much someone else will pay for it in the future. Their return isn’t funded by the operations of the business; it’s funded by a future investor. (View Highlight)
If I had to guess, that’s what this deal is all about: Insight and Clearlake saw a $900 million annual revenue stream that they can buy at a relative discount. Slash sales and marketing spend,⁷ flip the annual loss into a profit, and bank the cash for as long as Alteryx’s sticky and slow-moving enterprise customer base holds up. If the business takes off, great; Alteryx could be spun out or sold at a higher price than they paid for it. And if the business stagnates, that’s fine, so long as it’s still making money. For capital allocators, that’s their whole scheme. (View Highlight)
Here’s another, more general way to interpret the Alteryx deal: The Silicon Valley scheme is getting harder to run. Alteryx has 8,300 customers, makes $900 million a year, and is growing at twenty percent a year. In this market—of higher interest rates, and governed by more aggressive anti-trust regulation—a company with those performance metrics is valuable because of the cash it can make, and not because of what it might eventually be worth. (View Highlight)