CEO Talks About How Crashing Public Company Valuations have Hurt Private Companies & Burn Rate

Closed Captioning:

good morning good afternoon good evening

folks michael zuber one rental at a time

back with his good friend and expert on

the channel dana from henlane how you

doing dana i’m great thanks for having

me again i i love your willingness to

give back and tackle a topic that

frankly a lot of ceos may not have been

willing to do right we obviously both

uri and the silicon valley we’ve been

around a long time

and um

you know winter is coming winter is here

in the silicon valley we have seen the

public markets hammer

hammer right we saw snowflake just

yesterday

beat earnings beat revenue give a a

weaker guide their stocks down like 15

after being down like 60 or whatever it

was so i’m assuming

pup you know public

public companies are

their daily marks for private companies

right hemlane is a private company you

obviously have investors uh i wonder

what is going on

in that are i’m guessing you’re feeling

it i’m i know you’re watching it but

what’s going on what’s the story yeah so

it it’s actually really interesting um

just to kind of back up there

one thing i hear is this whole debate of

you know hey are we in a recession yet

we haven’t officially hit that um

two quarters of a negative gdp but are

we in a recession and if you talk to

someone who’s not in silicon valley

they’re like not yet yeah and we’re here

where we are everyone’s like are you

kidding me yeah of course we’ve already

hit this even though

the actual numbers don’t define it yeah

and um

so

from what we’re seeing um and and

kind of what we’ve seen is it’s

primarily on valuation so if you go back

to michael you called it before anyone

else you had said

inflation is much higher

than even it was reported and this was

in the early days of just when inflation

started to rise

what happens is um the stock rates um

typically they go um in the opposite

direction as interest rates so interest

rates have to rise

to

encounter the high inflation rates and

so what we saw was um stocks starting to

get corrected

if you are um a valuation stock and what

i mean by that is it’s based on your

revenue right now and um uh your cash

and your on your balance sheet et cetera

you actually don’t get our hit as hard

the companies that get hit the most are

the public companies that are based on

growth future growth and potential

those are the ones that get hit the

hardest and so that’s why silicon valley

is feeling it the most because most of

these companies have these valuations

that in the public markets and then i’ll

talk about the private market in the

public market it’s like three x or sorry

30x arr is what we were seeing so in

other words their valuation was 30x of

what their annual recurring revenue is

so if you take your revenue now for this

month times it by 12 if you’re a

software company that was evaluation

and so what was happening was a public

market said nope interest rates are

rising

and so the companies that are going to

get hit the hardest and we’re going to

have to adjust are those um those growth

stocks and all those growth stocks are

all the silicon valley tech ones where

they don’t have that revenue it’s the

future promise of that revenue based on

the growth

and um so how is that affecting us um

let’s go back i mean let me just break

down this first one because i i think

the public market is

something all of us if we paid attention

to we could we could watch it right you

we know or at least with a very quick

research you could figure out which

cloud-based software companies

are valued at 30x arr annual rep

recurring revenue um

what is interesting is really as

interest rates went off went up what i

believe we saw was a quick recalculation

of risk we went from risk off to risk on

right there were some cloud unicorns who

were

100 times

arr

yeah that is stupid right there there’s

a podcast called the all-in podcast you

may or may not have heard of uh one of

their investors dave david

stokes stacks

anyways one of them that is a

cloud-based event like investor that’s

what he does always talks about arr and

all of this

and

he’s like uh guys

uh

basically about i think was about three

months ago he started talking about

public marks

reaching the private market and really

what he was telling his companies is

we’re telling our ceos

such as yourself folks go get your burn

rate in order go figure out what your

cash is go look at your burn rate if you

have to raise raise now because the

window’s closing

and if you missed it right that’s what

we’re seeing now right even public

companies like carvana

yeah right

a unicorn of all unicorns whacked they

had to reduce their burn rate because

it’s it’s raising more money is going to

be hard so uh i think what we went is

from risk off to risk on and if you’re

not making money like you’re losing

money every quarter and you’re you’re

paid for growth

but you don’t have enough cash or

reserves you go to zero right that’s how

the dot-com went bust you and i remember

that time frame yeah well and i i think

actually the david sacks one is a really

good point because about so when we

raised our round of funding which we

raised in october

uh

everyone great timing um all these

investors were asking what’s your

revenue growth that’s all they cared

about was

now

every single prop tax so founder in real

estate who goes out there what they hear

is what’s your word multiple

and that’s the only question they get

which is basically your net barn how

much you’re burning versus your growth

your net neutral

and they’re saying it’s not okay if

you’re if you’re growing

you know um uh 10 to 20 but you’re

burning so much to get there that’s not

a healthy company no it’s hard to get

escape velocity

yeah and so suddenly they’re really

resetting it um from uh that perspective

and um i think it’s good i think it’s

really good for industry um to have that

because these multiples i mean hundred

acts you’re right on arr that’s a huge

risk to take

it on on these companies especially you

think do you think that’s uh you think i

mean you’re thinking well and i was

talking about this um last night we had

an investor over um for dinner at vc

and we were actually real estate

proptech and we were both talking about

this of you know by the time you get

public you kind of have to have things

figured out like your gross margin you

just have to get that figured out you

have to understand like hey at what

point do we get to profitability or do

we stay you know sort of on that net

zero and continue to grow but a lot of

these companies went public that were

tech companies that had none of this

figured out and so now you’re seeing

these huge corrections and now you know

what we’re seeing with these valuation

multiples is they’re at five to seven x

now and that’s reasonable for arr yeah

well i think again i

i don’t know why why the dot-com

crisis won’t repeat this time there will

be some companies that won’t exist

they’ll either they’ll either go

bankrupt or dissolve or

in many cases they’ll probably get

bought for their customer base or ip or

whatever there’s going to be there’ll be

a feeding frenzy because again

there are a lot of uh ceos and

executives

who

are focused on the top line it’s all

about growth we’re going to grow our way

out of it all of that they are not

paying attention to the burn rate i

believe the number one metric that kills

any company and frankly any family from

a money perspective is not the income

statement not the balance sheet it’s

cash flow

you can go bust

with growing revenue and growing profit

if your cash flow is not right and a

business that’s based on a repeating

monthly business

that that can be a problem right you can

have customers today that don’t pay

tomorrow and your cash flow just goes to

zero and you know pretty soon the

oxygens turn off i don’t think enough

ceos look at the cash flow statement

yeah no i completely agree and i i think

this is a a good reset um for the tech

industry and i agree with you this is

going to be more like the dot-com um

bubble that we saw versus um what we saw

in 2008 with housing um i think it’s

going to be very similar to that um and

so some people may not

feel it as much as others and that’s why

you and i are feeling it a lot more

we’re hearing it a lot more here in

silicon valley oh yeah

or like wait what i i haven’t heard this

i know inflation i’ve definitely seen

that but i haven’t seen anything else

dead like we’re seeing here yeah that’s

really interesting because again david

sacks talked about he thinks the

recession is here already and i actually

i think it was monday i made this

comment i’m like david i get it right

we’re both in the valley it’s definitely

recession-like in the valley but again i

have a national channel now and i can

tell you the rest of the country is

really not there yet at least from a

recession consumer retail spending all

that i think a recession is coming it’s

just we’re feeling at first this is so

much like the dot-com

crash or correction or whatever you want

to call it

uh it’s kind of it’s 20 years on repeat

so it’s it’s pretty interesting i would

love to talk in our next session about

who you think gets hurt in this

uh but people want to go play with your

30-day trial they want to go visit uh

it’s hemlane.com right yup hemline.com

if you’re looking for a property

management um anything from you know

software to 24 7 repair coordination go

to hemline.com um and we won’t be one of

those companies that has a fire sale uh

from that we do look at that burn

multiple awesome yeah we’re going to

talk about who’s going to get hurt and

why himalayan won’t be one of them in

the next episode at least in my opinion

thanks dana thanks

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