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