Weekly Update #236: EZ Index Update
With one month of 2018 under our belts, we take a quick pulse check on our EZ VC-Backed Company Index.
Overall, shares of recent VC-backed IPOs have gotten off to a slow start in 2018. Through the first month of the year, the EZ VC-Backed Company Index is up 4%; on par with the S&P 500 equal-weighted index but lagging the tech-heavy NASDAQ-100. Last year’s IPOs have weighed on the EZ Index YTD, given sharp declines in several names including Blue Apron (APRN), Redfin (RDFN), ROKU (ROKU) and StichFix (SFIX). On a positive note, SaaS shares have fared relatively well this year, returning ~9% so far in January. Supportive software valuations would be constructive for the VC-backed IPO environment in 2018, in our view. 14 of the 22 companies we believe could look to complete an offering in 2018 are SaaS companies.
EZ VC-Backed Company Index vs S&P 500 and NASDAQ-100 Equal-Weighted Indices; 2014 - Present
EZ VC-Backed Company Index vs S&P 500 and NASDAQ-100 Equal-Weighted Indices; YTD
In other news…
- Alphabet launched a cybersecurity firm named Chronicle, which uses machine learning and big data to identify threats. Meanwhile, Amazon acquired security startup Squrrl. We continue to believe cybersecurity will remain a key area of investment focus among large tech firms.
- Following a recent court ruling, Spotify will now have to pay songwriters 15.1% of revenues earned through its platform, up from 10.5% prior. The new pay structure could have meaningful implications for the Spotify’s timeline to profitability. Management did not comment on the ruling.
- Stripe will stop accepting bitcoin payments this Spring. The announcement highlights some of the hurdles we believe may stand in the way of cryptocurrencies becoming widespread payment mechanisms -- namely slow transaction speed, anonymity (given potential for illegal money movement) and volatility.
- Tech firms are preparing for the implementation of new privacy rules in the EU, set to take effect May 25. The rules provide for stricter regulation of data collection and removal; non-compliance could cost internet companies as much as 4% of annual revenue. While a win for customer privacy, stricter data regulation will likely entail higher costs. Separately, by restricting data use, the new rules may have implications for AI research. Chinese firms, in particular, have gained material advantage in AI, in part due to the abundance of data within the country and limited privacy regulations.
- Earlier this month, MapR announced founder and Executive Chairman John Schroeder returned to the helm of the startup as CEO. Matt Mills, an Oracle veteran who joined MapR in 2015 and became CEO in 2016, left the company. The transition may signal that key investors want to focus more on the company’s technological differentiation as it prepares to go public, particularly amid an increasingly crowded “big data” market. Mills was brought on board primarily to spur growth by strengthening the company’s sales force. Separately, the company reported robust growth for its recent fiscal year (ended October 31), with annual subscription billings growth of 66% and a dollar-based net expansion rate of >150%.
And other things we are reading…
- Glenn Kelman (CEO of Redfin) shares his experience taking Redfin public.
- Bono’s Rise Fund has invested in fintech startup Acorns.
- Lyft is looking into allegations that drivers were used to spy on passengers.
- Airbnb reached a significant milestone in 2017, generating its first annual profit. Airbnb is among EquityZen’s IPO predictions for 2018.