Is the Tech IPO Window Open?

[00:00:00] Hi, I'm Eric Newcomer.

[00:00:02] And I am Madeline Rennbarger.

[00:00:03] And this is the Newcomer Podcast.

[00:00:10] Each week, Eric and I discuss the VC deals and the drama that went down.

[00:00:14] Let's do it. Here we go.

[00:00:16] Let's dive in.

[00:00:18] Welcome back to the Newcomer Podcast. It's our last show of the year, Eric. I mean, it's flown by.

[00:00:25] I know. Yeah, it's crazy. It's a very busy December for me. We've survived our events,

[00:00:31] but have a very ambitious plan for newcomer next year. And I think as we're going to get to on

[00:00:37] this show, it seems like tech itself might be positioned for a better year next year than we

[00:00:43] expected. So we'll definitely be a busy year for us and a big slate of stuff to talk about in this

[00:00:50] episode. So excited to get into it. Yes, let's jump in. I would say bullish on 2025 if it's anything

[00:00:55] like this last couple of weeks of December that we've had. First up off, of course,

[00:01:00] is Service Titan saw its stock price pop during its IPO this week.

[00:01:05] Huge. I feel like we are tech is desperate to make a mountain of out of a molehill out of this

[00:01:12] one. I mean, Service Titan, good company, not like a transformational iconic company that

[00:01:18] everybody's heard of, but positive IPO. Service Titan helped avoid some of a brutal ratchet,

[00:01:25] though I think the late stage investors still got a little extra money, but they had a lot of pressure

[00:01:30] to go public thanks to their deals with late stage investors. And thank God they got that extra push

[00:01:38] because they had a successful IPO. We saw a pop. I don't know. What's the mood?

[00:01:43] The mood seems really positive. I mean, the shares opened at 101. They had continually raised the share

[00:01:51] price ahead of the IPO, which was priced at 71, which was a big jump up from what we first thought

[00:01:56] it was going to be. And there's been some investors in the deal that it's just a really big win for

[00:02:01] them. I think a lot of people were really hoping for something like this at the end of the year as a

[00:02:05] positive signal. Part of what motivated Service Titan to go public at the end of the year and not wait a

[00:02:10] year was, you know, this ratchet mechanism. What are your thoughts on this? Is this like a good bet

[00:02:15] going forward? Does this work well for companies or how do investors, you know, take it?

[00:02:19] I mean, ratchets, you know, like a four letter word among VCs, partially because early stage VCs are the

[00:02:26] ones getting diluted potentially by ratchets. I mean, I have two views. On the one hand, it's like

[00:02:35] ratchets are bad when founders use them to prop up a high valuation for vanity, right? And they would

[00:02:43] argue that it's, you know, employee recruiting or that they really believe in the valuation and they

[00:02:49] don't want to sacrifice it. But it's dangerous when a founder is delusional about what their company is

[00:02:54] worth. So they cut a deal that works out well in the upside, but underestimates the risk and the

[00:02:59] downside. So Service Titan getting out and doing okay, I guess they correctly calculated.

[00:03:06] On the other hand, you know, I think it's easy to be like, oh, ratchets, you're just chasing a high

[00:03:12] valuation that's not defensible. On the other hand, you know, these founders certainly understand,

[00:03:18] hopefully, the terms. And, you know, often they're raising a ratchet when they can't get

[00:03:24] sort of equity at terms they prefer. And so, you know, these are sophisticated investors

[00:03:31] doing deals. So I don't have any real moral problem. The big problem I have is just the

[00:03:37] valuation itself. You know, the world, founders, reporters, media, we all love valuations.

[00:03:42] And of course, the more complicated math and terms that go into evaluation, the more bullshitty

[00:03:49] they are. So often ratchets are just a reminder that we all place too much stock in private valuations

[00:03:56] and they're flawed measures of how good a company is. And that's why ultimately we often want these

[00:04:03] companies to go public where there's an ongoing market for a company stock and their market cap is

[00:04:11] more serious than the idea that you can get one person or a couple, a small number of firms to invest

[00:04:17] with complicated terms that inflate your valuation. I wanted to highlight my favorite tech meme account

[00:04:25] tweet on this whole thing. It's from Buku. Is it Buku Capital? It's one of my favorite accounts.

[00:04:31] Oh yeah, Buku Capital bloke. Yeah. Yeah. Yeah. Yeah. Longtime follower.

[00:04:36] He has a picture of Stringer Bell from The Wire and it says, I want you to put the word out there

[00:04:44] that we back up. And he's quote tweeting Bill Gurley, who's whining about IPOs leave money on the table

[00:04:52] and everybody should do a direct listing, which is obviously, you know, Bill Gurley's hobby horse,

[00:05:00] you know, his obsession. And yeah, I do think there's a truth to it. It's like, man, we're really

[00:05:05] back to normal. If Gurley's out there making the case for direct listings, because you only,

[00:05:10] you know, are willing, you don't, you don't quibble about the small stuff. If you're worried

[00:05:14] about big existential questions around whether tech companies can go public at all, you're only

[00:05:19] sort of making the case for direct listings. Once IPOs are so good that you're like, oh, well,

[00:05:25] the balance is money that you're giving to bankers to give away to their friends instead of making sure

[00:05:30] us VCs and founders get as much money as we can for our shares. Yeah.

[00:05:37] Right. It seems like it's very much, you know, just if we're in this debate, like that's a bull

[00:05:43] signal right there. It's good news. It's good. Madeline, you've been sort of eyeing the IPO market

[00:05:49] with Service Titan doing well. What companies does that sort of give a potential nudge out the door

[00:05:54] that might've been considering it next year? So the big talk of the town is obviously

[00:05:58] Databricks. I've heard kind of mixed signals actually on that one. Some sources are saying

[00:06:02] that's a lock for 2025. Some are saying, no, no, no, it's 2026 because they just had this really

[00:06:07] big capital raise. So that one I think will be soon, but they did acquire some capital pretty

[00:06:12] recently that could hold them off for a bit if they want to. So that may not be one. Obviously,

[00:06:17] people have their eyes on Stripe. I think some more interesting ones that I've been hearing about,

[00:06:22] you know, are Chime, Figma, maybe again. Chime, I believe next year.

[00:06:27] Yeah. Chime. That seems likely. Some people told me Canva. So quite a slate there. There's a lot of

[00:06:33] Decacorns kind of waiting in the wings. So there's a lot to choose from. But the problem with Databricks

[00:06:39] and Stripe is what you're touching on. Their ability to raise these insane private rounds just takes off

[00:06:45] so much pressure. I mean, Stripe is doing so well that they can, you know, buy shares from their own

[00:06:51] employees. So it's sort of, there is a continued sort of perpetual private company. Anyway, we can

[00:06:57] talk about the psychology of these big companies staying private all day. But I think the point here

[00:07:02] is clearly there's a lot of hope right now that a positive service Titan IPO will mean that everybody's

[00:07:10] a little more enthusiastic going into next year, which certainly the software world, you know, it's,

[00:07:14] it's been brutal, you know, it's been a good time for AI with the classic sort of software company,

[00:07:21] much harder. In private markets news, we had a massive capital raise this week with Crusoe,

[00:07:28] friend of the pod, Chase Lockmeller. Yeah, exactly.

[00:07:32] We love Chase. He's been a staple at Cerebral Valley, some of our dinners, a character. I think one time,

[00:07:38] yeah, we had somebody bail and we had like Chase, I just met Chase and put him on stage at Cerebral

[00:07:45] Valley. I mean, he's a great, very charismatic guy, sort of fun story of like, they, you know,

[00:07:50] they got into AI cloud compute business from working crypto. And, you know, they're all about using sort

[00:07:57] of captured energy. So both the creative business. Yeah, the most successful crypto to AI pivot of all

[00:08:03] time, maybe. But yeah, they, they're, they're doing quite well. They raised a 600 million series D round

[00:08:11] led by Founders Fund, notably a fund who really likes to take a big chunk of the round. So they

[00:08:17] delivered on that. Fascinating Founders Fund bet, you know, we've said it before, but you know,

[00:08:23] a lot of their successful investments have been these growth stage deals, high conviction with,

[00:08:28] with this one at a time when many people think if AI continues to accelerate, we'll have sky high

[00:08:35] energy costs and really need to build up infrastructure. Yeah, absolutely. It seems

[00:08:38] like also, you know, Founders Fund has a pretty prominent position in open AI. So I feel like they're

[00:08:42] here with this high conviction bet where they're taking a big chunk of this. They're going all in

[00:08:47] on every part of the stack needed to power the AI future. Moving on to our main story, Alphabet had a

[00:08:54] bunch of wins last week. I just am shocked. Insane. I mean, quantum chips announcement was great. So

[00:09:01] they've made big progress there. They have the best public company offering in generative AI, which they

[00:09:07] just updated their models. And then a sort of unforced error from General Motors, abandoning Cruise

[00:09:15] means that Waymo, which already, you know, is in the lead, is now sort of uncontested again,

[00:09:22] except Tesla, which of course is, you know, an automaker building their own autonomous

[00:09:27] technology. So if you're an automaker without self-driving capabilities, it seems like Waymo is

[00:09:34] your only potential partner. So yeah. Did I miss any Google wins or I mean, the stock price is up too?

[00:09:41] Yeah, the price is surging. I mean, it's just been an all around great period for them in a time when I

[00:09:46] think a lot of people were really writing them off. They had, you know, a lot in the AI race

[00:09:50] specifically. And this Gemini news is just really promising for them too, I think.

[00:09:55] And I, you know, I thought you and Jonathan had the right take in the newsletter, which was,

[00:10:00] this has been a company that people are like, oh, their, their lunches are too good. You know,

[00:10:05] they're too soft. And, and certainly, you know, I've known Google people who didn't seem like

[00:10:09] they were in the office super long hours. But I think about that part in Silicon Valley where

[00:10:13] they're unassigned, you know, at Hooli. Right, right.

[00:10:16] Like that's the classic Google negative stereotype.

[00:10:20] But, you know, the counter to that is that sort of, you know, researchers require a little bit,

[00:10:25] you know, of slack and time to think. And, you know, in some ways, Google was setting itself up

[00:10:31] as a very researcher friendly company. Of course, we knew that, you know, the transformer paper came

[00:10:36] out of Google and all those people left. And so maybe it's like, okay, they're good at discovering

[00:10:40] things, but then everybody else is going to eat their lunch and execute. But now we're starting to see

[00:10:45] some signs that no, with this advanced technology, they're still very capable of producing results.

[00:10:52] And so that's made the market and I think Silicon Valley more bullish on Sundar, even as what the

[00:10:59] government's trying to break them up. So we'll see if, you know, Google, as we know it, Alphabet,

[00:11:03] as we know it still exists. Right. Totally. I think, I think it's really a story of not counting

[00:11:09] them out at this point. They're bets that they've made that are these sort of wonky research bets

[00:11:14] that seemed like long time horizons. We've hit those time horizons and it seems like they're

[00:11:18] paying off. And it seems like despite all of the criticism, they are turning them into products,

[00:11:23] which is pretty impressive. So obviously they have a lot of competition, but not really on

[00:11:27] self-driving. So, I mean, I mean, it's super macro theme. You know, we talk a lot about venture,

[00:11:32] but the big public tech companies keep dominating. You know, I mean, people counted out Facebook meta

[00:11:39] for a while and that company was a great sort of public investment. People then counted out Alphabet.

[00:11:46] Now it's been a great public investment. Microsoft is obviously crushing it. So man,

[00:11:52] the tech giants just continue to win. And, you know, if in a Trump world, it feels like, oh,

[00:11:58] they can do deals again. Yeah. I remain pretty bullish on those companies and lots,

[00:12:04] lots of excitement that they can just gobble up the startup winners going forward.

[00:12:09] For sure. Definitely.

[00:12:10] You mentioned that Alphabet's work on quantum was getting the startup world excited.

[00:12:15] How much is the quantum world delivering? You know, I wrote about Regetti many years ago. It

[00:12:20] seems like that's a now public company that has struggled or what's your sense of the startup

[00:12:26] world's answer to what Alphabet has produced here?

[00:12:29] Yeah, I think it's pretty early. From my understanding, startup funding to quantum

[00:12:35] companies, it spiked this year to 1.7 billion, according to PitchBook. There were across 73

[00:12:41] deals. Last year, there were 93 deals, but there weren't they weren't as capital intensive. So the

[00:12:45] overall funding total was lower. But it's the highest total for funding in a year for quantum

[00:12:50] computing yet in the venture market. So obviously, there's some excitement around that. I think people

[00:12:55] are exploring different ways we can develop compute as we get, you know, further into the

[00:12:59] future. That seems really promising. But the main thing I get from talking to quantum founders,

[00:13:04] even obviously, who are very bullish on this technology is that it's early days, the use

[00:13:09] cases are still kind of far. So for these sort of moonshot bets, as exciting as Alphabet's

[00:13:14] breakthrough is with these chips. And it does have, you know, a lot of founders equally excited and

[00:13:19] jealous that this has happened. It's it's still we're still in early innings. It's not necessarily

[00:13:24] like we're going to see the killer quantum use case or product yet, but it's very promising

[00:13:29] right now. Very Silicon Valley, always early. We talk fantasize about the technology when

[00:13:35] it's an early innings, it'll take take a while. But you got to have the vision.

[00:13:40] AI, open AI was once sort of in this it's a research project period with some exciting ideas. And

[00:13:46] now, you know, I'm talking to chat GPT. I'm talking to chat GPT more and more every day.

[00:13:51] What do you talk to chat GPT about Eric? I mean, I do too. But yeah,

[00:13:54] I'm trying to use it as like my to do list where it's sort of a dynamic to do list where I updated on

[00:14:00] what I've done. And then it's like come back to me with what I need to do and like cross off things.

[00:14:06] It's, you know, if anything, it's smart formatting, but it's also nice in that

[00:14:11] ideally, it keeps sort of a running track record of what I need to do. And, you know, in some ways,

[00:14:18] I think what it delivers, honestly, is it's like very affirming relative to the to do list. It's

[00:14:24] it's like, yeah, okay, you know, this is you've gotten a lot of stuff done today. You know, it's

[00:14:29] good at being sort of a little supportive while keeping track of things doing the formatting. So

[00:14:34] it brings a lot of little things that a traditional word processor doesn't.

[00:14:38] On chat GPT, I actually like had a long conversation with chat GPT about Google's quantum

[00:14:44] announcement because they claimed that their discovery pointed to like multiple universes. And I

[00:14:52] found that somewhat hard to believe or like at first I was enticed, but then I was like, really?

[00:14:58] And and so it honestly, honestly, it was a good way to sort of dig into quantum mechanics in the

[00:15:04] current research. And basically, you know, there are people real, you know, scientists who think

[00:15:11] that quantum is evidence that there are multiple universes. Right. Some people think it really does

[00:15:17] prove the multiverse theory. Yeah, right. That it's that the processing is actually happening in other

[00:15:22] universes, whereas there are other people who think the the wave forms sort of contain embedded

[00:15:29] information and just the ability to access basically their probability computing power is in our time,

[00:15:37] just able to get a lot of information very efficiently. And and so I came away from my

[00:15:42] discussion with chat GPT, not convinced that anything about Google's finding uniquely pushed us

[00:15:48] towards multiple universes versus just the wave functions having embedded information. But

[00:15:55] I'm I'm not the most knowledgeable. I was gonna say, anyway, you did write about quantum back in the day

[00:16:02] a little bit. So what? Yeah, your prospect is, you know, we're still early days. Where do you land?

[00:16:08] On the actual business, putting aside the deep philosophical questions about the universe?

[00:16:12] Yes, exactly. Let's get to the facts. It takes too long. You know, a lot of things I'd often,

[00:16:20] you know, even though Silicon Valley doesn't like to say it, you'd you'd like to be like the second

[00:16:24] company, you know, once it's a sure thing, and somebody's making some money on it,

[00:16:28] can you fast copy a lot of these things? I mean, like we're, we've sort of referenced,

[00:16:33] open AI did not come up with the transformer paper, they were in a good position to sort of seize on it.

[00:16:39] And so to some degree, you know, I think if I were building a quantum company, I might

[00:16:44] wait another five years and then copy all the good work that everybody's done. But, you know,

[00:16:49] so much of it is, do I have the right sophisticated team at the exact moment where the breakthroughs are

[00:16:57] finally becoming commercialized, commercially viable. And yeah, I guess I don't think we're at

[00:17:04] that moment yet. So if I were starting the quantum computing startup, I'd wait a couple of years and

[00:17:08] then try again once we feel a little closer. But as I said on the last podcast, happy for people to

[00:17:14] burn money trying to build it because we want it. But yeah, I guess I'm not buying the shares as

[00:17:22] an investment. Moving on, I did want to shout out a couple honorable mentions this week. They

[00:17:27] weren't our top story. We love, we love upstart venture capital firms. So we do leave them off

[00:17:32] the roster. We have to mention them. Two that really came out were LOD Ventures raised a debut

[00:17:38] $150 million fund to back pre-seed and seed stage technical startups founded by Pete Sonsini,

[00:17:46] Andy Kamwinski, who's the co-founder of Databricks and Andrew Kriakov. It's a great team. Again,

[00:17:51] an example of emerging managers work when you have like a powerhouse team behind you. So clearly

[00:17:57] this is one of those cases, but... Yeah, I'm bullish. I feel like one of, you know, a premise

[00:18:02] of Newcomer has been Databricks is underrated. And I, you know, early on did a bunch of scoops on their

[00:18:07] valuations. And, you know, Ollie Goetze, the CEO has been prominent in Cerebral Valley. And Pete

[00:18:14] Sonsini, you know, did the Databricks investment for NEA and was a star over there and is now off

[00:18:19] with his own firm. So I guess if my Databricks bullishness holds, then I'm bullish on LOD Ventures.

[00:18:26] So it'll be interesting to see what they do. The other emerging fund this week that announced

[00:18:31] Dimension... Big fund.

[00:18:32] Big fund. Dimension raised an upward oversubscribed fund to $500 million to invest across the stages.

[00:18:39] So not just, you know, early stage or late stage, they'll do it all in tech, bio, and AI. It's

[00:18:49] prominent firms where, Eric, you know, you broke Dimension One on the newsletter back in the day,

[00:18:56] and they're back at it again with even more capital.

[00:18:59] Love those guys. Exciting firm. Don't claim to understand what every company they invest in

[00:19:05] does, but Godspeed. You know, interesting, you know, Zav broke off of Lux.

[00:19:13] Mm-hmm. So did Adam. Adam was at Lux, too.

[00:19:16] Oh, yeah. Adam and Bilal just left. So, I mean, we're in this moment where... And I think we're

[00:19:23] agonizing about it in our own sort of how we're writing about this stuff. At once, it's like the

[00:19:27] big firms are getting more dominant, and then interesting partners are, you know, shaking off.

[00:19:34] And obviously, some of those interesting partners maybe don't have the performance, so they're not

[00:19:38] surviving the big funds. And then other ones are superstars and think, well, why are my bosses

[00:19:43] getting the management fees? I should. And so as, you know, observers, it can be hard sometimes to

[00:19:49] separate one from the other, but we would love you. Feel free to email us and tell us who's who.

[00:19:55] But yeah, but clearly, the Dimension team has won over their LPs. I think Zav, you know, is in runway.

[00:20:01] I know he has another successful Lux investment under his belt.

[00:20:05] In beta biosciences, yeah. On the biotech side as well. So they'll cross that. While there is this

[00:20:12] sort of flight to quality with the mega firms and LP Capital, if you are a star player at one of those

[00:20:17] mega firms and you decide to break off, the tough market for emerging managers does not apply to you,

[00:20:21] if you're in that case.

[00:20:22] I'm going to call bullshit on your term. Flight to quality. I feel like we should start calling it

[00:20:28] flight to consensus or flight to capital.

[00:20:31] Flight to existing capital.

[00:20:33] Yeah, good point.

[00:20:34] You know, it's like, it's a flight to a safe bet that's not going to get you fired as an LP

[00:20:39] with, you know, but, but yeah, the mega funds, however they're doing,

[00:20:45] seem to be raising a lot of capital.

[00:20:47] That's a better term for it.

[00:20:48] Yeah, flight to consensus there. That's it. I take that one. That's good.

[00:20:51] Really exciting for both these teams and can't wait to see what they do in the new year.

[00:20:55] Wow. Covered a lot of ground. We went from quantum, chat UBT,

[00:21:00] IPOs. Yeah. So new finds.

[00:21:03] A lot happening as reporters, you know, we cheer for news. And so it's a good sign that in December,

[00:21:09] I don't know, positive IPOs, Google doing well. Yeah. Makes me a little more optimistic about

[00:21:16] next year than maybe I was a month ago. Oh yeah. I put it in. There's an annual discount to newcomer

[00:21:22] right now. It's 30% off. So maybe, you know, wait, oh my gosh, what a fantastic holiday gift.

[00:21:28] Wow. What a loyal employee.

[00:21:30] What better thing could you do than pay, make, you know, make our business possible, you know,

[00:21:39] but seriously, you know, we, we appreciate everyone who subscribes. It's a good moment

[00:21:43] to jump on board. And then also I'd say, you know, you can always email Madeline and I,

[00:21:50] you know, our first names at newcomer.co always open to topics and thoughts. Just reminder that

[00:21:57] we do our best when you all weigh in. And so I don't want this podcast to be one directional.

[00:22:03] And so feel free definitely. And I need to do a post. Maybe the podcast, I can always preview the

[00:22:09] posts I should be writing like default off the record. Or it's like, I think people get worried

[00:22:14] that if they send us our thoughts, we're going to like trick them and put it on the record.

[00:22:18] Um, definitely not. Uh, you know, I, when we're publishing people, they, they know about it and

[00:22:23] we want information more than we want you to be nervous that we're going to trick you to put your

[00:22:29] emails to us on the record. So definitely reach out with the comfort that we won't spill the beans.

[00:22:35] And on that note, send us your scoops in the new year. Thanks so much.

[00:22:40] All right. See ya. Have happy holidays.