This month’s newsletter brought some new co-writers, Gonçalo and Margarida at 33N, which will just help getting it more insightful and comprehensive for the benefit of our readers. Thanks to them for the support!
Overall, May brought a mixed bag of expectations for Cyber, DevOps and ML/data companies. For most public companies, 1Q23 results reflected a tough macro-environment (lower ACVs, lower pipeline conversion, longer sales cycles) though improved FCF margins. Average revenue multiples increased versus last months (signalling positive outlook ahead?) but in my view probably best explained by the smaller Revenue base (denominator in the EV/Revenue ratio).
Even so, looking at net ARR growth performance across the Board, few public companies tended to perform better than others, leading to dispersion. The jury is still out on if this is the start of warmer macro-winds some segments/companies. For now at least know that some companies are being impacted differently and weathering the storm slightly better.
On private markets, there was a clear slow down of deal announcements, reflecting the uncertain environment scale-ups and investors faced in 1Q23. The Generative AI wave of expectations continues (rightly so in Mark Andreessens’ opinion) and is expected to be seen in future deal announcements. For now, a few key deals to highlight:
Anthropic raises 450m$ Series C, supposedly at a valuation over 4b$, aiming to take the lead in the Generative AI race with a ‘constitutional AI’ approach
Poolside raises 26m$, to build a subsystem for automated code creation tools like Github Copilot, founded by ex-Github CTO Jason Warner and serial enterpreneur Eiso Kant
On the M&A side, large deal activity is also diminished but large acquisitions still happening in hot segments such as data security (e.g. Laminar allegedly being under discussions for 200-250M$ acquisition with interested parties - to be confirmed).
As the Summer approaches, activity is also expected to slow down. However there’s a general sense in the ecosystem that we’re on track for warmer winds during the second half of 2023. Let’s see these materialize sooner rather than later.