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Valuation jam
Where high valuations were once seen as a sign of success, they are now creating a jam for startups and investors, who are fighting to preserve them.
One minute, you are chewing as much gum as you can. Next, you blow a pink bubble so big that when it pops it covers your whole face. You are sticky. Your eyelids must fight against the resistance of the gum for your eyes to open. The VC looks at you but doesn’t say anything. ‘I don’t know what you’re talking about,’ you say anyway. The VC nods. It is better for you both to ignore the mess on your face right now.
🚨 In the New Year, Balance Sheet will be publishing its first State of the Market report for CFOs. We’ve been running surveys for a couple of months to get the data here, but we also want to speak to and feature finance leaders, personally, in the report.
If you’d like to be involved – we’ll just need a few minutes of your time – click here.
The lowdown
👟 Nike beats expectations although price cuts have reduced profitability.
🪫 Tesla sell-off intensifies as Musk enters war of words with investor
🕊 The dovish Bank of Japan loosens its grip on the 10-year government bond rate, effectively raising interest rates.
Featured Stories
REUTERS/Mike Segar
Preserving valuations by looking away
Where high valuations were once seen as a sign of success, they are now creating a jam for startups and investors, who are fighting to preserve them.
The most common method being employed is the use of debt rather than raising fresh equity. Cyber security outfit Arctic Wolf raised a $400 million convertible note in October — twice as much as its largest equity financing to date. It was led by existing investor Owl Rock Capital. By using debt rather than equity, the valuation question (and possible down round) is avoided, benefiting both company and investor.
Then there is Twitter, which is somehow attempting to preserve its valuation in spite of its debt. Elon Musk purchased the company for $44 billion, which included $13 billion in debt. This debt is being held on the balance sheets of Morgan Stanley and others, and can reportedly be purchased for 60 cents on the dollar ($).
Incredibly, Musk is attempting to raise fresh capital for Twitter at the $54.20 price he purchased the company for. This preserves the $44 billion valuation but completely ignores the fact the debt is now being priced at ‘distressed’ levels. Shouldn’t the equity be adjusted too?
The content we're consuming today
Off-balance sheet items
The trailer for Christopher Nolan’s Oppenheimer has just dropped and it looks very unsettling.
The bottom line
Elon’s current attention span
— Wall Street Memes (@wallstmemes)
10:18 PM • Dec 20, 2022