June Monthly Wrap
Every month I share an update on this newsletter and a summary of what I’ve read, seen or heard that I’ve found interesting. Expect the format to evolve over time, as well as what’s included. If you have any feedback, please hit me up! If you missed the May Monthly Wrap, you can find that here.
If you are not already you can follow me on Twitter here (@tlginvestor).
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The Long Game Update
When I started The Long Game, I made the conscious decision to start this newsletter writing under a pseudonym. Last week a friend of mine asked me why I write anonymously (a few friends know about this but I keep this blog away from my professional circle). MBI, someone I follow, tweeted the below which sums up why (for now) I don’t share my identity.
The Substack continues to grow steadily. I have just hit 300 subscribers, so thank you to everyone who has subscribed. Growth has slowed a bit, and that’s due to me being less active on Twitter and here than I would like. I have some pretty lofty ambitions and goals for this newsletter for the back half of 2022, which I am super excited about (and no its not a paywall!).
No new posts this month. I have been reading a lot about vertically integrated SaaS solutions for SMB customers most of which are still in the early innings of being digitised. I think the combination of best in breed vertical SaaS with payment capabilities makes these solutions incredibly sticky and there are a number of interesting players that are worth a look. I am also spending some time thinking about recent IPO’s that have struggled that might offer compelling value. Expect some write ups on both coming soon.
Paying if forward - helping out a fellow Substacker, Jakob from Money Buzz
When I started this Substack anonymously I didn’t have a network to share to, so my first proper post (investment notes on Spotify) went to all of 4 people. I also had less than 10 twitter followers. Through the (amazing) Fintwit community, I grew my Substack to 10 subscribers and a couple of prominent folks in the community offered some helpful advice. I ended up sending the below tweet, which blew up (56k impressions) and I went from 10 to 100 subscribers in the space of a couple of days. Random people shared, subscribed and gave words of encouragement (despite having nothing to gain for themselves). It gave me my start, and I am very grateful.
I always said I’d pay it forward, so now that I have a small following, I thought I’d share an emerging Substack newsletter that I am subscribed to and enjoy reading. Jakob writes the Money Buzz Newsletter, a punchy newsletter which covers 2-3 headlines each. It’s a good read, and you can subscribe here.
The pseudo hedge fund?
I reiterate what I said last month and continue to sit on the side lines and have not made any investments. While valuations have cooled to pre-covid levels, I still think the market hasn’t fully priced in continued interest rate hikes and geo political risk. I am maintaining a watch list of ~15 stocks, and may opportunistically initiate a position where I see a particularly compelling entry point. I’m most excited about the potential to buy high quality infrastructure SaaS businesses at reasonable prices (no names disclosed yet!).
What I have been reading, watching and listening to
Every month I will share a selection of things that I’ve found interesting. Here’s what caught my attention in June:
Ten lessons from a decade of vertical software investing: Bessemer Venture Partners is a top tier venture capital firm that has backed some amazing companies. They also put out great thought leadership like this piece on building great vertical SaaS businesses, which has been helpful in diligencing a couple of opportunities I hope to write about in the future. A few learnings which stood out for me:
Lesson 2: The best vertical software companies build a layer cake of new products that drive continuous growth
Lesson 3: Some of the best layer cake opportunities are integrated services like payment processing. They are easy to cross-sell and feel “free” to your customers
Lesson 5: Data remains one of the most under-exploited opportunities in vertical software
Bill Gurley, Above the Crowd - Investors Beware: Today’s $100M+ Late-stage Private Rounds Are Very Different from an IPO: The correction in markets has finally shone a light on private market investors throwing money at unsustainable, grow at all costs, business models and the lack of scrutiny / diligence undertaken. A number of companies are now facing funding crunches as investors more closely examine the unit economics of these businesses. One example Gurley points out is the distinction between gross and net revenue, and the importance of not paying a net revenue multiple gross revenues, noting that private companies tend to highlight gross revenues in their marketing decks. Gurley wrote this article a couple of years ago now, but it was prescient as ever.
The very act of dumping hundreds of millions of dollars into an immature private company can also have perverse effects on a company’s operating discipline. The only way to use the proceeds of such a large round is to take on massive operating losses. Historically, as a company neared an IPO level of revenues (say $50-$100mm), investors would expect convergence toward profitability. As these late-stage private companies digest these large fund raises, they are pushing profitability further and further into the future, as well as the proof that their business model actually works.
Further down the article, he notes:
We are in a risk bubble. Companies are taking on huge burn rates to justify spending the capital they are raising in these enormous financings, putting their long-term viability in jeopardy. Late-stage investors, desperately afraid of missing out on acquiring shareholding positions in possible “unicorn” companies, have essentially abandoned their traditional risk analysis. Traditional early-stage investors, institutional public investors, and anyone with extra millions are rushing in to the high-stakes, late-stage game.
What is XDR - Muji from hhypergrowth, is someone I have admired for a long time for putting out extremely high quality long form pieces. While I am not a subscriber to his premium service, he does offer one free post per month. This post explores how end point detection providers (like Crowdstrike and Sentinelone) are expanding into Extended Detection and Response (XDR). I was a post IPO investor in Crowdstrike, and to date its been one of my most successful public market investments, so continue to watch the space closely.
Steve Jobs Stanford Commencement Speech: I was having lunch in the bay area with someone and one of the things she was talking the role that serendipity had played in her life and professional career, and how she became a venture capitalist despite not coming from a traditional VC career path. It reminded me of this quote from Steve Job’s speech at Stanford University, which I still fall back on to remind me about what’s important in life.
Again, you can’t connect the dots looking forward; you can only connect them looking backward. So you have to trust that the dots will somehow connect in your future. You have to trust in something — your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life.
Another quote that resonated with me from this speech was:
Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma — which is living with the results of other people’s thinking. Don’t let the noise of others’ opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.
It’s an amazing speech.
Tweet of the Month
Every month I will share a Tweet I came across that I found interesting. For June, it was this Twitter thread from Sahil Bloom. If you can’t enjoy celebrating other’s success, I’d encourage you to try it. It changes your entire perspective.
Stay patient, focussed and rational.
TLG
Thanks for the shout out!
"Don’t let the noise of others’ opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition."
Quotes like these are a good reminder to always listen to how you feel. A reminder that I even needed to hear today!