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On Friday, Klaviyo filed their S-1 - one of the first software companies to do so since the beginning of the economic downturn in late 2022. It’s a marvel of business with strong growth, great efficiency & the potential to reignite interest in SaaS IPOs.

Klaviyo is a customer data platform company which ingests marketing data & empowers their customers to automate their marketing with data & AI. The company raised $455m in venture capital, but has used only $15m, growing nearly entirely on profits.

Aakash Gupta published Product Requirements Documents (PRDs): A Modern Guide.

credit: Wired

There at the top of the post is a photo of the 2007 APM class, coincidentally my class (I’m there on the right), departing San Francisco for a trip that would take us to Tokyo, Beijing, Bangkok, Bangalore & Tel Aviv. Steven Levy, a reporter, traveled with us & documented the trip.

If we needed another exclamation point on the tremendous growth opportunity, NVidia’s earnings punctuated the euphoria with gusto.

Revenue grew 88% in a quarter, nearly doubling. The company had projected $11b & exceeded projections by $2.5b or 26%.

The Data Center business, which sells to clouds & consumer companies drove nearly all of the growth, surging 141% quarter-over-quarter to $10.3b & nearly 3x annually.

The post-Covid surge in venture capital pushed valuations & activity to record breaking heights. Since then, investing activity dropped precipitously.

When a collapse follows a surge, mean reversion suggests behavior should revert to a reasonable baseline. By building a linear model we can hazard a guess of when that might be.

The blue line shows actual Seed, A, & B activity by quarter. The red is a linear model based on data from 2010 to 2018 that predicts activity rates for each financing series of US & Canadian software companies. [1]

The Fed no longer predicts a recession. Economic data is turning more positive, eg housing starts exceeded forecasts. 80% of public companies beating earnings estimates - three percentage points higher than the 5 year average.

On the other hand, enough uncertainty permeates the market to depress prices. Public software companies’ share prices have fallen 10% on average in the last 30 days dotted with positive notes like the stabilization cloud growth rates for Microsoft & Google.

Classical computer programming is about rules. What does a program do when a user inputs 4 + 7? Or a credit card number? Or clicks on a button. I spent years as a programmer translating human rules into rules the computer would understand.

One day, with enough experience, the number of exceptions to rules dawns on a programmer. It’s no different than english.

Imagine writing a text-to-speech program :

Home & tome rhyme. So does comb. But not come.

Carta released their state of the market report. A few data points stood out to me

Downrounds constitute 20% of all rounds, up 2x from historical norms. Bridge rounds account for 38% of all rounds in Q2. Cooley reported 2.9% of rounds recapitalized the company. Recaps effectively delete the previous cap table & start a new one.

These are all signs of the harder fundraising times.

The glass-half full view is that 80% of all rounds are flat or up.

What will a venture capital turnaround feel like? Will it be gradual or sudden? What will change the sentiment in the market?

In 2008, I had just become a venture capitalist. Three months later, Lehman fell & the Global Financial Crisis started. CNBC played in the lobby of our office & I remember watching domino tip domino into a cascading collapse.

Activity slowed to a crawl during the subsequent & I tried to understand their impact on private markets for the first time.

If a startup raised a top quartile Seed round, Series A, B, & C, they typically would have grown headcount by about 6% in the last twelve months. The headcount growth rate for all other companies? About double at 12%.

Here’s the catch : the difference isn’t statistically significant.

In fact, comparing the headcount growth rates across top quartile fundraisers to bottom 3 quartile fundraisers, the result is the same. No statistically significant difference in headcount.

Earlier today, New Relic announced its sale to Francisco Partners & TPG for $6.5b.

The acquisition is notable for two reasons.

First, it accelerates the momentum within the technology buyout space.

At its current pace, technology buyout volumes of venture-backed technology companies will tie or exceed the ten year high, charted in 2022 of about $20b.

PE buyouts provide 2023’s slower M&A market liquidity & activity, perhaps will begin to spur strategic/corporate acquirers into action.