Funston Brief (Issue No. 23)
This month, our featured commentary discusses the tech M&A environment. We also dive into this year’s tech predictions and showcase an interesting conversation with the late Charlie Munger.
Adobe has recently abandoned its ambitious $20 billion acquisition plan of Figma in what could have been a landmark software deal. The decision was prompted by regulatory challenges, with concerns raised that the acquisition might negatively impact competition in the product design sector, potentially leading to increased prices and reduced consumer choices. Despite Adobe's initial commitment to pay significantly more than Figma's valuation at the height of the 2021 tech bubble, the deal ultimately fell through, resulting in Adobe now facing a $1 billion termination fee.
Recent times have seen a surge in questionable antitrust cases. However, Adobe's attempted acquisition of Figma is a classic example of a dominant incumbent acquiring a smaller contender to minimize competition. Antitrust regulators in the UK, Europe, and the US have become increasingly stringent in scrutinizing mega-takeover deals. Microsoft underwent extensive scrutiny for its $68.7 billion acquisition of Activision Blizzard, finalized in October last year. However, not all acquirers have been equally fortunate; Illumina, a genetics biotech company, announced its divestment from Grail, a cancer diagnostics testing firm acquired for $7.1 billion in 2021. Additionally, in 2022, the UK's Competition and Markets Authority compelled Meta to divest Giphy following its $315 million acquisition.
M&A plays a pivotal role in providing exit opportunities for startups and VCs. The collapse of the Figma deal may cast a shadow over future transactions, particularly those that might attract scrutiny from anticompetition regulators, adding complexity to an already challenging venture capital exit market. Avichal Garg, an angel investor in Figma's 2018 Series B and managing partner at Electric Capital, notes, "This will have a chilling effect on the M&A market, not just for mega-acquisitions."
ACTIONABLE INSIGHTS.
Predictions: Fred Wilson, VC at Union Square Ventures, published his 2024 predictions. Wilson notes that he “has never seen an environment with more innovation in the forty years (he) has been in the tech sector.” Other interesting predictions come from Vox, Scott Galloway, and a16z.
Key Insight: Fred Wilson's Top Five Predictions for 2024
Innovation Economy: Anticipate a stabilizing and growing capital market that will serve as a bedrock for a thriving innovation economy spurred by groundbreaking technological advancements.
Artificial Intelligence: The trajectory of AI will ascend, propelled by the advent of novel applications, advancements in existing systems, and a concomitant rise in legal and regulatory challenges.
Web3: Witness the inaugural mainstream application of Web3, with a symbiotic relationship forming between AI and Web3. Additionally, expect the cryptocurrency sphere to receive clearer regulatory guidance.
Energy: Responding to escalating concerns about global warming, prepare for a surge in the clean energy transition. This shift will drive innovations in energy generation, storage solutions, and more intelligent distribution systems.
Venture Capital: Despite a soft landing and a broader innovation landscape, the venture capital industry is poised for a phase of adjustment marked by relatively subdued growth.
EAR TO THE GROUND.
Podcast Episode: Invest like the best: A Conversation with Charlie Munger & John Collison
Guests: Charlie Munger
Takeaway:
John Collison, Stripe's co-founder, interviews Charlie Munger, the late vice chairman of Berkshire Hathaway. In this conversation recorded in 2022, Charlie shares the ingredients for long-term business success, his thoughts on American society, and what makes Berkshire special.
“Is it likely to remain forever as a money generator? And that's a more complicated subject. It's hard to know how the world is going to evolve. If Kodak could suddenly be obsoleted away, maybe it's not utterly unthinkable if Stripe could. The company that dominates software for architects, terribly prosperous company, […] no longer dominates as much as it did. So not everything in software always wins. […] the venture capitalists tend to think everything in software is always going to win. I don't believe that for a minute.”
- Charlie Munger, late Vice Chairman of Berkshire Hathaway, on how he’d evaluate Stripe
$9B
According to a report by Top10VPN, the global cost of every major intentional internet shutdown in 2023 cost the world economy $9.01 billion. Link
PROFILE.
Graham Weaver is the founder and managing partner of Alpine Investors. He started Alpine out of his dorm room at Stanford and started buying companies with his credit card. Over the last 22 years, he built a private equity firm with $16 billion in assets under management. In this conversation, Weaver unpacks his unique investment strategy, what daily habits have transformed his life, and why he believes we should all strive to live an asymmetric life. Enjoy!
“It's almost always going to get worse, and that's why no one makes changes because they don't want tomorrow to be worse. They want tomorrow to be great. But as soon as you start to realize that the first step is negative, but you do come out the other end, it gives you confidence to make those changes.” - Graham Weaver, Founder of Alpine Investors, on how to live an asymmetric life.
ON MY RADAR.
What happens when cognitive tasks can be done at zero marginal cost? Bridgewater assesses the potential impact of generative AI on productivity. Link