Funston Brief (Issue No. 4)
This month, our featured stories dive into the new macro environment and its implications for investors and business owners, and offer some actionable insights around cybersecurity.
Sequoia Capital, the 50-year-old venture firm, has become known over the years for using sweeping memos - “R.I.P Good Times” in 2008 and “Black Swan” in March of 2020 - to warn the founders in its portfolio about market shifts. A new presentation, first published by The Information, makes it clear the firm does not believe the abrupt shift the startup world is currently experiencing will be followed by an “equally swift V-shaped recovery.”
“We expect the market downturn to impact consumer behavior, labor markets, supply chains, and more. It will be a long recovery and while we can’t predict how long, we can advise you on ways to prepare and get through to the other side.”
It’s clear we are still in the early stages of seeing how the macro environment will evolve - the war in Ukraine, US interest rates, supply chain disruptions, China, persistently high inflation, maybe food supplies, and the enduring impacts of the pandemic are all affecting the current investing environment. In this context, the firm notes that investors’ focus is shifting to companies with profitability.
“With the cost of capital (both debt and equity) rising, the market is signaling a strong preference for companies who can generate cash today.”
Other firms, including Social Capital and Y Combinator, have also issued warnings and the message is consistent - hold cash, prepare for the worst, and get ready to survive without being able to raise new capital for a while.
ACTIONABLE INSIGHTS.
Identity, privacy, and passwords: Apple, Google, and Microsoft have agreed to support and expand a FIDO/W3C project to let users sign in without passwords, using a key saved on the device. In a separate blog post, Google asked for a US privacy law.
Key Insight: The consumer tech world has spent the last 20 years trying to get away from passwords, having realized that asking consumers to manage passwords and log-in security is a terrible idea. In an ironic twist of fate, web3 wants to move in exactly the opposite direction. Link
Nobody knows where the line is for cyberwar: The Soviet Union and the U.S. never used nuclear weapons on each other in large part because of mutually assured destruction. Cyberweapons are different. Cyberattacks by governments and private hackers have exploded in recent years - many are financially motivated, but others involve espionage or sabotage of physical infrastructure in several high-profile cases.
Key Insight: There’s broad agreement that at some point a cyberattack would be considered an act of war, but no one knows where the line is. Meanwhile, business owners should aim to be better protected than the next best mark in order to avoid being targeted. Link
EAR TO THE GROUND.
Podcast Episode: Odd Lots - Why Markets Have Further to Fall
Guest: Greg Jensen
Takeaway:
In this episode of the Odd Lots podcast, hosts Joe Weisenthal and Tracy Alloway interview Bridgewater's Greg Jensen, the co-chief investment officer of Bridgewater Associates, about how he's thinking about the risks of inflation and slower growth, what it all means for markets, and how Bridgewater is preparing for it. Inflation is at its highest in four decades and the Federal Reserve is raising rates at the fastest pace since 2000. Inflation and a slowing economy are a toxic mix for markets, and in recent days we've seen both stocks and bonds hit hard. So how do you actually invest in this type of macro environment, or model big themes like supply chain disruption and deglobalization?
“Market prices are still too optimistic relative to the secular change that's taking place within them.”
- Greg Jensen, Co-CIO at Bridgewater Associates
$10B & $20B
Google and Microsoft have pledged to spend $10B and $20B, respectively, on cybersecurity over the next five years. Link
PROFILE.
Tobi Lutke is the co-founder and CEO of Shopify, the e-commerce platform that champions entrepreneurs. In this podcast conversation, Tobi shares his insight into building a modern business starting with Shopify's business model and North Star, and the overlooked benefits of video games. Tobi also talks about the best idea he has ever found. Enjoy!
“I think focus of audience ends up being, amongst all the things that you could have focused on, one of the most significant predictors of the success of a company because it's very, very easy to get diffused between different stakeholders that you're building something for.”
ON MY RADAR.
CB Insights has unveiled the winners of the sixth annual AI 100 - a list of the 100 most promising private AI companies across the globe. Link
About
Funston Brief is a newsletter by Funston Capital, LLC. We’re an investment company located in San Francisco, CA looking to acquire an already profitable and growing tech-enabled business. If you or anyone you know is interested in selling a business, please reach out to me at alex@funstoncap.com!
Thank you for reading. Like Funston Brief? Share it with a friend, or two. Have suggestions on how we can improve? Please connect.