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Yes, surprising but true.
There are actually a bunch of companies that never got the memo that cash flow positivity and EBITDA are important.
For PE investors who've been waiting for rationality to come back to tech valuations, there are going to be tons of flawed but fixable companies that will come to light in the coming quarters who:
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Have great products
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Solid revenues
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An upside-down cost structure with some easy fixes via more prudent spending
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Exhausted management with an insurmountable preferred equity stack who are working for their VCs
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Tired VC investors who don't see a shot at the co becoming a 10x'er
When PE swoops in here, common and preferred equity holders will likely get crushed, but that’s no different than what is happening elsewhere.
Not: Tech IPO market caps
Eighteen of the 20 largest tech IPOs since 2020 are way underwater vs. their IPO valuations (graph below).
Whether the medicine is administered by the public markets or private equity, it will have to be taken.
Case in point: Stripe just took a 47% private market valuation haircut in its round last week.
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