Weekly Financial Resources and Capital Markets Roundup: 3/27/2020
In response to the ongoing public health crisis presented by COVID-19 and expected economic impact, OpenView’s Capital Markets team began publishing a roundup of recommended financial and capital market resources in mid-March. The goal of these roundups is to provide a focused, vetted set of materials for the consideration of executives within OpenView’s portfolio. As a result of positive feedback, we’ve decided to share a version of these weekly roundups with the broader OpenView audience. Going forward, we’ll share these roundups each week in the OV Weekly newsletter.
Outlined below is a collection of key financial and capital market resources from the week ending 3/27.
Zoom’s forward revenue multiple peaked at ~55x next twelve month revenue mid-week. Coincidentally, 55x is exactly the multiple of email newsletters we’re receiving from contacts vs. the beginning of March. The objective of this newsletter blog is to aggregate the financial and capital markets reads from the week we recommend so you can archive everything else and remain focused on operating your business. If there are specific data points or items you find helpful, we’re open to feedback!
Speaking of Zoom, demand for the company’s products has obviously surged in this new work from home world and estimates put potential gains at $140M of incremental revenue. Investors are aware and piling into the company’s stock as a safe haven. While the anti-fragile nature of Zoom’s business in this pandemic is great for the company’s shareholders, we also believe the valuation is good for SaaS broadly. Once virus concerns wane, it’s a positive signal that software companies will continue to trade on the basis of revenue and that valuations will rebound—more on SaaS valuations below.
Key market indices started the week down but by Tuesday the Dow recorded its biggest point gain on record and the biggest percentage gain since 1933. The index closed up 11.4%, or 2,113 points, as investors began to price in the eventual $2 trillion government stimulus. All key indices (Dow, S&P, NASDAQ) closed the week up from where they closed last Friday. Also this week we got the first batch of economic data to help contextualize the pandemic’s economic damage to date. While the market response to stimulus is promising, the economic data trickling in—like a record 3.28M Americans filing for unemployment—will be interpreted over the next week and will drive continued volatility.
While the markets moved up this week, we strongly caution against believing that the worst is over. Models for the economic impact and recovery from COVID-19 are just that—models —not based on actual economic data or company earnings reports. “The markets are complex adaptive systems engaged in real-time information processing, constantly adjusting to changing expectations…as circumstances and conditions and information warrant.” Until the pandemic subsides, we won’t know the true impact and can’t have confidence in market movements, positive, negative or neutral.
Extending cash runway
Last week we noted that cash is king, and cash is not equal to ARR. Jeff Curran, OpenView’s Director of Business Operations wrote this piece with recommendations for extending your cash runway. Software companies should expect material decline in 1H 2020 sales with potentially a total miss Q2 budget. Demand will likely rebound later this year but overall impact on 2020 forecasts could be in the range of ~50% achievement of original 2020 budgets or worse. How well have you scenario-planned, identified areas to cut, agreed on triggers for switching “scenarios,” and stress tested your cash runway model to account for a 10%, 20% or even 100% miss of your 2020 plan?
Economic injury loans
As per the above, the US senate passed a $2T stimulus package overnight Wednesday (details in “Government Stimulus” section below). This package contained updates to a newly created Small Business Administration loan program, known as the Paycheck Protection Program. The bill still excludes certain venture-backed businesses due to how Affiliates (venture firms) impact the employee count qualification criteria. The NVCA is pushing hard and we’ve learned the legislation supposedly doesn’t intentionally exclude venture-backed companies. The SBA expects to issue clarification after passage, according to this source. These resources from the NVCA and this Twitter thread have further reading.
Capital market resources
Government Stimulus—Coronavirus Aid, Relief and Economic Securities Act (“CARES Act”)
This article provides a great five-minute summary of the CARES Act and here is a link to the complete text of the entire coronavirus relief package, which includes various programs for US businesses and citizens. The Senate approved the bill overnight Wednesday, the House approved passage by voice vote on Friday afternoon, and President Trump signed the bill at 4pm ET on Friday.
We enjoyed this read from Bridgewater in which they (1) estimate US corporate revenue across public and private businesses will decline by roughly $4 trillion and (2) provide thoughts on how this decline may be mitigated (policy intervention, spending cuts, or defaults). On the topic of Bridgewater, founder Ray Dalio’s “How the Economic Machine Works,” is an excellent resource. In the video Dalio discusses economic cycles in an “Econ 101” format. We’ve been sharing with connections who want to better understand the why behind the current economic crisis and the government’s response.
Other Capital Markets reads
SaaS valuations multiples trended down from 7.4x to 7.0x 2020E revenue at the median to open the week. This MarketWatch calendar for economic data. A Twitter thread on SaaS valuation recovery. PWC’s survey of CEOs. A blog on founder resiliency from FirstRound.
OpenView Capital Markets Team
Sean Fanning, Director of Corporate Development ([email protected])
John McCullough, Partner ([email protected])
“The path of least resistance is the path of the loser,” according to author H.G. Wells. Yet time and time again we see that humans are all guilty of opting for the easier path.
Pick a mood, index, direction and percentage and you might have a future as an editor for any major newspaper—this is the “Mad Libs” like template the last few months of news has followed.