The TechCrunch Exchange: Startups, Markets, and IPOs

Welcome to The TechCrunch Exchange, a weekly newsletter focused on startups and market trends. This newsletter is inspired by the daily column on Extra Crunch, but is freely available for your weekend reading.

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Recent Earnings and Market Reactions

Let's delve into recent financial reports and the resulting market activity. I was unfortunately sidelined yesterday due to a reaction to my second vaccine dose, preventing me from immediately covering the earnings releases from Coinbase and DoorDash.

Coinbase successfully met its previously announced projections, and its stock price is currently stable. DoorDash, however, exceeded market expectations, experiencing a gain of over 25% at the time of this writing.

Performance Compared to All-Time Highs

Despite these strong quarterly performances, both companies remain below their recent peak valuations. Coinbase is currently trading around $265 per share, a decrease from its all-time high of $429.54.

DoorDash's current value of $145 is also significantly lower than its 52-week high of $256.09.

The SPAC Market Correction

These companies aren't isolated cases; many recent public offerings, particularly those achieved through SPAC (Special Purpose Acquisition Company) mergers, are experiencing declines.

While Coinbase and DoorDash maintain substantial valuations compared to their private company days, some startups that utilized SPACs to go public are facing more significant challenges.

According to Bloomberg, five electric vehicle companies that entered the public market via SPACs once held a combined value of $60 billion. Now, these largely revenue-free public EV companies have collectively lost “more than $40 billion of market capitalization” from their highest points.

Scrutiny of SPAC Deal Performance

Chamath Palihapitiya, a prominent figure in the SPAC market, is also receiving criticism regarding the returns of his deals. The situation is somewhat chaotic, which aligns with prior expectations.

It’s important to note that not all SPAC combinations are inherently flawed. However, a significant portion have been driven by speculative enthusiasm rather than solid business fundamentals.

Looking Ahead

Coinbase and DoorDash, having opted for traditional public offerings, haven't relied on the SPAC route. The market is still assessing their true worth, but they don’t appear to be in immediate danger.

Consider, however, the companies that have already agreed to go public through a SPAC but are still awaiting deal completion. Their prospects are now under increased scrutiny.

The Practice of Conservative Financial Forecasting

Recently, several CEOs of publicly traded companies have been in contact with the Exchange following the release of their earnings reports. This has prompted a discussion regarding financial guidance, a practice that can be somewhat frustrating.

Certain public companies choose not to offer forecasts at all, which is perfectly acceptable. Root, for instance, does not provide quarterly guidance. However, other companies issue guidance that is deliberately conservative, effectively offering little real insight. This often results in a delicate balancing act between providing the market with some information and delivering genuinely useful projections.

Matt Calkins, CEO of Appian, described his company’s forecasts as “unfailingly conservative,” even admitting to some frustration with this approach. He further explained that Appian maintains a long-term focus, and that companies with ambitious estimates are often evaluated based on the anticipation of those results rather than their actual achievement. This perspective lends a degree of justification to highly cautious guidance.

Ultimately, this is a matter of perspective, as Wall Street independently develops its own expectations. The critical point arises when companies either fall short of Wall Street’s projections or fail to meet the expectations of external analysts. Therefore, guidance does hold some importance, though perhaps not as much as commonly believed.

Brent Bellm, CEO of BigCommerce, offered further explanation for why public companies might adopt a conservative approach to guidance during a recent conversation. He highlighted that it helps to prevent overspending. He pointed out that if BigCommerce – which experienced a strong quarter – maintains conservative planning, it can avoid excessive near-term capital deployment.

Bellm elaborated that he aims for BigCommerce to exceed revenue expectations, but not necessarily adjusted profits. Consequently, any revenue surplus can be reinvested, without prioritizing immediate profitability. He has explicitly communicated this strategy to analysts, suggesting that lower guidance allows for increased spending without negatively impacting adjusted profitability.

My overall assessment of these strategies is one of skepticism. While it is understandable for public company CEOs to navigate the demands of the market effectively, I would prefer a more transparent approach, similar to that often seen in the startup world. Many high-growth tech companies operate with both a board-approved plan and a more ambitious internal plan – a base case and a stretch case, if you will. Providing both scenarios would be beneficial. I am weary of deciphering deliberately understated figures to uncover the truth.

While offering a guidance range is a step in the right direction, it is not sufficient. I dislike ambiguity simply for the sake of it!

This concludes my thoughts on the matter for now. A more detailed analysis of BigCommerce’s earnings will be published next week, if time allows. Further insights from The Exchange on Appian and the broader low-code landscape can be found here.

The Irreversible Shift in Work Location

Today’s discussion will focus on forecasting future trends, as we are slightly over our allotted time. I want to share some observations regarding the evolving workplace.

In the past year, the vast majority of startups – specifically those with 20 or fewer employees – with whom I’ve consulted operate on a remote-first basis. This is largely attributable to their inception during the pandemic era, but also stems from the practical advantages of global recruitment.

Early-stage companies are discovering that flexible location policies are essential for attracting and securing the necessary talent. Often, the skills they require, or can financially support, are not readily available locally.

This isn’t limited to startups; larger technology corporations face similar challenges. Recent reporting by The Information highlighted this dynamic:

The sentiment expressed in that statement is quite striking. However, for those of us observing the industry, it’s hardly surprising.

It’s demonstrably clear that a significant portion of work can be effectively performed outside of a traditional office environment. Despite employers’ desires for stringent control and monitoring of employee productivity, many software developers are resistant to such oversight.

This resistance presents a considerable challenge for Big Tech companies, which are fundamentally reliant on the contributions of their coding workforce.

Consequently, a complete return to 100% in-office work is highly improbable, particularly for organizations prioritizing access to top-tier talent. The current trajectory indicates a sustained preference for remote or hybrid models.

This situation is analogous to observing a company lacking diversity in its workforce. Such homogeneity often signals a failure to assemble the most capable team possible. Companies mandating full-office attendance are likely to attract a narrower demographic.

This limited demographic will ultimately prove detrimental to their overall success and innovation.

Key Takeaways

• Remote-first policies are now standard for many new startups.
• Big Tech is struggling to enforce return-to-office mandates.
• Flexible work arrangements are crucial for talent acquisition.
• Strict office policies can limit diversity and hinder innovation.

– Alex