Everything Must Go – Doorbusters, Distractions, and Divine Deals

“To fit into Silicon Valley, wear these wool shoes” (NY Times)

2017 was the year of Allbirds - from the NY Times story to opening its first store in Soho and Tiger Global leading their $17.5m funding round. Allbirds ended up raising $200m+, being worn by countless celebrities, and going public at a $2.15B valuation (November 2021). 

Fast forward two years to November 2023 - Allbirds growth has stalled, and its market cap is now down 94% to $122m (and an EV of ~$60-65m with their net cash). Allbirds stumbles are not exactly uncommon - Tattooed Chef went bankrupt, WeWork failed, and the list of 90%+ decliners includes almost every 2020-2021 SPAC. 

A very close friend (and prolific shopper) always tells me that “everyone loves a good sale”-- and that nothing replaces the oxytocin high of a perceived special (or big) discount. Ron Johnson famously said that “coupons were a drug” - then watched helplessly as consumers could not go drug free (and the JC Penney’s experiment failed). With Black Friday next week, coupons and discounts will be impossible to ignore…but not all discounts are equal. 

Most doorbusters are on “nice to have” consumer discretionary type items – P&G is not exactly rushing to give you a steal on Bounty, or General Mills offering a massive sale on Cheerios. Consumer staples do not need to give huge discounts.

Many venture-backed companies (like Allbirds) in 2020 and 2021 had “nice to have” products and technology. The going was great when interest rates were 0%, and money was falling from the sky - but demand is falling off a cliff in the current environment. While some of these interesting names may look like steals right now, most are not. I recently looked at a formerly (very) high flying startup needing a recap – and though it looked tempting on the surface, it was standing in quicksand. Anything that is either not marketed perfectly, or a client staple (“need to have” product), is going to fight increasingly strong headwinds. Any discount is generally going to be a sirens song - with little to no future resale value.

While I’m super skeptical of many SPACs (even now) and fallen venture-backed stars, there are some hidden opportunities in the noise. Not all heavily backed companies should be in the dumpster - even if most former backers want out at any cost. Some of these companies have need-to-have products in decent (or good) industries - but have been horribly mismanaged and overcapitalized. While it’ll take some heavy lifting to fix these businesses, the benefits could be huge - especially if you buy it for pennies on the dollar. 

I’m not in the buyout business as an early-stage fund, but some of my (later-stage) portfolio companies can leverage their strong position and raise opportunistic rounds. These rounds can lie in reserve, and be leveraged to buy out former venture-backed star companies. While there needs to be an organizational and product fit, picking off former competitors or adjacent capabilities for pennies on the dollar can be a gigantic shortcut. Some of these acquisitions can turn into a distraction too – but if you can fix some of the issues and right some of the ships, the ROI is unparalleled. 

One of my portcos just bought a former high flying SPAC for ~98% off - effectively trading 10% of their company for a majority stake in the former SPAC. This former SPAC had $60m EBITDA in 2021, offers real synergies to my portco’s business, and does not even have to be integrated. Although this acquisition might not pan out, it looks like a transformational deal - one that could easily 2-4x their own EV within a year or two. I’m now incredibly bullish on the company - this acquisition alone could shortcut their eventual exit by many years, and make them the leader in a growing space…all for 10% of their company. While 2024 might be the year of bankruptcies and unicorns losing more than just their horns, it could also be a year of transformative (cheap) acquisitions.