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The DL - The Largest Software IPO Ever, the Biggest IPO You Haven't Heard About, Opendoor Investment Memo, and Competitive Farming

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September 21 · Issue #66 · View online
The DL
Welcome to The DL, a weekly newsletter about tech, startups, and investing in the Pacific Northwest.

This week’s issue covers the largest software IPO ever, the biggest IPO you haven’t heard of this year, the Opendoor investment memo, and the new league for competitive farming.

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❄️ “A stock is worth exactly what somebody wants to pay for it”
Congratulations to the Snowflake team!
Congratulations to the Snowflake team!
Would have been hard to miss this one… but Snowflake’s IPO last week was the largest software IPO ever. The IPO priced at $120, and the stock closed on the first day of trading at $250+, for a market cap of ~$70B!
(as a special DL side note, Snowflake was one of the first investment memos I worked on at Madrona! Nice to know that I peaked early - only downhill from here… 😝)

Generally, investors and executives can’t say much about their companies leading up to and post-IPO, but I loved this comment from CEO Frank Slootman, shortly after he became a billionaire as the stock started trading:
“A stock is worth exactly what somebody wants to pay for it. It’s like talking about the weather, it is what it is. Tomorrow’s another day, we’ll see what it brings.”

By the way, in case you want to get caught up on what Snowflake actually does, here are some great articles:
  • Overview - Good summary, with an interesting history on the team and investors
  • Product Deep Dive - Very in-depth piece on Snowflake’s product and customer use cases
  • S-1 Teardown - Comparing Snowflake’s metrics to other SaaS IPos
  • Amp It Up! (highly recommend)- Frank Slootman’s blog post on the “secret sauce” behind his leadership style and company culture
💧 Wait, what?
Tastes good
Tastes good
OK - so everyone is super pumped about Snowflake and the future of data in the cloud. But have you heard about this bottled water IPO? Nongfu Spring IPO-ed a couple weeks ago at a $50B market cap. And…

Nongfu’s founder, Zhong Shanshan, owns 84% of the company, a stake worth $42B. 🤯 That’s how much ALL of the investors in Snowflake made, and twice as much as the founders, executives, and employees combined.

If you’ve ever been to China, you’ve probably had Nongfu Spring, which is like the Dasani or Evian of China. Here’s a good summary on why this was such a hot deal:
  • Rising income and concerns about the safety of tap water are driving more people in China to drink bottled water
  • The average American drinks 141 liters of bottled water per year vs. 59 liters per person in China, so there is plenty of room for growth
  • Nongfu Spring has ~30% market share (largest competitor is 6.5%)

Now, Zhong Shanshan is now worth more than the founders of Alibaba and Tencent. Time to pivot from tech to bottled water startups!

Opendoor Investment Memo
Last week, I shared Bessemer’s investment memo for Shopify with notes on interesting parts of the memo. People seemed to like that, so here’s another VC investment memo!

This memo was written by Chamath Palihapitiya, who is taking Opendoor public via a SPAC. Opendoor will be valued at ~$5B in this transaction, so it’s not the same as a Series A memo, but still an interesting view into how VC investors think. Here are some notes on the memo and investor deck:

Format - The first thing that jumps out at you when reading this memo, is that’s it’s less than one page long. There are only 23 bullet points and 11 numbers on the page to tell the story of the company! I like how this makes the key points, and then all of the backup is in a slide deck.
Team - In the Shopify memo, Bessemer summed up three trips to Ottawa to get to know Tobi Lutke by saying, “We have been impressed by Tobi.” Chamath is even more succinct - there is no mention of the team at all! Interestingly, however, the slide deck starts with a team page highlighting the team’s experiences at a bunch of brand name companies.
Eric Wu (Founder, CEO) - Head of Product, Trulia
Carrie Wheeler (CFO) - Partner, TPG
Julie Todaro (President) - VP Operations, Amazon
Ian Wong (Founder, CTO) - Head of Data Science, Square
Tom Willerer (CPO) - VP Product, Netflix

Trends / Why Now - Instead of talking about team, Chamath uses almost half of the memo to describe the numerous market trends driving this opportunity, and why now is a great time to invest in these trends.
All forms of buying/selling are moving online, accelerated by the need for convenience, speed, trust, and safety. The Coronavirus pandemic has further highlighted this
There are five tailwinds in consumer real estate that we believe will cause Americans to move more often…
These tailwinds not only create demand but also create a margin of safety for the emergence of online buying/selling homes

Market - The Shopify memo pointed to related companies that had become big successes in order to demonstrate a big market. This memo takes a different approach by pointing to the $1.6T home buying market and then sizes the addressable opportunity by assuming Opendoor can continue expanding by running their playbook in new markets
Real estate is the large, undisrupted form of buying/selling in the US worth more than $1.6T
As Opendoor buys more homes in a market, they gain share and refine their playbook… They are in 21 markets now with plans for continued expansion…
This playbook, at 4% share, would create a company with more than $50B in revenue in as many as 100 markets

Metrics / Traction - The section on quantitative metrics is hilariously short, just a valuation, 2019 revenue, and 2023 expected revenue. The growth from $4.7B to $9.8B over four years doesn’t look great, and it’s surprising that he doesn’t mention margins or COVID-adjusted numbers here.
2019A Revenue: $4.7B
2023E Revenue: $9.8B
Enterprise Value of $4.8B

LMK what you think of the $4.8B valuation for Opendoor, and if this will be a good SPAC deal! BTW, if you enjoyed this memo, Institutional Investor wrote a fantastic profile on Chamath that’s definitely worth reading.

Other stuff Dan's talking about
👩 “Buying Myself Back” - Wow. Incredible essay by Emily Ratajkowski in The Cut on what it means to own your image and identity (and how easy it can be for someone to steal it from you). It would not be fun to be a celebrity
👓 VR > AR? - The Verge interviewed Mark Zuckerberg on VR. One interesting take: “A lot of people think that AR is the thing that matters, and VR is this niche, smaller thing. My outlook on that has shifted.”
🚜 Competitive farming - If you love computer games and gardening during COVID, you should check out the newest esports league: “Farming Simulator League.” Here’s a clip from this year’s finals (not a joke, I think)
🚒 C hook fire - Fascinating Twitter investigation on how no one replaced a 100+ year old hook on a power line, leading to the start of one of the California wildfires

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About me: I work as an investor at Madrona Venture Group, a Seattle-based venture capital firm that has been early partners with companies like Amazon, Smartsheet, Apptio, and Redfin.
If you have thoughts, questions, or comments, hit reply! If you’re new, check out some of the DL’s top articles from the last few months:

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