Tag Archives: public markets

Why a Tech Bubble Might Not Be as Bad as It Seems?


There are a lot of debates within the public market and technology circles of whether we are in another tech bubble. In the past, I’ve been written extensively about several arguments that explain why I don’t believe we are currently experiencing a bubble in the tech sector. While certain aspects of the private technology market like pre-IPO valuations are certainly “bubble-ish”, the public markets seem to be trading tech stocks at very reasonable valuations and you can even argue some of the market leaders like Apple or Google are trading below its real market value.

If any other reasoning fails to explain why we are not in a tech bubble we can use the number one rule of economic bubbles: “If everything thinks we are in a bubble, then is not a bubble” ;).

Despite of the previous reasoning, we can’t deny the fact that certain characteristics of the current tech market presents signs of a bubble. However, you can make the argument that is could be a positive bubble.

Don’t take me wrong, we all know that bubbles cause a lot of economic damages when they burst. However, people often ignore the simple fact that some of the most powerful economies in the world have been built on the back of a series of economic bubbles. Take a look at some of the most famous economic bubbles in history:


While some bubbles like the US 2008 housing bubble are just based on speculation in an existing market, other bubbles are based on the creation of new industries. Is the second type of bubble that, after it bursts, leaves behind an infrastructure that creates new generations of wealth and moves society forward. From that perspective, you can argue that, despite its negative consequences, bubbles like Britain’s railway mania in 1840 or the dot-com boom of the late 1990s created the necessary infrastructure to explore new frontiers and create brand new industries that became pillars of those economies.

When looking at the current state of the tech ecosystem, if we can get passed the crazy valuations in growth stage companies, we will see that the innovations in areas like mobile computing, data science, 3D printing, robotics, IOT, augmented reality, artificial intelligence etc, are likely to create a lasting infrastructure that will survive any potential bubble. While we should continue debating whether we are currently experiencing a bubble in the tech sector, we can relax a bit and think that it might be a good bubble ;).

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Posted by on June 9, 2015 in Uncategorized


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EMC Acquisition of VirtuStream Closes the Door to a VMWare Spin-Off


Two days ago, storage giant EMC announced that it has reached an agreement to acquire VirtuStream for $1.2B. VirtuStream is not the most well-known platform in the cloud market but one that has developed a considerable penetration in the enterprise space. This move follows the recent acquisition of CloudScalingrepresenting another step in EMC’s strategy to develop a robust cloud portfolio.

While the acquisition brings very clear benefits to the EMC cloud stack from the capabilities standpoint, it has raised some interesting questions about the future of EMC’s crown jewel: VMWare. In recent months, EMC has been under pressure from activist investor Elliott Management to spin off VMWare as a separate company. The hedge fund manager has been critical about EMC’s federation structure under which companies like RSA, Pivotal and VMWare are run as independent companies. The debate about a potential VMWare spinoff has continue throughout 2015 in part fueled by the VMWare’s relatively poor market performance. The acquisition of VirtuStream seems to be a clear signal against those plans.


From a technical perspective, VirtuStream allows companies to transition applications to the cloud in a secure and compliant way. The xStream cloud management platform offers a consistent management   across public, private and hybrid cloud topologies. Those capabilities clearly align with the VMWare’s technologies like vCloud Air that provide a robust option for hybrid cloud enterprise topologies. From that perspective, the acquisition of VirtuStream only indicates EMC commitment to build a robust cloud portfolio in which VMWare is the central piece. In that sense, VirtuStream integration with vCloud Air will accelerate the path for customers migrating applications to a hybrid cloud topology powered by the VMWare stack. Regardless of how the integration between VirtuStream and vCloud Air materializes, its pretty obvious that EMC plans to keep both business running under its “federation”.

Despite the technical alignment and the fact that the price for the acquisition was relatively reasonable and the technology, investors clearly were not thrilled with the EMC decision. To prove the point: EMC shares were down 2.2% at $26.25 in mid-afternoon trading on Tuesday. EMC’s 52-week trading range is $25.07 to $30.92, and the market cap is $51 billion.

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Posted by on May 28, 2015 in Uncategorized


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4 Reasons Why Big Tech Companies Continue Splitting

bridgeComputer Sciences, the giant IT consulting company founded in 1959, announced yesterday that it will be splitting into two different companies. Under the new structure, CSC Commercial will serve Fortune 1000 companies while CSC US Public Sector will focus on servicing government entities. Following HP, Symantec and eBay, CSC is the latest of a series of tech companies that have announced splits in the last year. Other legendary companies like EMC have been under constant pressure to spin off VMWare into a separate entity. This phenomenon is becoming a strong reality of large tech companies to the point that legendary venture capitalist Marc Andreessen presented the provocative thesis that most tech companies older than 20 years will be forced to split.

Despite the media fascination with the split of large tech companies, it’s pretty obvious that those decisions are extremely complicated. Companies like eBay, Symantec, HP, CSC or EMC are legendary institutions in the history of the tech industry and many of them have enjoyed stellar performances in the public markets. In that sense, what can motivate or force such institutions to split into different companies? While the explanations are far from obvious, there are a few factors that might indicate the possibility of a split.

One Business Unit Starts Growing Faster than the Core Business

One of the main scenarios for a company split is when a business unit of the company starts growing exponentially higher than the others. Arguably, this is the case of eBay in which Paypal’s revenues recently became larger than eBay’s core business. In those situations, many shareholders see a split as a potential solution to allow the fast growing segment to continue evolving faster while the core business units can grow without the distraction of a faster growing little brother.

Different Business Units Evolve Under Drastically Different Business Models

Another cause of a company split could be seen when two groups of business units within a company evolve under completely different business models. In this scenario, we are not necessarily referring to a group of business units growing faster than the rest of company but rather under different business models. HP could be used as an example of this scenario as the enterprise software business units have grown following a business model completely different from the core printing business. When faced with this scenario, companies typically faced challenges enforcing common strategies and goals which makes the split an appealing scenario.

Wall Street Doesn’t Know How to Value the Company

In many cases, the stock price of large tech companies have suffered because Wall Street have difficulties valuing the company with many diverse business models. In those scenarios, sometimes shareholders believe they will benefit from a split that could simplify the valuation of the stock. An example of this scenario (not from the tech world) can be found on GE recently announcing the sale of the assets of the GE Capital unit.

Agility in New and Competitive Markets Becomes Challenging

Every sector and geography in the world can be potentially considered a technology market. Some sectors also experience very fast grow and become extremely competitive with new generation of startups entering the space. In those situations, business units of a large company can experience continuous challenges to expand into new areas or geographies or simply remain competitive in fast growing spaces. As a result, many shareholders see a split as an option to allow the company to regain its agility without the pressures and distractions of the other business units.

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Posted by on May 21, 2015 in Uncategorized


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Why Startup CEOs Should Understand Public Markets

Uptrend stacks coins,on the financial stock charts as backgrou

A few days ago, during a dinner with a few experienced tech executives, we had a super interesting discussion about the current state of the public markets and its relationship with the venture industry. One of the topics we were debating was the value of understanding and following the state of public markets as an entrepreneur and CEO of  a private company.

The discussion was particularly interesting to me as I have been advocating the value of knowing to speak the language of public markets for private company CEOs. In my opinion, understanding the dynamics of public markets can be incredibly useful for a variety of reasons:

Understanding of Public Market is a Very Useful Skill

Socks, bonds, options, etc are statistical principles that describe the state of a company, industry, a country or the entire world. Understanding those principles can result incredibly beneficial during negotiations with potential large customers or investors. Whether you are a technologist, business person or an investor, I’ve found that understanding the language of public markets tends to be a very complementary skill that can become helpful is various situations.

VCs Often Use Public Market Information to Calibrate Private Market Valuations

If you are raising money for your startup, it doesn’t hurt to validate the current state of public markets. Whether you like it or not, venture capitalists (VC) typically look at public market valuations as a way to calibrate the valuations of their investments. This is particularly true if your company is on a trajectory to go public at some point.

Public Market Downturns Affect the VC Industry

Public markets are the ultimate representation of an economic downturn. The indicators of difficult economic times ultimately affect the VC circles. If you were around during the 2000s or 2008 crisis, you might remember that it was impossible to raise a round of VC funding regardless of the quality of the investment.

Public Market Investors are Becoming More Active in Private Markets

In the last few years, a number of hedge funds and private equity firms have started to make inroads in the vC market. Those public market investors are typically lured by the opportunity to invest in fast growing private companies before a potential public offering. As a result, many startups are now raising institutional rounds from traditional public equity investors. In those circumstances, the understanding of public market dynamics can result incredibly helpful.

These are just some of the reasons why I believe developing an understanding of pubic markets can be incredibly valuable in your career. At the end, public markets are a language that you should know how to speak and that will expand your perspectives of your work, industry and even your life.

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Posted by on April 3, 2015 in Uncategorized


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Some Thoughts About the Box IPO

Cloud storage company Box debuted in the public markets last Friday with a strong performance that pushed the price per share to $23.23 which represents an astonishing $2.7B market capitalization. The Box IPO represents the successful conclusion of a process that started last year when the company filed its first S-1 but later delayed the process to correct some of the concerns expressed by investors and analysts while also wait for a friendlier IPO climate.

All things considered, the Box IPO has been both incredibly successful and very atypical. Talking to a few friends about the IPO on Friday evening, we dicussed a few points that I thought would be interesting to summarize in this blog post.

The Risk of Raising at a Sky High Valuation

After retracting from its initial intentions of going public in 2014, Box raised $150M at a sky high $2.4B valuation. While the Box traded slightly over that valuation in the initial day, some of its investors are not yet seeing great returns based on the last round. In that sense, this is a great example of how, sometimes, raising at incredibly high valuations can fire back on investors looking for 2-3x returns.


It’s All About Going Fast

The Box IPO clearly puts the company as one of the market leaders in the cloud storage category which is getting increasingly competitive and commoditized. Since the early days, Box has done a masterful job accelerating customer acquisition, sometimes at the expense or revenues, to create distance between them and the incumbents in the space. Box’s relentless pursue of growth should be an example to follow by all startups in high growth enterprise software categories.

Profitability Matters

The market reaction to Box’s initial S-1 was far from warm. The company showed revenues at $124M  with losses at $168M which represented an increase from the year before ($112M). After the initial filing, Box updated the S-1 showing strng progress closing the gap between revenues and expenses and a clear path to profitability. As much as we reward growth in the enterprise software world, it is important to remember that profitability is a super important criteria for a strong performance in public markets.

Price Low

The initial price of $14 share proven to be correct for the Box IPO in this climate and Box ended up raising $150M with this initial public offering. This price highly contrast with Box’s initial S-1 with which the company was hoping to raise $250M. Similar to other IPOs like ZenDEsk, the strategy of pricing reasonably low mitigates any investor anxiety for the first weeks of trading.

Enterprise Software Continue to Perform Strong

Prior to the Box IPO, there was a lot of skepticism within the VC community in terms of the future of enterprise software IPOs. Similar to the Facebook phenomenon in 2013, a weak IPO for Box could close the window for enterprise software companies eyeing a public offering in the next few months. Thankfully, Box performed incredibly strong and the IPO window remains open for enterprise software companies.

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Posted by on January 26, 2015 in Uncategorized


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Violin Memory’s IPO Lessons: Public Markets Don’t Always Get Cool Technology

Violin Memory, one of super cool players in the flash memory storage space, had a very rough IPO last Friday. With an initial offering of $9 per share, we watched the stock dropped all day up to 22% at $7.02 per share. Since then, the stock has had ups and downs closing at $7.50 last night. This IPO was another example that, when come to highly competitive sectors, public markets care more about revenues and deal flow than about solid technology roadmap.

As a technologist, I always have a hard time reconciling innovation with public market perception. While there are no doubts about the game changing capabilities of Violin Memory technology, the fact of the matter is that solid state flash memory is a very competitive space with incumbents like Dell, HP, EMC and IBM moving in. Like any other utility technology, the expectations are that these types of technologies will be highly commoditized in the near future. The fact that other players in the space such as are going through a bit of a turmoil didn’t get Violin’s IPO either.

In those type of sectors, public markets tend to look for a solid path to profitability and deal pipeline to overcome some of the, sometimes unjustified fears. From that perspective, Violin Memory couldn’t present a great picture either after terminating a deal with its top reseller: HP who have helped to grow the company’s revenues by 500 in the first year. In terms of numbers, Violin posted revenue of $51.3 million in the first half of 2013, up from $30.3 million in the year-ago period. However net loss was $59.2 million in the first half of 2013, up from a net loss of $48.3 million. Not a great picture either from a public sector perspective.

Having said all that, I still feel optimistic about the future of Violin Memory. However, my perception has little to do with an empirical analysis and is more based on the fact that I have a really hard time betting against a super talented team that knows their space better than anyone else in the market. With the right support, Violin Memory will be able to innovate into new areas in the solid state flash memory space and keep differentiating itself from the competition.


Posted by on October 4, 2013 in Uncategorized


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