The Ripple Effects Continue

**This was originally sent to clients April 12, 2022. And is a continuation of our Ripple Effects series. The first missive in the series was sent April 5th, 2022 titled: The Ripple Effects Are Happening…**

We’re continuing to see the ripple effects cascade.

Last week, we talked about the impact public markets have on private markets. And vice versa.

Private companies look to public companies as a signal. A signal of how to value themselves if/when they raise money or go public.

The writing’s on the wall for private companies now that public growth companies are down 50-80%.

We mentioned Instacart. Instacart raised money at 40% less than its previous round. And Gopuff. Gopuff laid off 3% of its workforce and is strategizing a plan to save $40 million annually. Here’s what we said last week:

A few hours after our email hit your inbox, news broke that a much-hyped payment startup – Fast, shut down.

Fast had been working on offering one-click checkout solutions for online retailers. It launched in 2019.

Fast then told Business Insider in a statement, that interest in its one-click checkout product “has far exceeded even our own ambitious projections, reflecting the significant increase in sales that our one-click checkout brings to online merchants.”

It raised money at a $1 billion valuation in November 2020. Which was a 10x markup from its previous raise 7 months earlier. The November raise was its third financing round in just 12 months.

Fast then raised another $124 million in January 2021 – including $102 million from mega private payment startup, Stripe.

It was burning $10 million per month. Sometimes reportedly up to $50 million in a given month. A lot of money by any measure.

But not so much when the times are good. Because the expectation is to raise more money to accelerate growth even further.

Private equity investors were easing up on their due diligence. And throwing their money at any and all startups. Regardless of the company’s unit economics.

How so? Well, Fast was valued at over $1 billion on just $600,000 in revenue in 2021.

Then came the growth stock pullback in late 2021.

Fast tried raising as recently as two-three weeks ago. But it couldn’t find any takers.

So it had to shut down.

That’s how quickly things change.

From $1 billion to zero in 12 months. From investors throwing hundreds of millions of dollars at them to… crickets.

The ripple effects continue to make its way through the private markets.

Just as private equity investors and the companies themselves felt euphoria on the way up. They’ll feel pain and withdrawal on the way down.

It’s a negative feedback loop. Things are – and will – get worse.

Be careful out there.

Good investing,Lance

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