A few months ago, I started thinking about what traits founders/CEOs who take a company from idea to public-market company worth billions possess. It’s a small group of people, as the number of companies that reach hundreds of millions or billions in annual revenue is small relative to the total number of companies founded.

After spending time learning about people who’ve accomplished this, I see one clear trait. These people were obsessive about a single problem. They weren’t entrepreneurs who wanted to build a company but weren’t sure what problem they wanted to solve. Rather, they’d been thinking about a problem intensely and decided they wanted to solve it.

It's hard to scale a company to billions and take it public. Along the way, founders will usually get an offer to sell if the company is doing well. To reject the offer and the financial windfall associated with it and take a company public is a hard decision. To continue as a public-company CEO and endure all the scrutiny from public-market investors isn’t for the faint of heart, either. This requires a vision and level of commitment that founders aren’t likely to have if they weren’t obsessive about the problem they’re solving.

I’ll keep looking as I study more founders/CEOs of public companies, but I’ve yet to find a founder of a public company who was a founder in search of problem before starting their company.

I recently caught up with a friend working at an investment firm. He’s been wondering when venture capital will escape its downturn. Many factors are contributing to the downturn. I shared two things I think need to happen: venture capitalists need to be able to sell companies to public market investors, and those companies need to be received well by public markets.

IPO activity and performance are important. Venture capital investors need (1) overall stock-market sentiment and direction to be positive (investors are in a buying mood) and (2) technology IPOs to perform well (not tank). If these two things happen, we’ll likely see more IPOs, and the venture capital industry could be on an upswing again.

As of the writing of this post, stock market sentiment is positive, and the direction of the market has been up (disclaimer: this could change at any moment). The NASDAQ Composite Index, as of today, is ~15,500. For context, the all-time closing high for this index was 16,057 on November 19, 2021. So we’re ~3.5% below the all-time high. This is encouraging, especially when you consider that the index was ~10,500 at the beginning of 2023.

The missing piece, though, is technology IPO performance. I followed the most recent high-profile technology IPOs, those of Klaviyo and Instacart (see here and here). Both companies went public in September 2023. Today I checked to see how they’re performing. Both are trading near the lowest levels at which they’ve traded as public companies and below where their IPOs were priced. Both companies priced at $30. As of this writing, Instacart is trading at $24.80, which is 17.3% below the IPO price. Klaviyo is trading at $24.74, or 17.5% below IPO price. During that same period, the NASDAQ went from ~13,500 to ~15,500, an increase of 14.8%. The performance of either company’s stock could change anytime, but as of today it hasn’t been great.

This is something I’ll keep an eye on. I suspect these and other factors will be key to venture capital’s downturn changing course.

I caught up with a venture capital investor this week. We chatted about 2023 and what venture capital might look like in 2024. He follows the public markets and was glad to see them finish 2023 on a high note. But he wasn’t sure about venture capital in 2024. He noted that while public markets were positive in 2023, especially the last few months, the IPO market was sluggish. And the few technology companies that did go public were bellwethers and didn’t perform well. Public-market investor sentiment about newly listed technology companies wasn’t great in 2023, which turned off venture investors and founders from taking more companies public. Until this shows signs of changing, he isn’t optimistic about the venture capital industry.

I think public-market investors are reassessing how to value technology companies, which is slowing the IPO market. The revenue-multiple approach is resonating less with them because of interest-rate hikes over the last two years. But legacy valuation methods such as price-to-earnings multiples don’t always make sense for technology companies either, given their ability to reinvest in growth. When public-market investors settle on a valuation approach and venture capitalists and founders embrace it, I think we’ll see more IPOs received positively by public-market investors and, in turn, more companies going public.

Who knows when that will happen—but it wouldn’t surprise me if 2024 is the year a new valuation approach is embraced by public market investors, venture capitalists, and founders.

Last month, I shared that Warren Buffett and the Haslam family were embroiled in a $1 billion accounting dispute over Berkshire Hathaway’s purchase of Pilot Travel Centers from the Haslam family. A lawsuit had been filed. The trial of the case was scheduled to begin today.

Sunday it was announced that the trial had been canceled because the two sides had come to an agreement (i.e., a settlement was reached). The terms of the settlement haven’t been revealed publicly, but Berkshire may eventually have to disclose settlement specifics in filings with the SEC since it’s a publicly traded company. I’m curious about how they settled this dispute and hope the details are released publicly.

In the end, I suspect neither side wanted their top brass to have to answer questions under oath because their answers would be public record, so they opted to settle at the eleventh hour. That’s not unusual.

This week I caught up with a VC investor. He shared that he’s working on a deal recap deal. The company raised in 2021 at an inflated valuation, hasn’t grown into that valuation, and is running out of cash. The proposed valuation is a material discount from the 2021 valuation, which the investor finds interesting.

I’ve pondered recap deals quite a bit in 2023. A few thoughts:

• An investment being attractive because it’s discounted from an inflated valuation doesn’t make sense to me. A discount on an overpriced item doesn’t guarantee it’s a good buy—just that it’s less overpriced. It’s more logical for an investor to independently determine what the company’s worth given the current (not projected) traction. If the proposed price is less than (or equal to) the investor’s independent valuation, it could be an attractive investment for that investor. If it’s more, not so much.
• It isn’t easy for CEOs who founded companies in the growth-at-all-costs era to adjust their mindset about how they’ll grow. That being so, for an investor, it’s critical to understand whether the CEO has really bought into efficient growth with a focus on eventually generating cash flow or rather still believes in growth at all costs and is waiting for things to “get back to normal.” I’ve found that many CEOs will say they’ve made the adjustment, but their actions tell me they still have the old mindset. I believe that efficient growth is significantly harder than growth at all costs and that significantly fewer CEOs are capable of succeeding at the former.

I suspect we’ll continue to see recaps in 2024, and as the earlier recaps succeed or fail, investors will start evaluating opportunities more deeply than just looking at discounts from inflated valuations.

A few months back, I shared that 2023 was shaping up to be a lackluster year for initial public offerings (IPOs). The year is officially over and the final tally is in. We ended 2023 with 154 IPOs, a decrease from 2022’s 181 offerings and a dramatic drop from 2021’s 1,035 offerings. Post global financial crisis, 2023 had the second-fewest IPOs. The lowest count was 133 offerings in 2016.

I view IPOs as an indicator of public-market investor sentiment, and I’m curious to see if IPO activity changes materially in 2024.

If you want more annual IPO data, take a look here.

Fred Wilson shared his 2024 predictions yesterday. Wilson is a well-known VC and general partner at Union Square Ventures. Here are a few of his points that I took note of:

• A soft landing is likely given decreasing inflation and interest rate hikes being less likely.
• There’s more innovation in today’s environment than any other time in his forty-year career.
• This year will be the coming-out party for “the new energy stack.”
• The business of venture capital will need to find its new norm. We’re a couple of years into a transition that will take until 2025, at least, to play out.
• Capital markets will likely be robust in 2024.

Wilson is a seasoned investor who’s been through a few cycles and achieved outsize returns. Given his track record, I enjoy reading how he’s thinking about things. His predictions may or may not come to fruition, but they’re interesting perspectives to consider.

I think public markets will set the tone for the year. If public markets are flat or continue to march higher in Q1 2024, we’ll likely see most of Wilson’s predictions become reality. If public markets start to decline in Q1, his predictions are less likely to transpire.

I read something interesting yesterday that stuck with me. It was a different way of thinking about wealth. It went something like this:

Someone with a lot of wealth can be assumed to have provided a lot of value to others in the past, which resulted in their wealth accumulation.

This author was speaking from a historical perspective, meaning they were looking at wealth accumulation over thousands of years, not just the last few decades.

I like this way of thinking about wealth, and I’m curious how many people think about it in these terms, given the monetary conditions of the last few decades. Not many, I suspect, but I want to test to confirm my intuition during the holidays with friends and family. I’m genuinely interested in hearing people’s thoughts on this.

In September 2022, I shared that Adobe announced it was acquiring Figma for $20 billion. Adobe is publicly traded and has a market capitalization (i.e., valuation) of around $270 billion as of this writing. It’s an established company offering software, including Photoshop, to creatives. Figma was founded around 2011 and offers web-based tools that allow creatives to design and prototype user interfaces and user experiences collaboratively and easily.

Today it was reported that the merger has been called off because Adobe couldn’t get regulatory approval. Adobe will reportedly pay Figma a $1 billion termination fee for walking away from the deal.

Figma’s CEO confirmed the news via a blog post in which he also noted that the company has been executing since the deal was announced. It even hired 500 new people.

This news is bound to be a letdown for Figma team members and investors, who expected a large liquidity event this year. However, this might not be all bad for Figma. For one thing, market conditions have changed materially since this deal was announced. The NASDAQ Composite Index was at about ~11,000 then (on September 22, 2022). The index's 2022 bottom was ~10,200. As of this writing, it’s at ~14,900, or ~35% higher since the announcement of the merger. Another consideration is that if the 500 new hires are an indication of revenue growth, the company could be doing well financially. Last, Figma gets $1 billion for the headache of the last fifteen months, which isn’t bad considering it was valued at $10 billion in its last fundraising round in 2021.

This isn’t the outcome Figma hoped for, but it probably isn’t that bad for them. It could even turn out to be a good outcome. Time will tell. I’m curious to see what 2024 has in store for Figma.

I recently had the chance to meet Tobi Lütke, CEO and cofounder of Shopify. Shopify’s platform provides technology that allows retailers to easily sell online. Said differently, it makes e-commerce easy. Tobi initially built Shopify to solve a personal pain point but soon realized that other entrepreneurs were experiencing the same problem. In 2004, he embarked on solving the problem for others, and as of the writing of this post, Shopify is a publicly traded company with a market capitalization (i.e., valuation) of just under $100 billion.

Last fiscal year, Shopify recorded $5.6 billion in annual revenue. The Shopify platform processed almost $200 billion in gross merchandise value (GMV); i.e., revenue on behalf of its customers. Tobi has built a company that’s having a large impact on how commerce is done.

Tobi is one of those rare founders with the ability to take a company from idea to billions. I was interested in learning what trait allowed him to achieve such a rare feat. Tobi shared a variety of valuable insights, but what stuck with me most was his conviction about the power of entrepreneurship. Tobi believes entrepreneurship is a powerful force that can change the lives of those who pursue it. He’s expressing that belief through Shopify’s mission of helping people achieve economic independence by making it easier to start, run, and grow a business. And his belief and mission-oriented mindset have likely been a significant driving factor in his ability to continuously level himself up as Shopify has grown from an idea to an international company generating billions of dollars in annual revenue.

I’m glad I had the opportunity to meet Tobi, and I look forward to following his entrepreneurial journey. I can’t wait to see where he takes Shopify next and the impact it has on entrepreneurship.