🍋 Stripe's Gripe

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Short Squeez
July 15, 2022

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"Easy money is an oxymoron." — Frank Martin

Good Morning! China's GDP growth of 0.4% in Q2 missed expectations of 1%, painting a darker picture for the global economy. Saudi Arabia is moving forward though, and has opened its airspace to all civilian carriers, which includes flights in and out of Israel. Finally, Jerome Powell and former vice-chairman Richard Clarida, are cleared of any wrongdoing in a trading scandal after it was determined they "did not violate the laws, rules, regulations or policies" of their positions.

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1. Story of the Day: Stripe's Gripe

According to people familiar with the matter, Stripe, the payment giant, cut the internal value of its shares by 28%. Private investors last valued the company at $95 billion, so that's not exactly like misplacing a quarter at the dollar store.

An email to employees said that the internal share price was roughly $29, compared to $40 in the most recent 409A valuation. The email said that the board approved the lower share price effective June 30th, but didn't explain the decision to lower the valuation.

On the outside looking in, you can tell that the sell off in big tech stocks probably has something to do with it. It's been the biggest rout in a decade, and has affected the pace of private fundraising as well. Compared to last year, when it seemed like the unicorns were popping up left and right, it's a gloomier market indeed.

In March 2021, Stripe raised $600 million from investors including Fidelity and Ireland's National Treasury Management Agency, which led to the $95 billion valuation. At the time, the valuation was 2.5x higher than what Stripe got in its 2019 round, so clearly things seemed great for the company. Well, now, investors in that round may not be looking so smart after all.

Short Squeez Takeaway: A situation that's unfortunate for everyone involved. Late stage investors bought in at crazy high levels and are seeing a pretty quick correction. Not even one that simply lowers your expected return, but one that actually puts you underwater. I'm sure there are some Stripe employees as well that have significant amounts of compensation tied up in internal stock. Hopefully they know a thing or two about raising cash.

2. Markets Rundown

Equity markets finished up of session lows, and managed to finish essentially flat. Crypto markets were up as trading was up, despite broader risk aversion.

Movers & Shakers

  • (+) Costco ($COST) +4% because Deutsche Bank upgraded the stock to a buy and increased its price target.

  • (+) First Republic Bank ($FRC) +2% after reporting earnings that beat top and bottom line expectations.

  • (–) Conagra Brands ($CAG) -7% because quarterly results indicated that sales volume has declined

Private Dealmaking

  • Brookfield Infrastructure Partners buys Deutsche Telekom for $6.6 billion

  • Carrick Capital invests $75 million in cybersecurity company Bishop Fox

  • NOVA Infrastructure raises $565 million for debut midmarket fund

  • Animoca Brands raises $75.3 million, nudging $5.9 billion valuation to advance open metaverse concept

  • Merlin Labs, an autonomous flight startup raises $105 million and partners with the U.S. air force

  • Powin, a battery energy storage startup, raised $135 million

3. Top Reads

  • Pharma is the place to hide during recession (WSJ)

  • Hedge funds, Wall Street double down on the dollar (BB)

  • JP Morgan, Morgan Stanley miss estimates as earnings season begins (YF)

  • Inflation numbers are bad – but how bad are they? (Vox)

  • U.S. treasury curve most inverted since 2000 (CNBC)

  • Your brain may be sabotaging your financial success due to how you were raised (CNBC)

  • America has an innovation problem (Vox)

  • The magic of your first work friends (NYTimes)

  • The most in-demand soft skills to put on your resume (CNBC)

  • Elon Musk is a nightmare client (Atlantic)

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Sweater VC has officially launched. Download the app.

4. Book of the Day: Being Logical: A Guide to Good Thinking

Logic is synonymous with reason, judgment, sense, wisdom, and sanity. Being logical is the ability to create concise and reasoned arguments—arguments that build from given premises, using evidence, to a genuine conclusion.

But mastering logical thinking also requires studying and understanding illogical thinking, both to sharpen one’s own skills and to protect against incoherent, or deliberately misleading, reasoning.

Elegant, pithy, and precise, Being Logical breaks logic down to its essentials through clear analysis, accessible examples, and focused insights. D. Q. McInerney covers the sources of illogical thinking, from naïve optimism to narrow-mindedness, before dissecting the various tactics—red herrings, diversions, and simplistic reasoning—the illogical use in place of effective reasoning.

An indispensable guide to using logic to advantage in everyday life, this is a concise, crisply readable book. Written explicitly for the layperson, McInerny’s Being Logical promises to take its place beside Strunk and White’s The Elements of Style as a classic of lucid, invaluable advice.

“In the ideal debate, the primary purpose of the debaters is not to triumph over each other, but rather by their combined efforts to ferret out the truth as it pertains to the issues being debated.”

5. Short Squeez Picks

  • Tired of having to use 5 different apps and 10 spreadsheets to monitor your investment portfolio? With Delta Investment Tracker, you can get a clear overview of everything that you own in one app. Check it out today!

  • Average rent in Manhattan was over $5,000 last month

  • Why a 2022 recession would be unlike any other

  • Your commute is hundreds of dollars more expensive this year

  • Why the latest Covid wave feels different

  • People literally ate the rich this week

A Message from Polymarket: ETH Price

Crypto has been in a downturn this year and the price of Ethereum (ETH) is no exception to what we’re seeing. Rising interest rates and record inflation levels are contributing to investors moving out of potentially risky asset classes like cryptocurrency.

At the time of writing, ETH was trading at $1,094 but will it stay above the $1,000 in 2 weeks time?

Will $ETH fall below $1,000 by July 31?*

Polymarket traders are currently predicting a 72% probability that ETH price will be below $1,000 by July 31st. What do y’all think? Follow the odds now on Polymarket!

6. Daily Visual: Total Confirmed Monkeypox Cases, by state

Source: Axios

7. Daily Acumen: 7 Secrets of Warren Buffett's Success

In the 2008 shareholder meeting of Wesco Financial, a shareholder asked Charlie Munger to describe what caused Warren Buffett’s success.

“His success…is a lollapalooza,” Munger replied – a confluence of factors moving in the same direction.

Munger outlined the following seven key factors which combined together to cause Buffett’s success –

Mental aptitude (Being seriously smart)

Having great interest in the subject (“It’s very hard to succeed in something unless you take the first step – which is to become very interested in it.” ~ Sir William Osler)

Early start (If something takes a long time to achieve, you better start early)

Being a learning machine (Keep learning and learning)

Reinforcement (Human beings work well if they get reinforcement – constant rewards for doing well, which drives you to do more of the same)

Being correctly trusted by people

Avoiding envy, jealousy, self-pity, vengeance, and extreme ideology

“I think there are lessons in it,” said Munger on these seven ideas that caused Buffett’s success. “I think that almost anybody can draw those lessons from Warren’s achievement at Berkshire.”

One more aspect of Berkshire’s and Buffett’s success, which both Buffett and Munger have mentioned at various times is that they have had a temperamental advantage.

As Munger told investors at the 2014 DJCO meeting –

"Warren and I know better than most people what we know and what we don’t know. That’s even better than having a lot of extra IQ points.

People chronically misappraise the limits of their own knowledge; that’s one of the most basic parts of human nature. Knowing the edge of your circle of competence is one of the most difficult things for a human being to do."

Knowing what you don’t know is much more useful in life and business than being brilliant.

8. Crypto Corner by Bonkalytics.com

For more crypto-focused content, sign-up here.

9. Memes of the Day

 

 

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