Wrap-up 2024
Annual predictions, best books, and housekeeping.
As is custom (2023, 2022), I end the year by reviewing last year’s predictions, making some more for the following year, and sharing the best things I read this year.
Predictions recap:
Technology and software growth rates won't necessarily re-accelerate, but they'll more or less hold steady which will be enough for multiples to re-rate higher as pessimism deflates. Public SaaS stocks as a whole will appreciate 20-30%. Verdict: Correct. The public SaaS index (WCLD) is up 20.1% YTD as of today, and growth rates seem to have bottomed. The median EV/NTM revenue multiple for publics is at 6.7x, compared to around 6.0x at the start of the year.
In contrast to public markets, the main themes of private markets are fire sale acquisitions, down rounds, and venture capital firm blow-ups. The only quarter that feels "back to normal" is Q4. Verdict: Not really. We’re not remotely “back to normal”, in fact we seem to be in a new and different phase than I have ever encountered in venture. It is true that venture capital firms are blowing up, but these are taking the form of private retirements rather than public explosions. And there’s not much M&A happening at all, really.
Two of the four of Twilio, RingCentral, BigCommerce, and Okta are taken private. ServiceTitan and Databricks will both go public, but Stripe will not. Verdict: Mostly wrong, except ServiceTitan going public and Stripe staying private. I missed Smartsheet, Zuora (how could I have missed this??), Instructure, Squarespace, and Everbridge.
Two longs and a short: TOST, PYPL, and AAPL. Verdict: Pretty good! TOST is +114% YTD and PYPL is +47%. Apple is up 37%, whoops.
The average 30 year mortgage rate ends the year below 5.5%. The inflation rate at the end of the year is zero or negative. Verdict: Wrong. I’m not sure what I was smoking when I wrote this.
Joe Biden wins reelection by a comfortable margin, but Kamala Harris is not on his ticket. (Bonus points: Pete Buttigieg is). Verdict: Wrong (but do I get partial credit for guessing that the ticket isn’t Biden/Harris?)
"San Francisco is so back, baby" is a major theme in the second half of the year. Miami and Austin recede significantly as tech hubs. Verdict: Mostly correct.
The winner of the Big Ten football championship will be.... Oregon. Verdict: Correct!
That’s 2 corrects, 2 mostly corrects, 2 mostly wrongs, and 2 completely wrongs. Not bad!
Now, onto The Down Round’s eleven predictions for 2025:
AI foundation model improvement continues steadily throughout the year, i.e. scaling laws don’t hit a wall.
The S&P 500 ends the year up 12%.
Public SaaS valuation multiples (EV/NTM revs) come back down to 6.0x.
Less than 25 technology/software companies IPO on U.S. exchanges (for reference: annual numbers for 2019-2024 are 43, 48, 126, 8, 10, and 12, respectively).
Public SaaS free cash flow numbers continue to rise from 2024, with many companies adopting lite versions of the Klarna approach, whereby they keep headcount roughly flat as they implement more AI into their operations.
Two longs and a short: S, ZS, TSLA.
A legitimate, bona fide, mass use case for crypto (separate from store of value) emerges and sees mass adoption.
Public approval ratings for the Democratic party remain low throughout the year. Trump’s net favorability hovers between 0% and negative-5%.
Tariffs and mass deportations have a small but negligible impact on inflation. Less than 1 million people are deported during the calendar year.
Both wars in Ukraine and Gaza come to an end. However, another major active war breaks out somewhere else in the world.
Oregon wins the Big Ten in football for the second year in a row.
Reading material
The best books I read this year (in no particular order) were:
Sonny Boy: A Memoir, by Al Pacino
Hell is a World Without You, by Jason Kirk
We Have Never Been Woke: The Cultural Contradictions of a New Elite, by Musa al-Gharbi
WAR, by Sebastian Junger
And my favorite articles and blog posts (also without order) were:
Smart People Are Especially Prone to Tribalism, Dogmatism and Virtue Signaling
Yield is All You Need: Why IRR on CAC is the Only Metric that Matters
The solar industrial revolution is the biggest investment opportunity in history
Playing to Win vs. Playing to Make Plan: The Two Very Different Worlds of Silicon Valley
Edison Didn't Worry About Being Efficient and Neither Should You
I Went To China And Drove A Dozen Electric Cars. Western Automakers Are Cooked
A Stalled American Dream: A depressing and unhealthy few days on the road
Blog miscellaneous
My posting this year was pretty sporadic, mostly due to some major life changes including the birth of my second son and our relocation to Pittsburgh, Pennsylvania. Going forward I am not going to set any goals around pace of publishing, though if you have anything in particular that you’d like me to write about, please don’t hesitate to drop me a line.
This year the best-received things I wrote were I don't know where value capture is going to happen in AI and Some thoughts on what the hell is going on in venture. The thread running between those two, I suppose, is the enormous degree of uncertainty in the technology industry right now. Which types of companies have moats and which do not? Where can investors find alpha? What will white collar jobs look like in 5 years? Should there really be this many open questions at a time when the S&P, NASDAQ, and S&P P/E multiples are all at all-time highs? I expect this theme of uncertainty and disorientation will persist through 2025.
Additionally, a lot of you told me that you liked my screed on why a Harris administration would be better economically for the median worker than a Trump one, though I got the hint that you’re all tired of politics and would prefer this blog to stick to other topics. I feel the same way!
Once again, I'd like to thank you so much for reading, commenting, liking, sharing, and chatting with me about what I post here. You are seen and appreciated!