Blackmail, Mistakes, and Correction

Issue #12

After a spring-summer break, I’m back to writing. This edition comes to you from the beaches of Lesbos, Greece.

2022

If you thought 2020 and 2021 was bad then 2022 has outdone itself.

• war

• inflation at all time high

• gas prices going through the roof

• Tech stocks down more than 70% from all time high

• layoffs and hiring freeze

• rising interest rates

• nations defaulting or close to edge

Gas Blackmail

As Nordstream 1 went into its yearly maintenance schedule, Western European leaders were concerned. Nobody knew if the pipeline will be turned on back again and if yes at what capacity. There is no reason for Russia to stop the gas, Russia is making a lot of money selling gas to Europeans and has nowhere else to sell it. Oil supplies to Asia (mainly China and India) are down by 30% from its peak two months ago.

However, as Mr Putin’s famine blackmail is failing, he is growing more desperate to reach a ceasefire agreement and stopping gas is the last big leverage he has left. But alas, the gas has started flowing again right on schedule. Everyone is breathing again in Europe but frantically preparing to move away from Russian gas.

Mistakes - Elon’s costly mistake

By now everyone know about Elon and his Twitter deal, you have to give it to Elon he is a master in Marketing, he makes sure his name and his companies name is in the news everyday.

Elon is desperately trying to get out the deal he committed to but Twitter’s lawyers and most probably SEC will not let him and try to make an example out of him. He has violated every single law when it comes to mergers and acquisitions.

• bought the stake without declaring

• acted in bad faith

• pressured the board and management

• cancelled the deal on false pretence

And recently, tried to delay the trial but alas failed. The judge in Delaware rejected Elon’s musk request to stop the expedited trial.

This trial will be an epic showdown (Netflix are you listening?). Twitter has a strong case against Elon and would be interesting to see how Elon’s lawyer can defend him and keep in control until the case ends. If Elon losses, he might have to buy Twitter and this would go down as one of the most expensive mistakes.

Correction - End of Free money

People learn from mistakes of the past. Which is a good thing, however, a lot of people think that if these mistakes repeat themselves, it will play out exactly how it happened in the past. Thats the fallacy of this approach and you can see a real life example in tech stocks.

People thought that tech bubble will be exactly like the one in 2000s and the correction that follows will be similar. BUT this tech bubble was different - it took 5-6 years to build up. Unlike 2000 dot com crash, companies had revenues But these revenues were VC funded revenues meaning - startups selling their services to other startups which started a chain and made sure all of these companies kept raising more money.

The low interest rates resulted in flood of cash in the market and investors were willing to put their money in riskier companies and at unrealistic valuations. The interest rates were the lowest in the history of modern finance and with that gone (US interest rates are hitting 3%, EU hiked its interests rate today to 0%) the everything is being corrected.

People call it a tech crash however I call it correction. If you prop up something worth $1 to $10 and then at some point its comes down $1 its called Correction in my book. This correction was waiting to happen for a long time. Startup world was behaving like a drunk Caligula - startups with no revenues going IPO with billions in valuation ( Rivian with no revenue was once valued at $116 Billion), SAAS startups raising money at 20X Sales, negative unit economics startups (Q-commerce) burning though cash without any strategy and capturing market share by making their customers addicted to discounts. And then startups such as Fast - where founder were giving talks and lessons on technology and management - burning through millions of dollars with only $600k in revenue, crazy!

We all need to adjust to the new reality which might be difficult for some millennials who haven’t seen or heard about these principals like companies need to generate profits, companies need to deliver on promises, there is no free money, and most importantly your stock options are not guaranteed to make you a millionaire.

Thats all folks.