The gold rush is over - private equity is going to squeeze every little drop from the companies that have been built and we will move on to Web 3.0 - which will be just like web 1.0 - self-hosting, link directories, newsletters, and guestbooks.
As much as I'd like to see a web 1.0 revival, this won't happen.
The traffic is controlled by Google and social networks. Most people don't have the skills needed to run their own website. A lot of valuable content is created by people without these sorts of skills.
I was part of some social computing facilities and burnt my own and friends’ money to offer basic stuff for people to publish basic html pages, small twitter like service, one nextcloud and one invidious instance. Within weeks, nextcloud was filled with pirated content sharing, html pages were hosting fake bank login phishing pages and moderation became horror. Our colo provider sent us some written warnings to sort this out immediately.
While I still inspire to launch a twitter 1.0 plain old less featured version, but the thought of moderation kills my motivation immediately. :(
There are still public computing facilities here, like sdfeu, envs.net etc, am not sure how they handle the moderation of spam and pirated content attack.
Mastodon effectively democratizes the moderation to the huge group of server admins - who do a massive amount of unpaid labor. It definitely keeps some people away, and burns others out.
Sorry, "effectively" was an ambiguous word to use. I meant it in the sense of "for all practical purposes; in effect," rather than implying it was good.
To be clear, I think the admins are mostly white knuckling the moderation problem.
>the other part has always been endemic to the Internet (and communities!).
Indeed. But unlike machines (and AI, in the future), humans don't scale well. managing a potential audience of 10000 user with a few hundred commenters focused in a few countrie is an order of magnitude different from the millions of users with thousands of commenters and a very well established malicious actors with no respect for community.
It's more work, for more people, for less appreciation. It's also harder than ever to pay for labor as a small community, unless you are very well off.
It's definitely a thing, but IME hosting a small instance, it's really not that bad. My advice for new admins would be to 1. find a small, decently up-to-date block list as a starting point (I can recommend FediNuke [0]), 2. check the #FediBlock hashtag (using any Mastodon UI or the RSS feed automatically generated) once a day or so for any warnings about bot attacks, or any other things you would like to be super proactive about, 3. promptly respond to the (likely very infrequent) reports you get from your users.
I could see why this might not scale as well to instances with thousands of users, or if a user is a frequent target of harassment (where opt-in federation might be the only solution), but for our lab, the existence of all the nazi or whatever instances has been resolved via a simple "Oh, these again. click, click, click There, the whole instance is banned." a few times a year. I have a suspicion that Dunbar's number or lower might be the optimal size for any federated social media instance, since knowing every user on my instance makes it a lot easier to tailor the little effort I have to put in.
That's a function of technology. It would absolutely be possible to integrate something like Nextcloud into operating systems or devices. It will never happen, because every party in a position to do such an integration is also in a position to become a middleman and extract money, which is much more profitable.
No, it's a function of economics. Division of labour still works. It is not more profitable to run your own cloud and pay for your own traffic when you're specialized in producing content. It makes financial sense to pay someone to do that for you. The middleman is cheaper, that's why they exist. The internet looks like it does for only one reason, in any system of increasing complexity there are increased returns to specialization and trade.
>> The gold rush is over - private equity is going to squeeze every little drop from the companies that have been built and we will move on to Web 3.0 - which will be just like web 1.0 - self-hosting, link directories, newsletters, and guestbooks.
> As much as I'd like to see a web 1.0 revival, this won't happen.
> The traffic is controlled by Google and social networks.
Maybe Web 1.0 won't return as the "dominant culture," but I wonder if something like it could return as a subculture.
> Most people don't have the skills needed to run their own website. A lot of valuable content is created by people without these sorts of skills.
Maybe we just need an new MS Frontpage for the new millennium?
> Maybe Web 1.0 won't return as the "dominant culture," but I wonder if something like it could return as a subculture.
I’m shamelessly link to this thing I’m running[0] because I personally believe that subculture is already (still?) there and I’m doing what I can to help other people discover this fact.
Just recently I added a guestbook to my site and I’m having fun seeing other people doing the same.
Webrings are also doing a comeback. I have hope for a return of a more personal web, even as just a small subset of the whole web.
I know someone that just has a folder with word docs and exports them to html
With so many static site generators, I wonder how hard it’d be. Not that it’s simple, just thinking that an opinionated structure, a gui, and gluing it all together.
there's nothing technological stopping a subculture. It's just that network effects are extremely strong.
That and financial incentives. Substacks seems to be the most successful "web 1" implemenation in the past decade, but that still monetizes the idea (anthetical to a web 1 era).
I have been dreaming of creating a mixed hardware/cloud service that would make this possible again in today's internet. Basically, you can open an account and get your own domain and nextcloud + mastodon + wordpress instance. You pay based on how much storage you use. If you want, you can get your entire cloud shipped to your home, attach it to a router there, and then you only pay for my service to be the gateway to the server you have at home. All the data is at home, you have full control.
Of course, the defaults would have to be basically zero-management. But people would be able to choose how much control over their own data they want versus how convenient they want it to be. Right now, it's pretty much all or nothing.
I feel like making it easy to how your own website is something that can be solved with an ingress service (Tailscale funnel?) + DNS management and a small box that someone buys and leaves in their living room. It doesn't have to require any technical expertise, you just need to build a lot of things to make it that way.
I’ve thought about making my own homepage to replace my instagram/fb and share my life with my friends, but how would anyone find it? I guess I could email everyone and tell them. I’ve wondered if there is a way I could easily get that to the top of Google for my name, but there are a few famous people with my name.
If you're sharing it with your friends and family, why does it matter if Google can find it? And if they are your friends why wouldn't you share it with them directly? The Internet felt a lot better when people were making the content for themselves and a community that they were part of.
well that's the issue. There is no "small community" these days like there would be in the Usenet days. At least not a genreal purpose one for blogging whatever is on your mind. My parents wouldn't really care much about the content so much as supporting me. My friends don't necessarily share all the same interests as me. So you want to seek out like strangers on the internet to bond with.
That's part of why we transitioned to early web 2.0 of utilizing a middleman to host content, and use that to attract a community. The internet grew and people could focus exclusively on what they were genuinely interested in, as opposed to subscribing to users directly.
I feel like Fediverse/Mastodon and/or Bluesky sort of solve this problem though. Fediverse in particular has a pretty rich ecosystem with niches for Twitter-like, Instagram-like, Reddit-like, and (I think) even Facebook-like.
You could get the URL out. I would like to have it require some authentication, and I don’t see too many easy ways to add authentication. I use Google Workspace for hosting and I guess it would default to Google IDs? Does SquareSpace provide access control for low cost accounts?
does it make sense to have a "social" network that in essence is _only_ a directory? looking up someone works well, and links to some external site. full stop
This reminds me of Hotline[0]. Chat, message board, file sharing. Late 90's, early 2000's, but apparently there is still a small community around it going.
Super easy to run your own server to host content from a desk/laptop and super easy to use a client to visit other servers. You could find servers using trackers (name severs that kept track of hotline servers) or keep the server private and only give out the server info to people you want.
I disagree. This is something that should be completely independent of an ISP. Maybe we should have some standard protocols that facilitate it, but not be exclusively provided by ISPs.
I worked for an ISP before and did multiple projects involving consumer hardware. You do not want to be tied to whatever garbage your ISP decides to buy in bulk and give to.
I'm doing well regarding my self-hosting. Question is not what I want, but who can best deliver this sort of service to a wide consumer base. This will produce no extra load for ISPs, will drive little additional complexity for users (one device for internet things).
You want your stuff to be movable between ISPs, however, so your domain registrar should be separate.
ISPs are not great, true, but why not build a good one? For a change.
How hard is it come up with community run maker spaces supported by the city for putting such things together? Not every thing has to be owned by large private companies.
As someone who works with a non profit who does this… don’t ask the city, they rarely care about thing’s like this. They will talk about support, but it’s talk. Most are too involved with crazy politics, campaigning, etc. Better to seek out other non-profits and community services to work with.
I did this for about a decade (ending about a decade ago), and eventually gave up and went to gmail. I agree that it is a really easy thing to do and maintain, BUT when it did (rarely) break it was always at the worst possible time. The day a client was sending an important document. While I was on vacation. Etc. I probably only had to drop everything to fix my email server a handful of times, but that handful of times was painful enough to make me just let google worry about it.
Do you happen to remember what the handful of issues were?
In particular, I’m wondering how much a self hoster can expect to have this sort of downtime because of breaking changes to the mail server application(s) vs. misc. server outages (e.g., breaking OS upgrade unrelated to the mail server) vs. having to fix “my mail was marked as spam” problems.
I don't remember the specifics, but it was catastrophic failures. Like I couldn't receive any emails, and because of the nature of email that means you just don't receive them at all ever.
I do a fair amount of business internationally and WhatsApp is increasingly becoming a default. There is Signal, Slack, Telegram, iMessage, etc plus a multitude of many other options including uploading via our website. Places like Japan and Germany are still pretty big on faxes so I guess it depends where on the continuum the customers are. Thus far our only email issues have been on the client side and they're the ones asking to send it via WhatsApp. It would make sense to me to have a non-email contingency for email.
That might work for small businesses, but no real mid-sized or bigger company is going to be using Whatsapp or any other consumer messaging service for their critical or non-critical business communications. It just screams unprofessional. You’re not going to see Meta employees do business over WhatsApp, and it’s their product.
Like, sure, you could probably get away with it. Once at most places. And even then, it would still likely leave a sour taste in your client’s mouth if their new vendor couldn’t even get their shit together to keep their email up and running smoothly.
> but no real mid-sized or bigger company is going to be using Whatsapp or any other consumer messaging service for their critical or non-critical business communications.
Before the Russian/Ukraine war, I worked for a US company that did business operations on Russian cloud providers - one (very major one I don't want to name here publicly) had their main support in some sketchy all-russian telegram channel that I only could access via my personal device. You'd type your issue in english, get a bunch of russian responses, and then sometimes hours/days later your issue would mysteriously vanish.
> That might work for small businesses, but no real mid-sized or bigger company is going to be using Whatsapp or any other consumer messaging service for their critical or non-critical business communications
...and yet WhatsApp Business exists to do exactly that. In developing countries, some businesses use WhatsApp as the only written-communication channel (supplemented via voice calls). For over a billion people, their smartphone is the primary - oftentimes
only - computing platform. Business communication over WhatsApp is not as awkward as you suppose it is, and all businesses, including large ones, have to meet their clients on whatever platform(s) they happen to be on.
Again, I think that view is US centric. Many other countries have WhatsApp as the default. I'm not even suggesting that they should have WhatsApp as the default, just describing the reality as I am seeing it. And yes even the biggest companies and government entities are using WhatsApp. When I was traveling through LATAM they were taking pictures of passports on their phones and sent off for checking via WhatsApp - a US passenger freaked out over it and I had to explain to her that this is just how it's done in LATAM.
> I was traveling through LATAM they were taking pictures of passports on their phones and sent off for checking via WhatsApp - a US passenger freaked out over it and I had to explain to her that this is just how it's done in LATAM.
You had a mid-sized to corporate business sending passports over WhatsApp? I highly doubt that.
This is not even coming from a “US-centric” view. This is coming from a “that will never pass any sort of compliance or hell corporate governance” sniff test.
I am describing reality as I see it, at this point you're basically calling me a liar. You could have simply googled it yourself; e.g. "is it normal to use WhatsApp for business in Latin America?" to which the resulting summary is "Across LATAM, WhatsApp is used by citizens as a way to communicate with family and friends and is being increasingly used by businesses big and small to provide customer service, make sales, take bookings, and more." Note the --> big <-- part of that. You don't need to rely on my assertions the when there is so much evidence readily available. I have no idea why you're arguing with me and do not care that you don't believe me - what on earth would I have to gain by lying to you in this way. It makes no sense.
Italy here. Photo ids via WhatsApp is not normal but it happens. WhatsApp video calls as proof of identity are normal: showing your face and a photo id is a way to get formally identified by many of the identity providers for the state digital id platform.
The problem with an email server being down is the email goes nowhere. So, the client sends you an email and you just never receive it. Often you don't even know you missed something. It's far from ideal.
To answer your question, no I've never corresponded with a client via WhatsApp
And the worst part is this stuff is damn near undetectable.
Maybe my buddy hasn't responded because he's got a lot going on at work at the moment. Or maybe my DKIM/DMARC records aren't playing well with his mail forwarder. Pretty difficult for me to tell - I'm not in the habit of phoning someone to tell them I sent them an e-mail.
Similar here, but mailu (docker-compose) setup... which works very well, aside from deliverability issues to some outlook.com domains. Gmail, and most others (even other MS domains) deliver fine.
My ISP blacklisted my mail server within a couple weeks. I am not even particularly active in email.
Heck, the company I work for gave up trying to host our own email blasts to customers as we were fighting with different places around the world *constantly* (we had a dedicated position just for dealing with this shit, and they were becoming overwhelmed).
I agree about private equity: it's merely the latest incarnation of rent-seeking or enclosure-building. The playbook is the same: cut costs, jack up prices, load up with exploding debt, go public or resell before the debt explodes. There is absolutely no value being created here. We saw the same thing with the corporate raiders of the 1980s (who bought companies below book value and scrapped them for parts).
But I do not agree that Web 3.0 will rise from the ashes. IMHO that's pure hopium. And you hear the same thing whenever people talk about federation.
Web 3.0 (and federation) offers nothing users actually care about. It complicates everything and makes everything more expensive. Centalized services won for a reason.
Companies like things like Web 3.0 and NFTs because they simply want to restrict or profit of secondary sales of digital goods. That's it. You don't own your identity or your data. You can just as easily be cut off from the related services. We've seen it with games and NFTs.
Financial transactions are generally reversible. That's a feature not a bug. A Web 3.0, just like with crypto wallets, will generally result in irrecoverable identities (ie wallets). Trying to build that into the contract through a consensus method of trusted contacts is just another potential vulnerability.
I really wish we, as tech-savvy people, were more cognizant of user benefits here rather than having some idealistic utopic view of a federated world.
I'm not really sure I follow this logic. What connection are you drawing between PE and Web 3.0?
People like to hate on PE, it's just negativity bias. Most people don't hear about all of the PE success stories. If PE just ruined companies as a matter of fact, it would not be a good business...and it's an objectively good business to be.
People hate on PE for good reason - they often make money by destroying good businesses. They sell off the valuable parts for profit, load the debts on what is left, and declare bankruptcy, leaving employees and customers holding the bag.
PE is good business for the raiders, bad business for the raided.
That’s a strange cartoony impression that people here have but not generally what they do, even in the case of LBOs which I assume is what you’re referencing but only a small part of what PE firms do. They generally buy businesses that are managed poorly, manage them well, and fix them.
And when they part one out like you are referencing, it’s usually a bad business. While what Eddie Lampert did to Sears/K-Mart was criminal, or at least should be, they were not a good business and hadn’t been in a very long time.
A good business is rarely worth more parted out than whole. It’s most often good business for the “raided” too because they are failing and the alternative is bankruptcy. A company that survives after laying off 25% of its staff still employs more people than one that dies entirely.
This is why they prefer companies with high revenue and low profits. That’s nearly always the sign of a business that has been mismanaged and can be fixed.
I have come to the conclusion that people in tech are as largely ignorant of finance as people in finance are of tech.
> I have come to the conclusion that people in tech are as largely ignorant of finance as people in finance are of tech.
Well I'm you can certainly speak for yourself, but that doesn't mean the rest of us are, so maybe keep your opinions to yourself. I was responding to the premise that people hate on PE because of negativity bias - there is a negativity bias toward Private Equity, and it is entirely on the fault of the industry for their mendacity and lack of empathy. The fact is, there are more than enough examples of this bad behavior (recently, Chuck E Cheese and Toys'R'Us come to mind). There are also plenty of examples of PE "improving management" by crushing labor, degradation of product quality and screwing customers, so that is is the reputation for the entire industry.
I'm not even specifically criticizing the industry - they have a role to play in the economy. What I am saying is don't go crying about the public perception - if they want the big money, they get to own that reputation and be the bad guy. No one likes a parasite.
That’s logically equivalent to saying average black people get a bad reputation because of the few who are criminals. It may be true but there’s nothing they can do about it and the fault really lies with the person who lumps them all together.
PE is a giant thing. There is a lot of it. The ones who don’t run companies out of business have no control over the ones who do. You’re using “they” to refer to thousands of people as if they’re a monolith.
And I don’t disagree that the bias you mention is accurate, I was pointing out that it’s because the people who think that way simply don’t understand finance. And judging by the comments here every time it comes up, the bias you mention is very popular.
Keeping opinions to ourselves would make these comments sections pretty sparse. Why is mine not ok but yours is? I was largely agreeing with you and expounding anyway.
You think it's valuable to call people ignorant and to compare negative bias against PE funds (of all things!) to racism? I think the comments section would be better without that. Maybe I should keep that to myself, I don't know. You can certainly keep spouting them off, but I'm going to point out how absurd those types of comments are.
> You’re using “they” to refer to thousands of people as if they’re a monolith.
This is the same thing the cops whine about. The PE industry has a ton of money - if 90% of them are good actors, they could easily organize and lobby for rules to stop the bad actors. That they don't tells me that the incumbents like the rules where they get to do whatever they want.
> I was pointing out that it’s because the people who think that way simply don’t understand finance
I think you are wrong. They understand the impacts that financiers have had on themselves, their families and their communities. There is a reason private equity (and its' older equivalents) have been loathed by common people for over a hundred years in this country :)
It's valuable to let people know that they may not know as much as they think they do. The tech industry has always suffered heavily from thinking they are smart and everyone else isn't. None of your comments had any more value than that. Which is fine, they don't have to, it's a comment section.
It's a strong indicator of a second-class mind and surface level thinking when they say "you compared X and Y!?!?". Comparisons don't mean anything. "Abraham Lincoln and Hitler were both men" is logically equivalent to what I said, and just as true. I didn't equate the societal effects of the two, I was merely pointing out that people who don't understand groups tend to lump them all together and suffer from observational bias. Human irrationality repeats itself in clear, obvious ways. Sometimes it leads to something terrible (centuries of opression), sometimes it leads to something innocuous (people saying something stupid in a comment thread) but it's the exact same mechanism. Think deeper before saying things that dumb, you're hard to take seriously.
People absolutely do not understand the impacts financiers have had on themselves. They do not understand economics, at all. This is a country (and, in most cases, it's the same everywhere, just swap the title) where most people think the President is a major factor in things like inflation, gas prices, etc. They have no more idea why the economic things they observe happen than they do why they universe exists, and so in the exact same way they jump to the conclusion they understand. Skydaddy made us, rich guys ruined everything for their gain. (There you go, I just compared poor economics knowledge to religion, have fun.)
If a lot of people think something, it is not because it is correct. (Sometimes it is correct by happenstance.) It is because they are exposed to a lot of propaganda to that effect and they don't know enough to have a more nuanced explanation.
Okay, fun question... (Honestly not sure where I sit on this...)
I've always been very skeptical of the sale/spinoff of various divisions of automakers in the 80s/90s. To me it always felt like they were looking for a short term profit vs the general 'steady pace' of government contracts and the like, I also can't help to feel amazed nobody even showed a good second option for the next gen mail carrier... but again, I feel like it's because everyone sold the farm already.
I think it’s a mixed bag. There’s obvious efficiency in having a small number of companies make parts and sell them to the many auto makers. There are obvious downsides to outsourcing too.
I think Tesla is a good illustration. They make a lot of parts other auto makers outsource, and they also have a whole lot of quality control issues. I am sure I suffer from observational bias here, as my GF has a model Y and I notice all the parts that fail that never would on any other car (like vent fans, door handles, etc.) but the upside exists in some engineering document or p&l I don’t see.
it's like saying drugs are bad. there are definite harms done by cocaine, but penicillin has saved the world. PE'a easy to hate because, as a group, there are hateful things that happen. we don't have any mechanism for not letting the group be represented by an outlier individual.
Right and if your entire knowledge about PE was watching Barbarians at the Gate and/or reading about Martin Shkreli, you’d come to that conclusion, just as if your entire knowledge of the pharmaceutical industry was based on Purdue Pharma.
LBO is just one type of PE, and even among LBO, there are lots of stories about firms fixing a business. For every K-Mart there’s a Dollar General.
And even with the K-Mart type stories, those businesses were 100% failing without intervention anyway. They might have done so in a way that was better for shareholders, and that’s an egregious example. But they’re not generally parting out thriving companies and leaving banks holding a bunch of bad debt. Banks are smart and good companies are almost always better off whole, just as a running car is almost always worth more than the parts.
Drugs are a perfect example. They are a controlled market because the common person lacks the knowledge to safely use these by themselves. Good or bad.
PE's, meawhile, don't really have that control. They are shooting all the hell up and we don't know if they are self destructively OD'ing or are curing cancer. Most high profile results are sadly the former. There's simply less financial incentives these days to invest in "saving" a company if you don't emotionally invest in it.
The control (assuming we are talking about LBO specifically) is that they have to borrow the money from someone, and those someones are giant banks who also like money and aren’t stupid.
not stupid but not infallible either, 2008 should have taught us that. Even money managers themselves are gambling at the end of the day. They know they will be saved on the off chance they lose (and likely take a part of the economy with them for a while)
Sure, everyone loses some of the time. LBOs totally have borrowed a bunch of money, sold something for parts, cashed out, and left the banks or the public markets or a future buyer or whoever else holding the bag. It has happened.
It is not, however, the business model, as many here seem to think, because the people on the other end aren’t THAT stupid. There isn’t that much dumb money.
The business model is buy a company that’s in serious need of improvement, fix it, then sell it/take it public. That’s why they prefer companies with high revenue and losses.
Or sometimes, if they think an industry is just poised for strong growth, they just buy and hold. I suspect that’s what’s going on with all the veterinary office purchases we discussed recently.
I really don’t know where Squarespace falls. They’re allegedly keeping management in place which would make me guess they just think it’s poised for strong growth but I really just don’t know.
Unless the company has a very negative outlook with outstanding debts (which Squarespace is not AFAIK), the price they have to pay to take over is much lower than the value of their assets.
And even with a negative outlook and debts (i.e. liquidation), extracting value without making bigger issues is not at all simple.
That's not entirely accurate. The easy way to make a crazy amount of money is to buy a well-credited company, sell / mortgage anything of value, ramp up user fees and debt over a short period (3-5 years), and then cast aside the husk via bankruptcy.
I’m curious how the people who believe this is what happens think the LBO firms keep getting credit. The banks that end up holding the bag in this imaginary bankruptcy scenario are just idiots who keep falling for it over and over again? Like Charlie Brown with the football?
If this is a thing that they all do all the time and the creditors always lose, how do the creditors not learn?
Or is it possible that that’s just a story based on events that happened a few times and were extrapolated to be believed to be the norm?
There is no logic. The point is to express that private equity is bad and will immanentize the eschaton leading to their preferred utopian technological world of decentralization.
I sure hope so! I missed the serendipity of web 1.0 and then in the past couple of years I realized it’s all still there! In fact, there or more sites than ever behind the sheen of these giant companies.
I hope this next iteration brings a proliferation of tools that can help regular folks take part in that (personal sites, blogging, guestbooks, etc) without getting trapped in a walled garden or social network.
We’re trying to do our part to help at our company (Good Enough) with https://pika.page/
"Web3" was hijacked by cryptocurrency promoters as the marketing term for various get-rich-quick token schemes. (Generally what made them "web3" was simply that some venture capitalist had bought a bunch of the tokens early and would get to dump them on Coinbase.)
If there's going to be a web 1.0 revival, maybe it needs to jump straight to version 5 to leave enough of a gap from the taint of blockchain...
IIRC, most of the promise of web3 was a "semantic web" or a web with a bunch of APIs talking to each other. The hijack was convincing people that some form of payment needed to be built into each API call some way, with some rent seeking/speculation on what the payment was denominated in.
tangential. when i was learning to program BASIC, one of advices that i got is to number your lines with 10 increment. 10, 20, 30 etc, so later you don't need to rewrite a lot when you need to insert some line. Yes you had to number your lines. I didn't question why though.
Ya for me it's been over for quite some time, almost a quarter century since the Dot Bomb around 2000/2001.
What happened was that the original web architects, loosely people like Jimmy Wales, had a different vision of the future than the one we're living in now:
1) The web was supposed to make nearly all information freely accessible with sites like Wikipedia and infrastructure like Coral CDN and BitTorrent.
2) The next step was to make computing freely accessible with stuff like One Laptop Per Child and distributed computing with SETI@home, BOINC, and something like a p2p Docker cluster running on idle CPU time, presented as virtual CPUs on your computer to run any platform code you want, perhaps 1000 to 1 million times faster than today, which hasn't been invented yet.
3) The final step IMHO was to make money/resources/time freely accessible with a p2p UBI system similar to Bitcoin, where joining it would start depositing money into a wallet by virtue of need (potential) instead of ability (productivity), like Patreon on steroids.
Instead the powers that be chose greed around 2007 after a long politically regressive period which undid much of the social progress of the 1990s, ending Moore's law and starting the transition to walled gardens and surveillance capitalism.
My life experience has basically felt like living in the alternate timeline in Star Trek TNG when the Enterprise went through the temporal rift and Tasha Yar was still alive. Not only did we NOT get #2 or #3 above, but even #1 has been steadily eroded to the point that search engines have started to not work anymore. It's not just that nobody is able to get real work done because they're working too hard to make rent, but that rent is increasing exponentially faster than wages. And that any forward progress is eclipsed by transnational moneyed interests who can use regulatory capture to control the US Supreme Court for example, cementing corporate money in politics, preventing the breakup of any monopoly/duopoly and defunding the IRS/criminal justice system to prevent enforcement of even the most basic fraud/antitrust laws on financial elites.
Which brings us back to what you said: just like every other time in history, it will be volunteers working in obscurity without financial support who bring us the next revolutionary tech. I really wanted to be one of them. But after so many failed ventures, I'm realizing that I could have made more money delivering pizza and gambling on the stock market. I'll probably have to get a regular job soon to cover expenses for my aging self and family, then be too tired to work on interesting projects. So nothing much will change - the cavalry never arrives.
If someone really wants to change the world, open source something that eliminates a whole market. 3D printed hand-wound cell phone charger cases, I don't know. Something that liberates someone from suffering and removes all profit so it can't be ruined by subscription spyware.
Squarespace was my first experience with a hellish technical interview process back in 2014. I went through like 4 initial screens/take-home assignments for a {something} Analyst role that was considered entry level. I eventually gave up, and from that moment on, I hated Squarespace as a company. These take home assignments weren't even relevant for the role, yet they thought it made sense to inject it into the process. I'm glad they're 1 step closer to their demise.
I always understood it as an artificial way to reduce the applicant pool. Too many people apply, you just want to make it annoying to keep a number of people you have capacity to review in depth.
This is some serious cherry-picking. It's going private at a price below the initial IPO price of $48 from 3 years ago, and has generally significantly underperformed other tech stocks.
They might not be about to die, but they're not exactly healthy either.
Because it's an extended period, with a simple round time window that doesn't include the IPO pop from the frothiest IPO environment of the last decade. Happy to have gone with any time window outside of 2021. That should be clear from my comment.
"But, Creddit", the ignorant accuser of cherry-picking whine, "why after 2021?"
Square space IPOd in a borderline delusional environment of retail investing, stimulus money, and massive free cash flow. Pretty much every IPO from that era looks awful on paper, but the companies are fine balance sheet wise.
Conveniently after taking over all of Google Domains too! I missed transferring a couple of domains before the cutover and now I’m in squarespace hell trying to get them out. They make it so much harder by putting artificial delays on everything.
I had a couple of .dev domains on Google Domains. Unfortunately, you can't migrate those to another registrar as the .dev TLD is locked to Squarespace. I wonder if they will ever unlock the .dev TLD.
I was just able to finish transferring out my .dev domain from Google to Cloudflare. I had started the process when SquareSpace first took them over but forgot to finish until I saw this, but I was able to transfer out my .dev domain!
I transferred 6 domains to porkbun and it was about 2 days to get the code and 5 days to transfer. Mostly painless, but DNS records were not copied over. I tried to see if I could manually copy them over in advance, but I got an error with porkbun. I probably didn't know how to do it correctly, but I needed up with a couple minutes of downtime. I don't remember having to do anything when I went from namecheap to google, but that was a while ago.
Took two days to get any authorization codes. No idea how bad the actual transfer will be. Ugh.
Also, and perhaps Google will finally find this, if you are an OWNER on a SQUARESPACE DOMAIN after the GOOGLE DOMAIN TRANSFER, you can't seem to create MX or TXT or other records.
But if you ADD A NEW USER as a DOMAIN MANAGER then you can create the records, as far as I can tell.
Its supposedly a mandatory five day wait after you initiate the transfer with the code. I had to contact support since the transfer code button wasn't making any requests to their server despite the modal saying it did.
It took me a total of two weeks to complete the transfer.
I didn’t need to contact support, but the process requires patience … and some downtime as I had no way of knowing exactly when the transfer happens to recreate the DNS records.
I was looking at hosted website/blog options a while back and it looks like pretty much everyone has teaser rates that blow up after some time period and have low-cost plans that almost work for a given need but you actually have to go up a tier of 2.
I have an existing blog on Blogger and have no need for ecommerce or a lot of business stuff. It's basically a home page and a blog. I came to the conclusion I should just leave things as they are and maybe add a second blog for a different purpose.
It's free and if it becomes a problem, I'll deal with it when it does.
lightsail is basically the lowest tier of AWS offerings. It's designed to compete with providers like linode or digitalocean, not gcp or azure. Moreover, lightsail is IaaS - you get a vps that you have to set up and administer yourself. Squarespace/Netlify is PaaS or SaaS - all that is handled for you. Maybe you think all of that isn't too hard and isn't worth the $14 or whatever premium, but it's still comparing apples to oranges.
Cloudflare pages has been excellent for my 11ty site. The free tier is great, prices after that are reasonable.
Also - there's a bunch of integrations with their other stuff (serverless, D1, etc.) You'll get more lock-in, but you can scale up the static site to become basically a full frontend-backend app from there.
Any reason to go that route over just making an S3 bucket publicly accessible and pointing dns at it? Should cost roughly $0/mo unless you’re getting massive amounts of traffic.
I'm really unsure if that is unreasonable. We can do it for cheaper. But we are not the target market. For someone that would be buying a set up and even occasional updates and so on it is not that much money... That is what 300 a year? So not too many billed hours...
I've been procrastinating transferring my domains after Google sold them to squarespace. Now they're getting sold again... Are domains the new junk loans?
Would it have gone private if it was such a great business at this moment ?
Squarespece looked like a fairly competent company, even as they were perhaps overspending on advertisement. Their competitors don't seem to be doing that much better except for Automattic perhaps.
Ah, but stock market investors also like cash making business machines.
If private equity is able to outbid the stock market, they must have spotted a way they can extract more value. Sometimes that's by raiding the pension fund and cranking up prices. Other times it's a distressed business and better management can turn it around.
There are different strategies. You can buy up dying companies and try to turn them around with management changes (and debt), you can sell off companies for scrap, you can buy up money printing machines and run them hotter.
People love to vilify PE for destroying companies, but a lot of these companies were dying anyway, and PE was trying a last-ditch, high-risk reorg to save them.
It's still possible to make money in this situation. Buy a company, then have it buy itself back using debt. The PE firm gets most of its initial capital investment back then secures a revenue stream in the form of management fees. The company can still go bankrupt, but as long as it sticks around long enough to pay back enough to the parent company that it turned a profit, things worked out. The bond holders can fight over the scraps post-bankruptcy.
That means the TAM is fully owned and you have to work that much harder to grab a slice.
"Competition is for losers."
I suppose if you're really passionate about the space, go ahead, but it's incredibly crowded with dozens of players. Some are even owned by the fintech giants.
There's a whole ecosystem of adjacent services-for-SMBs providers in hosting, domains, online advertising etc. and all the companies are running the "commoditize their products complements" playbook. Anyone trying to enter the market is competing against prices that don't even make sense in isolation.
Couldn't you ask the same of most programmers? One way or another, everybody is pushing paper or pixels. Is the adtech developer at Google, FB, Amazon somehow morally superior to a finance bro that takes a job at Carlyle Group?
Depends on how you interpret what a programer's role and skin in the game is. by the Google/FB/Amazon level, the programmer is just another cog in the machine being told what to make by a director, who reports to/with some MBAs.
For smaller companies, I'd say programmers have done their share of good and evil. the AI sector is in real time gray area with some very malicious actions not too long ago to try and be first to market.
That has been the game, money was "free" and VCs wanted that unicorn status. But that is also a huge liability.
When the asteroid came, only the small mammals survived.
Of course I'm talking about one way that could possibly lead to a sucessful business. There are many ways, nothing is garanteed but that also applies to failure.
Better here usually means finding a path to lower cost of acquiring customers.
Of course retention helps too but my gut is that Squarespace had reasonably low churn but increasingly elevated customer acquisition costs along with no real enterprise traction.
Most young folks don't understand URLs anymore? "Find us on App Store" or "Find us on Social Media" is the new internet. QR codes that takes you directly into a walled garden is the new web.
Id argue that QR codes are doing pretty well at keeping bespoke URLs alive (although it pains me to see people use qrco.de or other qr code generators that automatically shorten the URL and thus could, at any point, maliciously redirect people to ads or malware instead. I don't see bitly doing this but it's unnecessary risk).
When PE steps in, it usually means the growth is gone. They are often operators with teams who know how to run a lean business. If Squarespace had some huge growth estimates, PE would not have been able to afford to take them public.
So there may be an opportunity, but finding customers and funding will be hard.
It is interesting how most M&A transactions trend to have a 30% premium above the trading price. I have tried to investigate why but could not find a good explanation to why this number is so prevalent.
It comes from a 2004 Delaware court case, which found “recent appraisal cases that correct the valuation for a minority discount by adding back a premium ‘that spreads the value of control over all shares equally’ consistently use a 30% adjustment” for the control premium [1]. (Under Delaware law, shareholders are entitled to the pro rata share of a company’s fair value. The courts can and do revise merger prices to reflect this.)
It’s “a premium of 15% over Squarespace's closing share price of $38.19 on the NYSE on May 10, 2024,” the last business day before the buyout was announced.
That said, you see the bankers bending over backwards to find a metric that satisfies Doft.
Companies have big shareholders and small. Absent controls, the big shareholders (and management) have an incentive to negotiate deals that are better for them than for the small shareholders. Delaware is good at designing these controls, which is why savvy investors like companies to be based there.
One of these controls allows shareholders to sue if they think the company they own stock in was sold too cheaply. In those cases, the court will step in to check the math. That happened in Doft.
Most of the case revolved around comparing Travelocity’s value to Expedia’s. But buying a share in Expedia is different from buying all of Travelocity, because the latter lets you e.g. pay yourself—the owner—all the money in the bank account as compensation or unilaterally sack management. The value of this privilege is called the control premium. After the court valued Travelocity conventionally, it added a control premium of 30% to come up with the final enterprise value.
Why 30%? Because that’s what most valuation consultants did. What Doft changed was now that convention was cited in case law. So a shareholder who is upset about their shares being sold at a 15% premium can credibly threaten to sue and win, which companies want to avoid, and so we get this circular convention of a 30% control premium (loosely defined) being the norm for converting companies from widely-held (usually public) to narrowly-held (usually private).
You have to pay enough to convince everyone to sell. The trading price is the marginal price of buying one more unit of stock, not a representation of the stock price at which every owner will sell.
Well, you have to pay enough to convince the board to force everyone to sell and not risk being sued for not doing their fiduciary duty. But yeah, that’s the gist of it. if you were to attempt to simply buy up all of the shares on the open market, it would cost more than whatever it closed at the day before you did that, all else being equal
If you go much lower, shareholders become reluctant wondering if it's really worth it, or if the board are negotiating hard enough.
If you go much higher, shareholders start to wonder why someone is willing to pay so much for a stock. People start to get cagey and wonder what's going on. The sellers interest is to keep it lower as well.
It's just the region things have settled over time. It's generally enough that the board feel they're doing the right thing, it doesn't spook anyone, and it's what the buyer is expecting.
I don't think there's any more magic behind it, it's just what has become the norm over the years.
At 50% it might be easier to just buy up shares on the market til they have a controlling share. The number to do that sets a cap on what the buyer will pay. I don’t have numbers on-hand, but trying to move a majority of a company’s stock (buy or sell) can cause crazy swings. When I worked in hedge funds, it was a thing we worked around. Our larger trades would execute over the course of a day or several days to minimize our impact on pricing.
At 10%, many shareholders will feel that their risk-adjusted returns on the stock would do better than the buyout.
30% is likely below the costs to acquire a controlling share on the market, and above any reasonable belief in risk-adjusted returns for shareholders (barring exceptional companies).
A lot of it is wishy washy because it’s based on math, but math with presumptions baked in. How much do shareholders think their stocks are worth? How much would it cost to buy them on the open market? How much does the buyer think the stocks are worth? There are approximate answers to all of these, from which an even more approximate price needs to be determined.
If the last transaction was 30% the board as to explain why this one isn't 30% (either to the buyer if they are paying more; or to the shareholders if they are paying less).
> Maybe I'm missing something basic but that still doesn't explain why it's 30% and not 50%.
It's like tipping. There's no ideal value that can be picked; just agreed normal values. If 30% appears to work most of the time then that's probably why it's used.
Is there a way to search for lawsuits from shareholders when the price per share of going private was less than 30%? There's probably no mathematical model here but more a way for the sale to insulate itself from getting dragged into litigation.
If everyone does 30% it quickly becomes what "you should do" and anything lower is looked at with suspicion, and anything higher is suspect from the other side or a "what do they know we don't" viewpoint.
In many transactions, being like all the other ones is the way to go.
The other replies explain the 30% with circular reasoning and I don’t find them convincing, so here’s a more absolute and testable hypothesis: at the average rate of S&P500 return adjusted for inflation, 30% is about 3-5 years of investment. What if that’s the average period of investment (i.e. time between buy and sell) for a typical retail investor for any given stock?
If that’s the case, 30% is the minimum premium at which not only are you speedrunning returns for existing investors, you’re also doing it for the average person who was going to invest in Squarespace today.
I thought about that too, but realized that it is double counting the returns. If you look at the Discounted Cash Flow (DCF) method for valuing the company, the current value of the company is already the sum of the discounted cash flows from the future. i.e. the next 3-5 year returns are already priced into the pre 30% hike value.
DCF and other tools to value companies make sense when the valuation is somewhat stable, but the real world often isn't. MSFT was worth $1T a few years ago because the world presumably expected $1T in profits over the lifetime of the company. But OpenAI came around and suddenly they're worth $2T. It wasn't because their lifetime doubled, it was because most people perceive AI as a major advancement. I believe this is the primary thrust behind the S&P500's 7-10% annualised returns in the last 20 years because most of the gains have come from the top.
Good effort to think outside the box but this is just an “acquisition premium”. Nothing to do with the public markets. It is a very well know concept in the M&A world
It’s a “control premium”. The way the theory explains it is that you are making an offer to acquire control of the company, so you pay a control premium above what others are willing to pay on normal transactions in the market.
In practice, how big of premium the acquirer pays is influenced by considerations specific to the history of the company, the shareholder base, its share price history, etc.
…but theory and practice do link together, and you can trace the historical trend of control premia paid have changed over time, or even how they change from country to country.
I have seen the same. There's likely a sort of "market price" effect here. If everyone is doing it, you should do it too. Some premium over the stock market price is expected - you are buying out all shareholders, not just the ones who want to sell at the current stock market price - but you would not expect "flat 30-40%" to be the premium.
It could be that is the number we always used, and deals seem to get approved with that number. Anything less might be questioned as not enough premium since there is precedent for a 30% premium during a buyout.
There is a baseline trading volume that still expects to have access to the stock. As you buy more stock, less stock is available to buy, driving up the price.
This is not the case because these deals are done privately to the board. Once an investor cross the 5% mark they have to file and companies may adopt a poison bill without the boards blessing.
buyers and sellers have a range of values where they are OK transacting, and historically those ranges has tended to overlap at the 30% point more than at, say, the 15% point
because of those precedents, taking anything below a "standard" premium opens the door for shareholders suing the board for a breach of their fiduciary duty, arguing they should have waited for a better offer. it's a bit of a self fulfilling prophecy. pay more than 30% and the buyers' shareholders will argue the same
which is not to say there aren't 10% or 80% premium transactions, but there's a higher bar to be met before everyone is willing to go outside of the 25-40% premium range (my own numbers)
Imagine ranking all the shareholders of the company. For each, you've asked them how much you'd have to give them to convince them to sell.
At the top of the list would be the one who is the most interested in selling, and thus is willing to take the lowest price. At the bottom of the list would be the person who is the least interested in selling, and is demanding the highest price.
In order to buy one share you ask the guy at the top of the list. But to get the whole company you need the guy at the bottom of the list to agree too.
That's definitely not a perfect analogy at all, there's more subtlety than that. But it accurately describes the underlying dynamic.
For the stock market quote, you're always talking about the guy at the top of the list.
But I think you’re spot-on. If someone owns the stock, usually it’s because they think the company is worth more in the future than it is currently.
And you need to convince the majority of the shareholders to sell it to you now.
So you need to take into account their expected future value on holding, and give them a reasonable risk-adjusted premium for that expected future value of their shares.
just works out to be a socially accepted level where the board has no choice but to accept the tender offer i guess. but nothing stopping it being 40% or 10%.
Becuase it is the one that the system has evolved to consider the rule of thumb. The equilibrium appears to be 30% above asking and, and least local to our time period, appears to be stable.
Great-Grandparent> most M&A transactions trend to have a 30% premium above the trading price. I [...] could not find a good explanation to why
You> It’s probably just a good rule of thumb.
Me> But why is 30% better than 15%?
You> The equilibrium appears to be 30% above asking
I still don't understand how that's supposed to explain why 30% is the stable value, instead of another, as the GGP was asking. How does what you are saying add anything more than "It is what it is" to the discussion?
The point poorly expressed is that public markets transactions are highly scrutinised, and it is easy for shareholders to be highly litigious toward the directors.
The directors therefore have a strong incentive to only accept offers at a normal premium to current price, which seems to be about 30% by back of the cigarette packet maths.
Bidders therefore have an incentive to bid around 30% so their bids are more likely to be accepted.
The key thing is an incentive to avoid liability and get deals done. If the equilibrium was 80% then bids would be all at 80% and there would be less of them.
Sometimes complicated dynamical systems have equilibria that just are without a known reason. I can see that once 30% gained a bit of traction is just coalesced into an equilibrium. The common decision making analysis of just looking at what others have done and basing your decisions on that mean that things evolve to wherever “monkey see, monkey do” gains traction.
Not every number has to be derivable through some kind of formula. Realtors tend to take 6% as their commission. Why not 6.5%? or 5%? The answer is that sometimes they do, but it's just traditionally by default 6% unless one or more parties chooses to negotiate it. There's no math.
Remember that shareholders are in the stock because they expect some type of risk adjusted return. 5% is out because that's the risk free return. 7-10% can be gotten with lower risk by index investing. 15-20-30 we're starting to get into a range where the investor is willing to part with their stock given the risk they took on. 30% tends to be enough to get everyone to sell. If it was a hot, fast growing company, it would be higher - if it was possible to get everyone to sell at all.
I mentioned this already in a different thread but private equity behave just like adware companies that buy popular chrome extensions then ruined them for a quick buck. [1]
I hear that PE destroys products and culture to make money at all costs, but i don’t get how that can net them back the >$6 billion they paid for a company with <$300 million yearly revenue and negative profit.
Squarespace spent 40% of revenue and nearly 60% of gross profit on marketing and sales last quarter [1]. You could literally generate over $200mm in free cash flow by cutting marketing in half. This is a forced pivot from growth to sustaining a good business.
It would be interesting to get better SaaS metrics, specifically on customer churn. I can't find that in the linked document. They are growing, but how much of that marketing spend is needed for growth vs just maintaining the customer base?
I don't know what the customer makeup of Squarespace is. It could be that by volume their typical customers are business that fail a lot, or have a high amount of churn (think sole proprietorships, businesses with 1 - 10 employees without in house tech experience, or part-time/side businesses like Etsy or Instagram stores). Depending on the makeup, a significant amount of this marketing could be required just to maintain a constant customer base.
> could be that by volume their typical customers are business that fail a lot, or have a high amount of churn...significant amount of this marketing could be required just to maintain a constant customer base
If this is the case, Permira and its lenders are bailing the public out of a shit business on their own dime.
I was in the same program as the SquareSpace founder (we went to the same college but about a decade or so apart) and that program's professor talked to the founder quite a bit about their strategy for marketing, and he was lamenting that they spent so much money on Super Bowl ads, lol.
> PE destroys products and culture to make money at all costs
Not always true. Certainly your impression is based on something real, i.e. people like Carl Icahn and other 1980's corporate raiders. But the fundamental way in which PE can add value is by forcing leadership change and removing the pressure (from public markets) to deliver better numbers every quarter, to instead make deep cultural change and deep investments in the business that will take years to pay off. One of the better examples from recent years was Dell: https://www.crn.com/news/data-center/dell-s-public-journey-f... .
Dell is an outlier because it it was reacquired in part by its founder Michael Dell, who was presumably motivated by pride to not destroy his namesake brand.
I'm interested in hearing other PE success stories where the product isn't ruined as a result.
I think they just load up on debt, so they aren't really buying it with their money. But what I don't understand is how they get people to loan them money when they know that they are just going to strip mine the company for all valuable assets and leave a shell of a company for the lenders to fight over.
> how they get people to loan them money when they know that they are just going to strip mine the company
Because on average, target firms of leveraged buyouts become more productive [1]. That lets them pay back shareholders and lenders in most cases.
The reason public perception is off is the size effect and availability heuristic. The first shows that big deals do badly [2]. The second means the last widely-reported deal is likely to stand in for private equity in the public consciousness [3]. Add in inflation, which makes each sticker price seem more historic than it is, and the fact that the last deal in a cycle is doubly cursed by being financed and priced at precisely the wrong time and you have a consistent pattern of the most recently-memorable deal being a clusterfuck.
Public perception is negative because profitability is usually reached by cutting unnecessary jobs and projects in the poorly run firm. People don’t like their jobs being cut
Here's the PDF so you can read more than just the abstract [1].
It's always hard to analyze anything this big, especially with something as vague as "more productive":
> First, employment shrinks more rapidly, on average, at target establishments than at controls after
private equity buyouts. The average cumulative difference in favor of controls is about 3 percent of initial employment over two years and 6 percent over five years. Second, the larger post-buyout employment losses at target establishments entirely reflect higher rates of job destruction at shrinking and exiting establishments. In fact, targets exhibit greater post-buyout creation of new jobs at expanding establishments. Adding controls for pre-buyout growth history shrinks the estimated employment responses to private equity buyouts but does not change the overall pattern. Third, earnings per worker at continuing target establishments fall by an average of 2.4 percent relative to controls over two years post buyout
So if I'm reading this right, huge layoffs followed by lots of churn with an overall decrease in salaries. But I must be missing something because the framing & wording seems to suggest that this is a positive thing. That paper also only looks at 2 years of data following acquisition. But the criticism for leveraged PE takeovers like this is that the PE firm is starting a 5-10 year project to strip mine the company for all it's worth and leaving a husk of a company that's loaded with the debt that was used to acquire it and no real assets. I'm not sure how looking at the first 2 years tells you anything.
The PE firm's switch to cheaper labor and suppliers is also reflected typically in a significant decrease in product quality which isn't analyzed here.
The main argument for leverage PE buyouts are they are performing a valuable service as they're doing a more graceful shutdown of a company vs letting the company fail on the public markets. But that's a harder argument when squarespace doesn't seem to be particularly struggling - they just IPOed during the pandemic bubble when internet stocks were crazy overvalued but they've been working their way back up.
> the PE firm is starting a 5-10 year project to strip mine the company for all it's worth and leaving a husk of a company that's loaded with the debt that was used to acquire it and no real assets
Long-term default rates for private-equity targets are low across markets [1]. Banks and leveraged-loan lenders tend to get paid back.
Also, most targets that later go public have low enough leverage to be able to immediately pay dividends [2]. You just don’t tend to hear about the specialty farm equipment maker IPO in most circles.
> that's a harder argument when squarespace doesn't seem to be particularly struggling
They’re turning hundreds of millions of dollars of revenue into hundreds of thousands of profits by spending hundreds of millions on sales and marketing.
> So if I'm reading this right, huge layoffs followed by lots of churn with an overall decrease in salaries. But I must be missing something because the framing & wording seems to suggest that this is a positive thing.
You read it right. Private Equity firms come in, and then lay off everyone they can and replace them with the cheapest folks possible, to churn down salaries and get rid of long-time staff with higher benefits costs. It's the classic playbook, and it's written here positively because if you're a soulless MBA beancounter, this is a positive thing. If you're a 50 year old engineer who is 12 years from retirement and just got a cancer diagnosis 6 months prior, it's not a good thing though.
For a leveraged buy out, the most important thing are the cash flows. So if a business has enough $ to service the loan there should be no problem.
Also good to remember that the business model of PE firms is to buy a leveraged asset, hold for 5 ish years, resale asset at a higher price than it was bought from. Ofc easier said than done, but these investors don’t get involved to lose money purpose
ALL LBO models are about selling the asset for a higher multiple than it was bought for. Not just tech.
Also, CFs are the most important thing for an LBO. The point of this investment model is for an asset to pay for itself, so if it has no cash flows how can it possibly do that. Also cash flows =/= profit here. You can be cash flow positive and not be profitable.
And you are right about LBOs not being done on rev multiples
I misspoke. Generally speaking, when modeling an LBO you assume entry = exit multiple to be conservative. What I meant to say is that in Tech, if you sell at the same, call it, 10x multiple on Revenue but your annual revenue grew some X% over the period, you can still get to a very compelling IRR even if the actual CF profile of the business hasn't improved at all. Obviously if you sell at a higher multiple that is doubly true.
The point is Tech companies don't strictly need profitability to be considered good LBO candidates, because everything is done at the top line level for the "sexier" very high growth companies.
The asset still "pays for itself" on exit, just not so much during the investment period. In other words, the value to equity holders is not from debt paydown with the assets' cash flows, but with the exit proceeds.
It looks like in FY2023, Squarespace reported about $1B in revenue, a loss, but about $230M in cash flow from operating activities.[1] It is growing, which helps a lot.
Mainly when I look at this, I think "it doesn't seem like its that easy to make money in PE these days." Maybe in the 80s there were lots of large corporations that were so poorly run that you could buy them with debt, cut costs, and make lots of money (see RJR Nabisco/Barbarians at the Gate, that was a terribly run company). But in regards to this deal, someone raised $6B, had to find a place to put it, and found the pickings were pretty slim.
Still, someone apparently thinks they can cover the debt service with the cash flow.
Next step is they buy out Squarespace's competitors. Then they move everyone to the same platform, after cutting expenses by 50%, and doubling prices. I assure you there is a spreadsheet somewhere that runs through all this....once that is done, they do an IPO in 5 years to cash out.
They have 1800 employees and have been dancing around profitability each quarter. Also, yearly revenue is ~1.2B. PE is thinking with some ok management they can turn this around pretty quickly with some efficiency changes and keeping the ~18% YoY sales growth.
2. Take money that was being spent on growth and use it to make the payments on the debt
3. Try to decrease operating costs while maintaining revenue or increase revenue while maintaining operating costs (or some combination)
4. Sell the company for more than you paid based on the improved profit margins
The key is finding a company who's still spending on growth but isn't really growing. If the company is actually still growing then you're going to have trouble making your money back if you cut growth activities (because your initial price would be higher due to implied growth in the future).
The challenge is in step three. Can you increase revenue or decrease operating costs without sacrificing too much goodwill? If you do too much to scare away suppliers or customers then step 4 is hard and the whole thing blows up.
...likely while worsening the customer experience (less hands-on support, less engineering, less reliability).
For a company like SquareSpace unless they're massively overspending and they are rife with inefficiencies I don't see how this works out for the PE firm.
