E108: Doxing debate, Nuclear fusion breakthrough, state of the markets & more

Within the next decade (2022–2032), it will become feasible for non‑state actors to obtain precision GPS‑guided weapons such that continuously publishing a person's precise GPS coordinates would make it relatively easy to use those weapons to assassinate that person.

“Right now, you have to be a state actor to get Ahold of those weapons. But you can imagine over the next decade that having someone's precise GPS coordinates over a sustained period of time, it would be pretty easy to target them for and not to be dramatic here, but for assassination, that is a security risk.” View on YouTube

Nuclear fusion will achieve a production-level demonstration (i.e., a commercially relevant, continuously operating pilot plant) sometime in the 2030s (roughly 8+ years after 2022), and grid-scale deployment of fusion power plants will occur in the 2040s.

“My estimate is that we will see production demonstration of fusion in the 2030, in the 2030s. So call it eight years from now plus. And then you'll see grid scale scale up in the 2040s.” View on YouTube

According to the IAEA forecast cited, by roughly 10 years from 2022 (around 2032), grid‑scale solar generation costs will fall from about $0.03/kWh to approximately $0.015/kWh, and when combined with storage the levelized cost of energy will be about $0.03/kWh.

“So according to the IAEA, today, you can capture grid level solar energy for about $0.03 a kilowatt hour... And over the next ten years, their forecast is it's going to get to one and a half cents. If you then want to store it and you layer in, storage costs will be at a whopping $0.03 a kilowatt hour.” View on YouTube

The ITER fusion project in Europe, a roughly $30 billion production-scale fusion demonstration facility, will be online and operating by the end of the 2020s.

“the biggest funding is happening in Iter, which is the largest construction project in Europe, and this is a $30 billion production scale fusion demonstration system that should be online by the end of the 2020s.” View on YouTube

Starting in late 2022, there will be a large increase over the subsequent few years in private-equity-sponsored acquisitions of tech companies, primarily SaaS firms and potentially extending into other tech sectors, with the Coupa–Thoma Bravo deal marking the early phase of this wave.

“And so I think Coupa is like the canary in the coal mine. It is the beginning of what I suspect is a tidal wave of PE sponsored deals in tech companies, largely SaaS, but may go into other realms.” View on YouTube

Over the current cycle beginning in 2022, private equity firms will acquire many private software companies, significantly reduce headcount at those firms to increase efficiency, and on average will generate approximately 1.2x–1.7x multiple on invested capital with few money-losing deals, in line with historical private equity performance.

“These folks are going to buy a ton of these private software companies. I think that they are going to fire lots of people. I think they are going to make these companies run hyper efficiently, and they will make sure that they generate that 1.2 to 1.7 x. That has been historical. Very rarely will they lose money in these things.” View on YouTube

In calendar year 2023, for most software companies, new customer business (new bookings) will decline to roughly 50% of their 2022 level.

“So you should expect your new business to be roughly 50% of what it was. Next year it'll be 50% of what it was last year. That's my rule of thumb for most companies. New business down 50%.” View on YouTube

From 2023 through 2024, many small-business customers will go out of business, causing SaaS vendors’ small-business logo churn rates to rise from a historical ~15% annually to approximately 25–30% annually.

“We haven't seen that much logo churn yet. But next year a lot of companies are going to start going out of business and it's going to happen over the next two years. So you're simply going to see logo churn rates, say, among small businesses, go from like a historical norm of 15% to maybe 25 or 30.” View on YouTube

From roughly early 2023 through mid-to-late 2024 (the next 4–6 quarters from December 2022), the macroeconomic environment will present major headwinds for software companies, making it harder for them to sustain high growth without unsustainable spending.

“We're going to have major economic headwinds for the next 4 to 6 quarters. Call it year and a half.” View on YouTube

Over the few years following late 2022, most private equity acquisitions of software/tech companies will be executed as bolt-on or add-on deals to existing PE-owned platforms, with a strategy that emphasizes cross-selling and synergy-building in addition to cost-cutting.

“I think it's very likely over the next couple of years you will see, like the playbook in private equity includes not just cost cutting but also synergy building. And they typically do bolt ons and add ons.” View on YouTube

It will take approximately 4–5 years from 2022 (i.e., until around 2026–2027) for the true performance of the 2015–2022 venture capital vintages to be revealed through markdowns, exits, and realizations, clarifying which funds are genuinely top quartile.

“I think that's going to take 4 or 5 years to really sort out.” View on YouTube