#11/2020

“What do you call a stock that’s down 90%? A stock that was down 80% and then got cut in half.”
- David Einhorn

Deals

Epic Games Adds Cubic Motion Startup To Company Portfolio (crunchbase.com)
  • Cubic Motion’s technology helps make facial animation in video games and movies more lifelike. The acquisition of Cubic Motion will complement 3Lateral, another company Epic Games bought in January 2019. 3Lateral makes technology to digitize human appearance and motion to look lifelike.
  • “Digital humans are not only the next frontier of content creation, but also the most complex endeavor in computer graphics.”
  • Presto: We are currently looking at this sector more towards complimentary companies to these kinds of businesses as we see a lot of opportunities in this sector.

Refurbished electronics startup Refurbed raises $17 million round, led by Evli Growth Partners (techcrunch.com)
  • Refurbed is a marketplace for renewed phones, laptops and tablets. The devices are renewed through a 40-step process, come with a 12-month guarantee and can be as much as 40% cheaper than their brand new cousins.
  • Startup claims to have more than 150,000 customers throughout Europe with sales, growing over five times in 2019 and to have also posted more than $45 million in GMV.
  • Presto: It would be great to see more startups being successful on the financial as well as environmental side of the business.

News

Stitch Fix shares crater more than 35% as sales miss and outlook disappoints (cnbc.com)
  • Stitch Fix Q2 sales for fiscal 2020 that missed analysts’ estimates and stock fell more than 50% from a value month ago. 
  • It issued a disappointing outlook for the full year due to a more promotional environment in the U.S. The company said that because of a promotional environment in the U.S., it will focus on growing its assortment of lower-priced items “to serve a broader universe of clients.”
  • Opinion: Especially the last statement is interesting to me. It feels like they basically admit that all the data scientists they employ are useless. Also StitchFix relies heavily on facebook advertising to attract new clients which is proving not scalable and with higher price it will probably severly limit their growth options in the US. 
  • Genster, one of our portfolio companies has very similar business model to StitchFix. 

The trouble with Magic Leap (protocol.com)
  • Magic Leap raised $2.6 billion in venture funding, unveiled a $2,300 augmented-reality headset in 2018, and promised that its technology would rival the television. Now consumers don't use the headset and it has several B2B deals.
  • It is exploring a sale for a valuation of more than $10 billion. 
  • Opinion: I believe there should be more to be seen with the 2.6 billion in funding but major companies are heavily funding AR research and there will be a lot of interest just for the technology even if it never becomes commercially viable company. I would expect it to be sold for less than $10 billion.
MakerDAO gets stress tested as ETH price plummets (messari.io) + Black Thursday for MakerDAO: $8.32 million was liquidated for 0 DAI (medium.com
  • The drop in Ether price along with the blockchain congestion led to emergence of the negative MakerDAO Protocol’s System Surplus (a debt to the platform), which appeared due to 5.67 million DAI being uncollateralized.
  • Liquidators use scripts from MakerDAO that are not programmed for adjusting high gas prices and therefore didn't execute due to high network congestion.
  • One of the users came up with the idea that problems with the network create a unique opportunity to profit. As there were no competitors at that time, the users won auctions of millions USD worth of Ether for bids of $0.
  • Opinion: The biggest take away from this is that crypto market infrastructure is still immature. There is a lot of room to improve along many dimensions, and therefore a lot of investable opportunities.

Reading

COVID-19: Implications for business (mckinsey.com)
  • In the pandemic scenario case growth continues throughout Q2 and Q3, potentially overwhelming healthcare systems around the world and pushing out a recovery in consumer confidence to Q3 or beyond. This scenario results in a recession, with global growth in 2020 falling to between –1.5 percent and 0.5 percent.
  • Opinion: I believe that many people are underestimating impact of a pandemic. In McKinsey's worst case scenario there is only -1.5% global growth which I believe is vastly overestimated. If this worst case reflects current stock market drop, then we have a much bigger drop coming soon when forecasts for pandemic GDP growth will be adjusted lower. 
  • Even slowdown case where there are 500 000 total cases in the United States cuts global GDP growth in half to between 1% and 1.5% which is laughably optimistic.
  • If we look at this weeks data, in Minnesota (1/60th of US population) 31k people applied for unemployment insurance (over 10x normal rate) which translated with same rate across the country would mean around 1.8 million people became unemployed in a week that would be 10% of Accommodation and Food Services Sector.



Graph: Two perspectives - Both South Korea and the US had their 1st COVID-19 patients on Jan 20 and Jan 21.




Also bonus very shameful for us.

Prediction: USA is going to have twice more infected people than the second most infected country in the world in 1 month and in 2 months it is going to have more infected people than the whole Europe combined (and maybe the world).

In case you are interested in helping us with evaluating some companies and industries or just you just want to discus any of these articles, feel free to reach out to Roman from Presto Ventures at roman@prestoventures.com or Linkedin.

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