Henrik Torstensson's Weblog

It is the first time I’ve listened to Dwarkesh Podcast, but it seems to be high quality and I’ll be listening to more episodes than his interview with Mark Zuckerberg.

In addition to the AI discussion, I find Mark Zuckerberg’s comment on how he thought about not selling Facebook a good general approach:

If you like what you are doing, like your company and would build the same company again, why sell?

The full question and answer:

“Dwarkesh Patel 00:06:47

This is a total detour, but I want to ask about this while we’re on this. We’ll get back to AI in a second. In 2006 you didn’t sell for $1 billion but presumably there’s some amount you would have sold for, right? Did you write down in your head like “I think the actual valuation of Facebook at the time is this and they’re not actually getting the valuation right”? If they’d offered you $5 trillion, of course you would have sold. So how did you think about that choice?

Mark Zuckerberg 00:07:08

I think some of these things are just personal. I don’t know that at the time I was sophisticated enough to do that analysis. I had all these people around me who were making all these arguments for a billion dollars like “here’s the revenue that we need to make and here’s how big we need to be. It’s clearly so many years in the future.” It was very far ahead of where we were at the time. I didn’t really have the financial sophistication to really engage with that kind of debate.

Deep down I believed in what we were doing. I did some analysis like “what would I do if I weren’t doing this? Well, I really like building things and I like helping people communicate. I like understanding what’s going on with people and the dynamics between people. So I think if I sold this company, I’d just go build another company like this and I kind of like the one I have. So why?” I think a lot of the biggest bets that people make are often just based on conviction and values. It’s actually usually very hard to do the analyses trying to connect the dots forward. “

The stock market is great, but most of the time the core business model of the stock market is not to provide capital to companies that want to grow. Providing capital is the core business model of private investors, like venture capital. The stock market is more about providing liquidity for trading shares and most public market investors look to take money out of companies in the form of dividends and share buybacks, not putting money into new share issues. (Public market investors, like private investors, also buy shares for price appreciation, but that is not a direct use of the cash in a company.)

There are, of course, exceptions and one of them is the Initial Public Offering (IPO). When companies list on the stock exchange for the first time, they usually raise capital to finance growth. In this context it is great that Sweden has a very vibrant IPO market that provide growing firm with capital, and has had more companies go public in the last eleven years than Italy, France and Germany (!).

Interesting read in the Financial Times on Sweden’s equity culture. Especially that the share of larger companies (250+ employees) that are publicly listed: over 15 %, when the European average is about 4 %.

And the popularity of stock market investing in Sweden and the Nordics.

Klarna released its annual report and an investor presentation for 2023 results a while back (which I missed at the time). I liked the format of the investor presentation, and believe it is one to get inspiration from. Two things in the investor presentation interested me in particular:

1. The Profit and Loss statement, and the development year-over-year. Growing revenue more than 20 % while cutting most costs 10-30 % per main cost area is good execution.

2. The slide showing how cohorts are improving (with both the number of purchases and the average revenue per user increasing) is a good way to highlight improvements and is particularly useful for startups before they reach profitability

Breakit writes about Napper, a Swedish-founded baby sleep app founded by Espen Janson (a former Stardoll colleague), Viktor Lindberg and Clarence von Rosen.

Napper has raised some capital from very smart investors, but is also an example of building a mobile consumer app company with relatively little capital, founders retaining significant ownership (80%) and early focus on revenue and profits (16.3 MSEK in revenue and 3.4 MSEK in profit in 2023, and on a path towards 50 MSEK in revenue in 2024).

Interesting data point is that ca 25% of Norwegian families with a baby younger than 18 months is using Napper, and almost that share in Sweden.

Stockholm-based Gilion announced this week that it has raised €10 million in equity, but the more interesting thing for founders is the new feature Benchmarks. Today Gilion offers benchmark data for Net Sales (Last Twelve Months), Annual Recurring Revenue, and Sales Retention. Including forecasts for the next 12 months for your startup and peers. (note: Alliance VC is an investor in Gilion.)

“As time goes on, I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes.”

— John Maynard Keynes (quoted in the book Concentrated Investing)

While low-cost index funds are a great thing, there is an opportunity to consistently perform better. Especially if investing in private companies in addition to public stocks.

Swedish video games group Embracer will sell the Gearbox Studios to Take Two Interactive for ca $460 million. Together with the sale of Saber Interactive to its founder and a significant cost savings program, this hopefully will allow Embracer to reduce its debt burden so much that it’s no longer the main focus for the company, lenders and investors.

Debt is a useful tool, but when things get tough for a company it has a tendency to become the main focus in a way that equity doesn’t.