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Monday 17 June 2019
BUSINESS DAY
ANALYSIS FT Loss-making tech companies are floating like it’s 1999 Investors urged to avoid loss-makers and seek those groups that make the unicorns’ businesses possible MATTHEW VINCENT
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emember the dotcom boom? Gregory Perdon of private bank Arbuthnot Latham does. As its co-chief investment officer, he worries that 2019 feels a bit like 1999: “In the late 1990s, taxi drivers in New York would tell me which call options they were buying on which tech stocks — it was euphoric back then. I don’t think we are at those levels just yet but, equally, I don’t think we are a million miles away.” In fact, some argue that the only real difference is that the taxi drivers are now the investment, rather than the investors. Last month’s initial public offering of shares in Uber, the ride-hailing app, saw a tech company that is set to lose $5.4bn this year seek a stock market valuation
Amazon. Facebook floated in 2012 at $38 a share when it made a $59m loss, and saw its price fall to $20; last year its shares peaked at $210. However, for every Facebook, there is a Snapchat. Shares in the messaging app initially rose from their $17 IPO price despite the company never having made a profit. They traded as low as $5 earlier this year, and, at $14 currently, the company still hasn’t gone into the black. They now trade as low as $14, and the company still hasn’t gone into the black. And Amazon’s rise from loss-making online bookstore to ecommerce giant did not require investors to buy into sky-high valuations: when it floated in 1997, its market capitalisation was only $300m. Facebook shares fall in 2012 © Bloomberg
Uber’s IPO at the New York Stock Exchange © Bloomberg
of around $80bn. Nor is it the only heavily lossmaking company to launch an IPO on a multibillion-dollar valuation. Lyft, Uber’s main rival in the innovative business of booking cabs by phone, posted a net loss of nearly $1bn last year but in April pursued an IPO valuing its business at $24bn. Pinterest, the website that appears to do little more than let users collect pictures of soft furnishings, managed to lose $63m last year and launched an IPO seeking a $12bn valuation this spring. WeWork, provider of serviced offices full of little but hard furnishings — recently posted a $264m loss, as it considers an IPO with a $47bn valuation. Research by Jay Ritter, a specialist in corporate finance at the University of Florida, has found that the last time there were this many loss-makers trying to flog shares to investors was 2000 — the year the dotcom boom turned to bust. Back then, 81 per cent of US companies coming to the market had lost money in the year leading up to their IPO. In the first nine months of 2018 — even before those tech unicorns had tried to tap investors — the proportion was 83 per cent. As in 1999, there are plenty of people claiming “this time, it’s different”. Some point out that the high level of loss-maker IPOs reflects the number of biotech companies raising equity these days — which they must do to fund drug trials. Others note that in recent years, several loss-makers have turned into stock-market darlings. Uber boss Dara Khosrowshahi cites the journeys of Facebook and
Why, then, are so many lossmakers asking for so much of your money all at the same time? Two reasons suggest themselves, both to do with market conditions. First, cash flooded into the private equity market between 2011 and 2014, as asset managers sought higher returns in a low interest rate environment. Their investment created a spate of billion-dollar tech “unicorns” that stayed private longer than usual. This created pent-up demand from equity investors, which now gives those early backers the chance of a lucrative exit. Second, those investors and their advisers are now looking at the longest equity bull market in history, and worrying that their chance to cash in might be running out. Some 29 banks had something to gain from Uber’s IPO. So is now the wrong time for any investor or wealth manager to be giving it to them? In many cases, yes — though not necessarily. At London & Capital, private investment office partner Iain Tait sees the recent loss-maker IPOs as feeding a market appetite for “disruptive growth investments” — and reflecting their scarcity value. But he says it is imperative to employ critical analysis of each investment case to avoid excessive valuations. “An investor with a long-term time horizon with the appropriate risk tolerance may well be suited to a high growth investment opportunity that is currently loss-making. But it would be critical to assess the roadmap to profitability,” he says. www.businessday.ng
The future of meat in a plant-based world As campaigners argue for a greener diet, can carnivores combat climate change too? STEPHEN BURANYI
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t can sometimes feel like a fait accompli that at a certain point in the future we will eat nothing but plants. It isn’t just that the number of young people claiming to be vegan or vegetarian is increasing — current polling suggests about a quarter of 18- to 24-year-olds in the US and UK are one or the other — but also that the meatfree movement has been able to trade on the idea that, culturally and morally, carnivores may be on the wrong side of history. “The plant-based-eating stuff has become huge,” says Matt Chatfield, a food supplier who connects producers in Cornwall with London restaurants. Chatfield and his van service are probably more responsible than anyone else for the presence of Cornish meat and fish in the capital’s best establishments. As a logistician, Chatfield is a great anticipator of problems, and these days, meat has problems. “The newspapers are all-in on meat-bashing lately,” he complains. The green-minded Guardian is one thing, he says, but even the “World in 2019” almanac from the Economist declared it “the year of the vegan”. “And then you’ve got that big Lancet report,” he adds, referring to a scientific review published in January by the prestigious journal that promised to define “healthy diets from sustainable food systems” to be implemented by 2050, which turned out to be almost entirely plant-based. His summation: “They basically say in the future we won’t be eating meat any more.” Chatfield is explaining this to me as we stand in what could best be described as a meat fortress: the hanging and drying rooms of Philip Warren Butchers in Launceston, Cornwall, one of the suppliers he represents. There are so many impeccably clean beef carcasses hanging in rows from the ceiling that they muffle sound, like heavy velvet curtains. The shelves are packed with cuts at various stages of ageing — from cherry-tomato red to a dense, ruddy brown, like rich wet clay — and tagged with metal tines announcing the restaurants that have claimed them: temples of modern British cooking such as Brat, Lyle’s and the Holborn
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Dining Room. But while business is good now, Chatfield worries that the rise of plant-based eating isn’t just a fad, destined to die down, but the result of deep structural shifts in the way we value meat. Veganism especially was once considered both woolly and preachy, relying on vague claims to health and “meat is murder” hectoring, but science has been very good to it in recent years. There are the studies linking high levels of red-meat consumption to cancer, for example. Even more significant is the realisation that livestock production — again, especially red meat — may account for up to 14.5 per cent of all greenhouse-gas emissions. Christiana Figueres, the former head of the UN Framework Convention on Climate Change, even mooted the idea (admitting it was “very, very provocative”) that in a decade or two, people who order meat in restaurants could be asked to eat outside, like smokers. As our understanding of sustainability shifts under the increasing pressure of climate change, a topsy-turvy logic has emerged. Many small producers once felt that, killing animals aside, they had a lot in common with the plant-based-eating community. “We’re generally thankful for vegans, they make people think about where food actually comes from,” says Ian Warren, who oversees the ageing and hanging facility in Launceston. “We all want smaller farms, fewer chemicals, better soil, more wildlife, basically something sustainable that could go on for ever,” Chatfield explains. “We’re against factory farms; we’re against destroying the earth.” But, he fears, the new, world-scale ambition of plant-based eating has left this idealistic localism behind. Suddenly, fast-food chains and discount superstores — the very market-makers that helped induce agriculture to become ever bigger, faster and more reliant on industrial chemicals and genetic modification — are stocking ultra-processed meat substitutes with names such as “Beyond Meat” and the “Impossible Burger”, produced by companies headquartered in Los Angeles and Silicon Valley that are staffed by former tech workers. The real sign that plant-based @Businessdayng
eating may rule the future is that venture capital firms and corporate giants such as Nestlé are ploughing millions into it. The Swiss food giant recently predicted its vegan business — including a forthcoming meatless “Incredible Burger” — would be worth a billion dollars in the next decade. If there is an opportunity here, small producers figure it lies in the gap they have always maintained between themselves and factory-farmed meat. A tradition of small farms and farmers striving to produce the most humane, sustainable meat possible already exists, and young farmers especially are keen to see that it continues. They also feel strongly that, if we have to consume less meat overall, the losses should fall squarely on the large producers that caused the problems in the first place. Not far from the Warrens’ shop in Launceston is Coombeshead Farm, a working farm and restaurant opened in 2016 by Tom Adams, the former proprietor of London barbecue stalwart Pitt Cue. In 2017, Adams was named Young Chef of the Year by the Observer, which described him as taking farm-to-table eating and “turning up the dial”, supplying nearly everything on his nightly menu from his own produce. But his approach might also be described as dialling down — way, way down — the startling, ahistorical abundance of modern eating. Adams was tempted out of London partly by the time he spent with suppliers such as the Warrens. Rather than offering him whatever he requested, they were focused on what worked best on their land, and on teaching him what was possible within those confines. “Working in London means working at the point of the dish [but] I wanted to go beyond that,” Adams says. Ian Warren’s father Philip has been raising cattle since the 1970s, and describes sustainability as “working with things as they should be”. His guiding principle has always been: take only what the land can support. The land is Bodmin Moor, whose lean, rocky hills make nearby Dartmoor look positively lush. He has a herd of Welsh Blacks, with lean builds and thick coats that are perfectly suited to the harsh climate.