Gavin Baker who runs a hedge fund and formerly the very successful manager of the Fidelity OTC fund tweeted this yesterday:
- We are about to find out if software contracts actually are “better than first lien debt.”
Regardless, the days of customers paying upfront are over and payment terms will lengthen significantly which will combine to have a significant impact on cash flow for software.
- I would take the under on businesses that are effectively shut down - retail, restaurants, hotels, airlines and all SMBs - paying their software bills on time.
Contracts will be adjusted to reflect lower utilization and lower seats.
And some bills will never be paid.
- A survey of 500 businesses by AvidXchange published on 3/18 found that only 54% of businesses had the technology necessary to pay all bills remotely.
Some PE firms are asking their portfolio companies to stop paying all bills. No cash out the door.
- Software was already moving away from multi year subscription models billed upfront towards usage based models billed in arrears in-line with hyperscale IaaS.
The virus will accelerate this change.
Cash is king and working capital dynamics are shifting against software."
Gavin on videogame investing and other things:
Long ADBE, AYX, DDOG, MSFT