Good Morning!

I hope everyone is getting those Turkey pants ready as we are officially less than a week away from Thanksgiving. I am pumped, and I hope you are too. 

We also have a first where we have 3 memes in the meme section that tell a "meme story" inspired by a serious blizzard expecting to hit Buffalo as the Browns get ready to (lose) take on the Bills on Sunday. (I hope you all enjoy my elite Canva skills as well.)

Fun fact, back in 2007 when the Browns played the Bills in Cleveland, there was an absolute blizzard, and I had the privilege of being at the game with my Pops. It was cold. It was snowy. It was incredible. And we actually won!

Finally, the portfolio is officially back (thanks to Yahoo's awesome new portfolio tracker). Make sure to check it out. 

Showtime!

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DEEP DIVE

Starry

After a couple of critical sends recently (Talkspace and FIGS), now it is time to get our drip back – Mom and Dad drip means swagger/confidence – saved you guys a text – as we will be breaking down Starry, a failed SPAC. 

I first broke down Starry back in the 23rd edition of Just Raised on April 1, 2022. Here is what I wrote: 

1. A Falling Star

Starry, a company looking to disrupt the broadband industry, announced the completion of a $1.76B SPAC deal with FirstMark Horizon Acquisition Corp. with proceeds of $176M.

The company wants to create an over-the-air internet system (vs. fiber/underground) to give strong internet to the masses. Starry also raised $400M from KKR, FirstMark, and Tiger Global Management before going public. 

Will this be the company that turns around SPAC’s fortunes?

Alan’s Angle: 

I don’t think so. Here’s why: 

     1. Massive Broadband Incumbents

Off the bat, it’s important to recognize just how competitive and entrenched the broadband market is, including: Frontier, Verizon Fios, Comcast, and Charter. With many seeing the collapse of cable TV revenues due to cord cutting, they are investing heavily into broadband infrastructure.

     2. Technology Doubts

There are serious questions regarding the quality of Starry’s technology. Historically, their type of tech has struggled in tough weather conditions like rain, wind, and snow. Imagine it’s a cold, snowy day and you can’t watch your Netflix. Yikes. 

     3. Valuation

“Price is what you pay. Value is what you get.” Investing at any stage is all about valuation. Apple is a great company, but if someone wanted to sell you a share at $10T, you would most definitely pass. Starry’s 2020 and 2021 revenue was $13M and $22M, respectively, meaning that the company is trading at an 80x Price to sales multiple. The company projects $1.1B in sales by 2026. I’ll believe it when I see it. 

     4. Questionable Management

Starry CEO Chet Kanojia is the former founder and CEO of Aereo. Aereo was an online TV platform that eventually shuttered. The Supreme Court deemed Starry illegal because it didn't obtain the proper copyright permission for its content, then it went bankrupt. This does not hold Starry back from claiming that Aereo was “the groundbreaking online TV platform that kicked off the OTT revolution.” An odd claim for a company that collapsed the way Aereo did. Red flag. 

Prediction: Starry will share the fortunes of many SPACs before it and will not be a shooting star. 

Alan. Looks like you crushed it buddy.

Fast forward to November 16th and the stock is trading @  $.27 a share and appears to be on the brink of bankruptcy. On April 1, the date I wrote the original write up, the stock was trading @ ~$8.50 a share representing a ~95% drop in the stock price. 

In my last newsletter, I discussed why it is so important to learn from your mistakes as an investor, even when it hurts. When I came across Starry, I instantly thought back to the similarities between the two companies including going public via SPAC, questionable management, significant over valuation, among others. This served me very well. 

Now let’s take a look at Starry’s journey and their collapse.

What Happened

The struggles of Starry in the public markets are actually quite simple. Below are the company's financials from the first 3 quarters of 2022. 

First Quarter

• Revenue: $7.4M, 63% YoY growth
• Net Loss: $53.6M vs. $41M Q1 21
• Homes Serviceable: 5.5M, 20% YoY growth
• Customer Relationships: 71K
• Penetration of Homes Serviceable: 1.3%, 39 bps increase YoY
• Cash: $166.7M
• Debt: $218.5M

Second Quarter

• Revenue: $7.8M, 52% YoY growth
• Net Loss: $36.3M vs. $38.6M Q1 21
• Homes Serviceable: 5.7M, 20% YoY growth
• Customer Relationships: 81K
• Penetration of Homes Serviceable: 1.43%, 42 bps increase YoY
• Cash: $99.7M
• Debt: $224.5M

Third Quarter

• Revenue: $8M, 36% YoY growth
• Net Loss: $60.3M vs. $39M Q3 21
• Homes Serviceable: 6M, 18% YoY growth
• Customer Relationships: 91K, 66% YoY growth
• Penetration of Homes Serviceable: 1.53%, 44 bps increase YoY
• Cash: $29.4M
• Debt: $231M

So here is what we got. 

There was healthy revenue growth, albeit decelerating throughout the year, however, the base is just too small to support the company. This is exemplified by the serious losses that took the cash balance down by over $130M in just 9 months while increasing debt by ~$13M. 

Interestingly, the company’s land and expand strategy of focusing on launching at apartment complexes and seeing increase in uptake after launching at MDU’s does look effective, however, again, the costs are just too high to see where this strategy can go and there are a lack of funds to support it. 

With Starry on track to run out of cash over the next several quarters, the company has brought in PJT Partners to advise the company on strategic options including possible acquisitions, capital raising, and balance sheet solutions. 

Earlier this month, Starry also received a non-compliance notice from the NYSE as the stock traded under $1 a share for more than 30 days. Starry now has 6 months to get the stock price above $1 or will be delisted from the NYSE. 

TL:DR – Starry’s final days appear to be upon us

Final Thought

As I was prepping for today’s piece, one thing became clear to me – Starry’s technology does seem incredibly impressive. This is something that I do not think I gave enough respect to back in April. It is clear that CEO Chet Kenojia is a brilliant mind and builder – it appears his shortcomings are more on the regulatory and financial side. 

I do also think that there is something here with the over-the-air internet system. If Starry would have stayed private longer and been able to raise money successfully in the quiet of the  private markets, we might have been able to see a true disrupter to legacy cable companies. The cash burn on this thing just shows it was not made for the public markets. 

Will a big cable company scoop Starry up and try to make a play in space? Probably not but there is a chance. But what I do know is that I am pulling for Chet Kenojia and hoping that his next venture will be the one that takes him all the way! 

-Alan

CHARTS OF THE DAY

• As you all know, I love me some media and find this chart very interesting when it comes to the breakdown of where CTV ad impressions are coming from (shoutout to Rich Greenfield for sharing this)
• I expect FireTV and Apple to continue cranking upwards on charts like these. They both have made it clear that media and TV is a big priority moving forward with a wealth of content coming to their respective services.
• Specifically, an AppleTV and FireTV will be able to put this content right in front of you, create more engagement, and ensure that more time being spent on their hardware will be on their respective services hence helping the amount of ad revenue they get on their platforms. 
• I like Roku a lot, but it is very important for them to see the advertising market come back as they need the $$$. Apple and Amazon on the other hand, well, you know.

• Pitchbook hooked us up with a great chart breaking down the developments in the carbon and emissions tech sector
• In 2021, investments in carbon and emissions more than 2xd in deal count and funding vs. 2020 to around $13B and 650 deals
• 2022 is projected to dip down to around 500 deals and $10B in funding as we enter a new investing climate (pun most definitely intended) 
• I think that we might actually see an even further decrease in deal size and amount going into '23 due to the often long term ROI associated with these types of deals and uncertainty in the markets. 

VC RAISE

The Rundown: Descript is an AI powered audio and video editing platform founded by the former Groupon CEO Andrew Mason. The company announced a $50M Series C led by OpenAI Startup Fund and included investments from a16z, Spark Capital, and Redpoint Ventures. 

3 Key Points:

• The company offers a suite of editing features for videos and audio that makes it as easy "as editing slides or docs"
• Descript did not reveal their revenue figures or valuation but have top notch clients like NPR, Washington Post, New York Times (and Workweek Media!)
• This is OpenAI Startup Fund's second investment after Mem (AI note taking)

Alan's Angle:

I think Descript is an incredible company and they will continue to keep growing and growing. Anything else I wanted to say about the company is covered in the great TechCrunch piece that broke the news that I highly recommend checking out here. 

THE CROSSOVER ARCHIVE

Missed a recent edition? That's okay! Now you can just click on these links below to catch up on what you missed!

• 11/15 - FIGS: A Thesis Breaks
• 11/11 - Talkspace: A SPACtaculer Failure
• 11/8 - Hypervolt: A $700M Journey
• 11/4 - Core Four: Overtime, Arc, Peloton, AngelList

PORTFOLIO

The Crossover Portfolio

Note: The Crossover Portfolio is a mock portfolio of how I would be investing and not with real money. All trades are shared publicly @ The Crossover Twitter as they are recognized. 

• The Portfolio is back and better than ever! As you can see, we continued to unload $FIGS - a tough move, but one that we think is the right one
• You can also see our cash balance is over 30%. I think things are going to get continue to get rough in the markets and want some dry powder. Even if they do not, I am confident about our ability to find good value afterwards. 
• Also, very excited about how we handled $PARA the past few weeks. It was extraordinarily difficult to pick up 6k shares when the stock was trading @ $16.40, but we (I) felt it was just too cheap down there. After the market made a nice move and Warren Buffet increasing his position in $PARA by 12M shares, we (I) felt this was a good time to lighten up the position and we sold 20k shares @ ~$20 a share. If the stock goes back to ~$16 range, we will continue to pick up more. The $PARA update is also almost done and will be dropping over the next couple of weeks. 
• Sadly, Yahoo does not let me sell specific lots, but rather the oldest lots so that will effect the average price

MEME OF THE DAY

JOBS

Here are some jobs that I’m curating in finance and tech. Use this link to submit a role to be featured if you’re looking to hire.

Lead Data Engineer @ Capital One

What’s in your wallet? Add more to it by working for Capital One who is searching for someone to run their data teams.

Director of Fraud & Payments @ Underdog Fantasy

A very unique opportunity at an up-and-coming fantasy platform! Underdog Fantasy is looking for someone to  determine fraudulent activity, suspend and reactivate accounts, and overall protect their platform. If you know someone that could be a great fit for this role, make sure to send this job their way.

Sr Accounting Manager @ Uber

This accounting position is within the "Transformations" departments at Uber, an incredibly innovative and unique wing of the company. If you have 15+ years of accounting experience and want to be in an entrepreneurial environment, check out this opportunity! 

GOLDEN NUGGETS

• Cool tweet on the legendary pitcher Mordecai "Three Finger" Brown. 
• Fanatics held an analyst day (googly eyes)
• David Zaslav is a savage/legend
• Been watching Chef's Table: Pizza on Netflix, and I have been enjoying it!
• I have also been watching this new show on Netflix called Seinfeld. I could see it have been being very big in the '90s. 

Thanks for the read! Let me know what you thought by replying back to this email.

— Alan 

Disclaimer: The Crossover is not a professional financial service. All materials released from The Crossover are for educational and entertainment purposes. The Crossover is not a replacement for a professional's opinion. Contributors to the Crossover might have positions in the equities in the The Crossover Portfolio or mentioned in the newsletter.

Written by me, Alan Soclof.

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