Irrational Exuberance and Tech Valuations in B2B: Tradeshift, Tungsten, and Blur Group

Even though former Fed Chairman Alan Greenspan’s phrase of “irrational exuberance” has been used far too many times since the economist first uttered it, I’ve come to believe in recent weeks that from an investment perspective (including but not limited to venture capital, PE, private placements, IPOs, and M&A), we’re in the early to middle stages of a tech bubble in the procurement, supply chain, and B2B sector.

This is a topic from a research perspective we’ve covered extensively on Spend Matters and Plus/PRO already (and been a part of behind the scenes, helping recommend, analyze and structure a number of deals in recent years). Below, I offer my shoot-from-the-hip market take on the valuations and potential of Tradeshift, Tungsten, and Blur Group – three companies caught up in the high valuation time we're in, albeit for different reasons.

Tradeshift

In recent months, the venture investment bubble has only gotten bigger. Earlier this week, Tradeshift raised $75 million, an amount that would not be out of character on a Series C or mezzanine basis for an organization about to go public with $40 million to $60 million in revenue. But for what amounts to a fairly early stage start-up – albeit one with an outstanding and audacious vision – it represents a truly astronomical sum unless my own calculations are truly off base in terms of their revenue (we estimated earlier this week a 20X+ multiple on trailing revenues).

My take? Money can make a lot of things happen and the round will create some serious momentum for the provider and provide additional R&D investment to build out the platform, application, and apps vision. If Tradeshift plays their cards right, they could be the next Amazon or LinkedIn – a new type of winner-take-all transaction and information clearinghouse that is at the center of a broader ecosystem. See links to our much more detailed coverage on Tradeshift at the end of this post.

Tungsten/OB10

Tradeshift is not alone in the supplier network sector. Tungsten/OB10 are also valued highly in the capital markets these days, with a rough multiple of around 15X trailing revenue or so (based on recent fluctuations in the market). While the venture is listed on the AIM, which is the equivalent of the NASDAQ OTC, Tungsten/OB10 is the real deal, counting over 125 procurement and accounts payable organizations today as customers.

With the addition of the Tungsten team (Danny Truell, Phil Ashdown, etc.), it has also inserted a tremendous asset of banking and finance DNA into the rest of the business (something other providers in the supplier network and e-invoicing market do not have). I have no question that the trade financing aspect of what it plans to do with its own bank as well as a capital facility set up by Blackstone will allow substantial margin growth on top of the existing network connectivity business.

My take? As trade financing adoption goes, so too will OB10/Tungsten. Sure, it’s highly valued, but if Tungsten realizes even marginal uptake of the trade financing offering, they’ll do just fine given the large volume flowing through the network ("78,000 active suppliers with over £100bn of transaction flow" according to investment bank Canacord). Personally, if I were not in my current shoes (I don’t own any tech or related services stocks because of Spend Matters), I’d be a Tungsten/OB10 buyer. And in fact I’m overweight the stock in my virtual portfolio competing against my colleague Peter Smith.

blur Group

In my view, blur Group is perhaps the best representative of the bubble market that’s forming in B2B tech right now. I have limited understanding of how investors could value what is essentially a similar marketplace concept (in this case focused on services, especially marketing services) to those from the last failed B2B go-round with such a high multiple. Is there a real business here? Maybe. Is it worth over twenty times revenue? Apparently some people think it is. See our past coverage of blur herehere, and here.

My view? The absolute cow manure – sorry, I need to be blunt – that it is press releasing these days to drive its valuation is without peer. In my virtual portfolio, if I could short Blur Group based on these press releases alone, I would, buying as many long-term puts as I could to maximize my leverage. I also have questions about the sustainability of Blur’s revenue approach (including the stickiness of its model) and a technology platform that appears to have limited differentiation. Most important, I believe the money that’s chasing blur’s marketing is doing a disservice to the real value that so many companies in the B2B sector are creating.

Enough of my Friday rant on this stuff. See also:

Related Vendor Intelligence 

Related Sector Forecasts, Market Sizing, Customer Recommendations and Analysis 

Correction: An earlier version of this story stated that OB10/Tungsten had "$1.5 billion in annual transaction volume". 

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