Overheard

• "Every one of my pre-IPO clients has been approached by a SPAC." — Freshfields lawyer Sarah Solum said SPACs really are very keen on Silicon Valley companies.
• "When there is a tech bubble, Masayoshi Son is usually not too far away from the action." — Asymmetric Advisors' Amir Anvarzadeh wasn't impressed by SoftBank's big options bets, which scared investors this week.
• "What we think we are going through is a healthy correction, removing the froth … If you're a tech investor you had to understand that the valuations were very high." — SkyBridge's Troy Gayeski wasn't too bothered by the tech selloff.
• "The stock market for Chinese authorities is an indication of soft power, and it is all the more important for the nation to have an international stock market that can rival the U.S." — Nomura's Jim McCafferty explained the reasoning behind the Hang Seng Index overhaul, which added Alibaba and Xiaomi to the basket.

The Big Story

Berkshire Hathaway invests in a tech IPO

Snowflake's amended S-1 this week raised eyebrows for a few reasons. One was its huge valuation: Its proposed price range values the company at up to $23.7 billion, way higher than the $12.4 billion it was valued at in February. And then there was the name of an investor that's already committed to buying shares: Berkshire Hathaway.

• Warren Buffett's investment vehicle agreed to buy around $250 million worth of shares in the IPO, and will buy a further $320 million from former Snowflake CEO Robert Muglia.
• Berkshire's an unusual investor for a deal like this. Buffett has publicly decried IPO investing, and has mostly avoided tech investments, citing them as outside his circle of competence. (Apart from Apple; Buffet really loves Apple.)

So is this a big shift in the company's strategy? I spoke to some Berkshire-watchers to find out.

One thing to note: "This really isn't Buffett, you know, 'old dog, new tricks,'" Edward Jones analyst James Shanahan said. "This is the influence of his investment managers." That's Todd Combs and Ted Weschler, and indeed it was Combs' signature on the Snowflake document, not Buffett's.

• Combs was also behind Berkshire's only other IPO investment, in fintech StoneCo. He and Weschler have autonomy over small parts of the portfolio, and in an effort to beat the market, they're pursuing the tech investments that Buffett's typically avoided. "You just simply can't outperform without tech in the portfolio," Shanahan said.
• "What we're seeing … [is] a realization that in order to outperform the market, they can't ignore the largest sector in the market," Cathy Seifert, of investment research firm CFRA, said. "In some respects, Berkshire's playing catch-up here."

There may also be a hint of desperation to it. "This represents a desire on the part of Berkshire to be invited to be a participant in other deals," Seifert said, explaining that Berkshire's deal flow may have slowed in recent years.

• Buffett has often bemoaned the lack of great deals to be done in recent years, and has instead been sitting on a growing pile of cash.
• "This represents a way for Berkshire to get back into the fray — back at the top of the shortlist as big institutional investors willing to put some capital at risk," Seifert said.

But don't get too carried away about this being a Berkshire reborn for the modern age. "I really wonder when we will go from these investments in the delegated investment portfolios, to investments in digital transformation and in these platforms at the Berkshire corporate level," Chris Rossbach told me.

• And Rossbach, who is chief investment officer at the Berkshire investor J Stern & Co, added that Snowflake-esque deals might be a bit too risky for Berkshire's broader investment strategy. "It is not compatible with the type of investing Warren Buffett advocates," he said.
• Still, on the bright side, he added, "it's good to see that … they're open to these new types of companies."

And anyway, this is Berkshire, so it's always worth watching. "What they do is highly relevant, and I think still has a signaling value," Rossbach said. "If they end up buying one of the big digital platforms … [or] encourage Todd and Ted to do these kinds of deals," he added, "it's something we should all be watching."

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Up to Speed

• Monday: Mollie raised $106M at a $1B+ valuation.
• Tuesday: Tesla's stock had its worst day ever. Slack earnings disappointed investors. GM invested $2B in Nikola, and agreed a partnership. Byju's raised $500M, led by Silver Lake, at a reported $10.8B valuation. Warburg Pincus invested in Infoblox, at a reported $3B+ valuation. Klarna was reported to be fundraising at a $10B+ valuation. Grab was reported to be in talks to raise up to $500M from Prudential and AIA. Progress bought Chef for $220M. SumoLogic gave a price range for its IPO, valuing it at $2B+. JFrog gave a price range for its IPO, valuing it at $3B+. Yalla filed for a U.S. IPO. Guild Esports was reported to be planning an IPO at a $66B valuation.
• Wednesday: Silver Lake invested $1B in Reliance Retail. Sprinklr raised $200M at a $2.7B valuation. Snyk raised $200M at a $2.6B valuation. Unity gave a price range for its IPO, valuing it at ~$11B. The Long-Term Stock Exchange began trading. Kakao Games shares surged on their debut.
• Thursday: Oracle earnings beat estimates. Peloton earnings beat estimates. Opendoor was reported to be planning a merger with Chamath Palihapitiya's SPAC at a $5B valuation. Zomato raised $100M at a $3.3B valuation and said it plans to IPO next year. Grand Rounds raised $175M at a $1.34B valuation. Unity's IPO was reported to be soliciting online bids to decide a price. Hindenburg accused Nikola of being an "intricate fraud."

Diving Deeper

Why Amazon might want in on Reliance Retail

Forgive me if you've heard this one already: Mukesh Ambani is on a fundraising spree.

Actually, make that another fundraising spree. After Jio Platform's $20 billion raise earlier this year, sister company Reliance Retail has also begun selling stakes. On Wednesday, Silver Lake invested $1.02 billion in the company at a $57 billion valuation, while usual suspects KKR, L Catterton, Abu Dhabi Investment Authority and Saudi Arabia's Public Investment Fund were all reported to be in talks to invest too.

But the big news came yesterday morning: Reliance has reportedly offered to sell Amazon a $20 billion stake, in a deal which could reshape what's arguably the world's most interesting ecommerce market.

Reliance Retail is already a titan of Indian shopping. It owns the largest physical retail business in the country and controls around one-third of India's organized retail sector. But physical retail isn't enough: Earlier this year, Reliance Retail launched JioMart, a joint ecommerce venture with Jio Platforms, that has the express aim of giving Reliance control over India's huge unorganized retail market of neighborhood retail stores, called kirana.

• The aim, Counterpoint Research's Tarun Pathak told Protocol, is to "enable these smaller kirana shops to digitize themselves." Considering there are an estimated 12 million of those mom-and-pop outlets in the country and their digitization is a relatively untapped market, the opportunity is significant.

When JioMart was announced, it was seen by many people as Reliance going up against Amazon and the Walmart-owned Flipkart, which both have large ecommerce operations in India. Both have typically focused on organized retail, though they're both also pursuing a kirana strategy. But Pathak thinks that's easier said than done, pointing out that it requires a huge field sales team to educate kirana owners, and a large offline presence. That's something Reliance has plenty of, but "Flipkart or Amazon will take some time from that perspective," Pathak said.

Investing in Reliance Retail could be a way for Amazon to jump ahead. Rather than compete with Reliance, the two could work together to fight a common enemy: Walmart. A tie-up is also just prudent, Pathak argues, as a way of diversifying risk: "These are early times in the digital retail side of things, so what companies ideally will do [is] cover all the grounds, rather than sticking with a single strategy."

• Amazon might get a good deal, too. In a note to investors on Wednesday, JPMorgan analyst Pinakin Parekh estimated that the market was valuing Reliance Retail at $70 to $75 billion, compared to the $57 billion valuation that Amazon might invest at, if its deal is based on Silver Lake's. For the world's richest man, a partnership with the world's seventh-richest man might be too good to turn up.

Money Talks

Gina Mastantuono, ServiceNow CFO

Has COVID-19 been net good or bad for the tech industry?

The pandemic has turned digital transformation into a business imperative. We're seeing this on multiple fronts, from survival to thriving. We're recognizing the importance of business continuity, productivity and agility. Look at companies like Disney and Dominos — they're literally becoming software companies. If digital transformation was important before, failure to digitize is now a losing strategy.

What tech stock do you have your eye on?

Microsoft. They continue to innovate and tackle challenges that arise from COVID-19 from every facet, whether it's introducing new innovations to support the remote workforce or helping people around the world acquire digital skills needed for the COVID-19 economy.

What was the most overlooked and/or overhyped deal of the last 12 months?

One potentially underhyped deal is Shopify's acquisition of 6 River Systems. The acquisition lets Shopify extend its online footprint into brick-and-mortar fulfillment warehouses with robotics, letting independent stores compete with ecommerce giants. This deal underscores the continued acceleration of digital transformation in the retail space.

What piece of financial advice should a founder ignore?

"Technology alone solves problems." Technology alone won't solve problems, people do. If you automate a bad process, it's still a bad process. My advice is to find new ways to partner cross-functionally with your C-suite peers to maximize the value of your investments. We call it East-West collaboration. I've been impressed with how collaborative the ServiceNow team has been since I joined in January.

Coming Up

• Apple is expected to announce a new Apple Watch, iPad and services bundle on Tuesday, but not new iPhones. Adobe also reports earnings Tuesday.
• JFrog and Snowflake are expected to IPO on Wednesday, followed by Sumo Logic on Thursday and Unity on Friday, according to IPO Scoop.
• Retail sales data for August is out on Wednesday, as is the Fed's latest decision on interest rates. Investors don't expect any huge rate change, but they'll be closely watching what's discussed.

A MESSAGE FROM PHILIPS

Stronger care … from more efficient operations

In a defining moment for healthcare, it's even more crucial to deliver patient-centered care efficiently. At Philips, we are committed to providing intelligent, automated workflows that seek to improve patient care. More efficient healthcare means stronger, more resilient healthcare.

Learn more.