Travis Jarae [00:00:09] All right. Already. Welcome to this episode of Investing in Identity. It is November 2022. I’m your host, Travis Jarae, Founder & CEO of Liminal joined by Dave Fields, partner at PTB Ventures. And today we’re going to talk about Twitter, how that’s become a really interesting use case for digital identity, private company valuation, something that we’re always talking about here on this show as well as what is forthcoming. We think that is consolidation. So, Dave. Ready to jump on into it?

David Fields [00:00:41] Absolutely. I have been saving up my Twitter hot takes for one month. I can’t wait to finally release the pressure.

Travis Jarae [00:00:49] Awesome. So let’s get right into it. So, you know, to kind of tee you up a little bit here. Twitter is petri dish of consumer digital identity experiments. What is going on over there? Why does this matter and why are we talking about it in the context of investing in identity?

David Fields [00:01:05] Yeah, well, certainly. Look, we saw the big. Like Twitter verification. Identity verification has always been a big topic, right? Who gets a blue check? Why? How do they go through the process? We obviously saw this incredible troll move where I think we there were a couple of companies where we had people setting up accounts. They were appearing is verified and we’re having major impact on their stock valuations, like moving things to the tune of like billions of dollars worth of market cap. And so some people think that this is an indication of Elon Musk failing in our direction, things like that. I think it’s it’s potentially something a little different. But, you know, Travis, what was what was your take on this from, you know, your product management perspective?

Travis Jarae [00:01:51] Yeah, no. I mean, for one, I feel very bad for a lot of folks, a lot of friends over at Twitter that that have kind of gone through the ups and downs of this very, very quickly. And also, as a digital identity product person, I really think this is fantastic to watch. We watched kind of the snafu with the SMS, OTP authentication users kind of getting locked out of their accounts, not being able to get their authentication credentials either in a timely manner or at all. So obviously, there’s there’s proof that there’s still some dependency on that estimation authentication side of things. We’ve been seeing how, you know, what people actually see as a verified user with the blue checkmark, right? At scale, this has been, as I kind of call it here, a petri dish. But it’s been really interesting to see how consumers actually react to identity in their daily lives. So this is, I think, a very interesting time to be watching from just a product perspective. You know, it’s one thing to talk about what can be and it’s another thing to see this actually playing out.

David Fields [00:02:56] Yeah. So like, let me now like kind of offer a couple of my like hot takes, right? So my first one is, you know, it’s funny to watch this how so many people, particularly in the economy community started talking about the importance of like, actually, we need a better verification process when these calamities happened. That way you can have trusted information on Twitter. And my hot take is, would it be such a bad thing if people didn’t trust the information they saw on Twitter? Right. Like, why do we want to live in a world where like tweets potentially from companies move stock prices? Like, wouldn’t it be better if people just, like, thought for themselves and actually verified the things they read versus believing that somehow what I see on Twitter is like the source of truth, right? Like, I would actually prefer not to live in that society. My second my second point is and this is to tie back into one of the topics from last week. You know, this is actually now, you know, we talked about elbows last week in the difference between, you know, elbows and what were just buyouts in the case of our trauma Bravo and some of the identity access management companies that we’re buying here in Twitter, we actually see a classic LBO where somebody has levered up, you know, the banks have, you know, offered, you know, billions of dollars in debt, spent Elon Musk to complete this transaction. He now gets to make whatever changes to the company that he wants to, and he gets the opportunity to do that over a 3 to 5 year view. What’s unique about this is typically when people take companies private, they do it so that they don’t have to share information. So it’s not this public process. So the business transformation, the product changes and transformation are not this public process, but Twitter is the public square. Right. That’s why it’s this important asset. And so what’s unique about this is now we’re watching the sausage get made and it’s being done by somebody who is like this incredible maverick or, you know, hover whatever you want it however you want to describe Elon Musk like he’s whatever the chaos agent. Right. So we have this chaos agent making changes to the proverbial public square and it’s this incredible process play out. So my concluding point on this is it’s hilarious to me to watch people profess the death of Twitter or that Elon Musk is going to ruin Twitter because the best place to watch this all play out is on Twitter. And so like people who complain about Twitter, you go to Twitter to find the thing to be outraged about. So then you can tweet about it on Twitter. So all of this is actually like reinforcing that underlying network effect. And even though, you know, I know that every all of our listeners know how to fix Twitter’s product. And it’s a very sad thing that Elon Musk is not, you know, the beneficiary of our users like, you know, brilliance, but like we may not agree with what he’s doing, but. We’re all there watching it happen. And so this is going to be one of the great things to watch play out over 3 to 5 years. And we just got to be patient.

Travis Jarae [00:05:47] I’m assuming you’re not a user that deleted their Twitter account.

David Fields [00:05:51] I have not deleted my Twitter account. I can’t get enough of Twitter. Very good.

Travis Jarae [00:05:56] Well, let’s move on to our next topic. I’m sure.

David Fields [00:05:59] Our.

Travis Jarae [00:05:59] Our listeners can definitely opine on Twitter. Would love to kind of hear your thoughts throughout this this session here. Moving on, we want to talk about private company valuations catching up with public market drops. Obviously, 2022 was not a great year so far for public public stock prices. We’ve covered this extensively on on this particular form. Now we are starting to see that really start to hit a lot of the private companies, which make up the vast majority of businesses in the digital identity space. So Dave, you know what what are you seeing here? Obviously, this is really your domain. And I can talk a little bit about kind of private company valuations.

David Fields [00:06:41] Yeah. So, look, I think a good item in The Wall Street Journal recently, you know, private tech company valuations, you know, this is a topic we’ve been talking about when we’re down around is becoming what’s going to be the impact of all of this? How long does it take to play out? And I think we’re seeing something that kind of actually aligns with the time frame that we talked about earlier in the year. So we’ve got this nice chart. You can see the S&P 500, you know, is in is in the classical definition of a bear market. Right. There was a 20% drawdown. We see the Nasdaq, it was a 35% sort of like year to date was that was the trough. So there’s really been a big a big pullback. And then then the item that was like, you know, mentioned in this Wall Street Journal article was just how T Rowe Price and Fidelity have marked several of their investments. And so now we even see that, you know, tech darlings, Stripe, Instacart, you know, buy dance now, which is the owner of Tik Tok. For those who may not be familiar, like these companies are all being marked down, an even larger decline than what we’ve seen in the Nasdaq. Right. And I think what this shows and then there’s also several mentions of a private company transaction, some secondaries that happened in this Wall Street Journal note. And I think what it shows is that we’re starting to see that sort of standoff between buyers and sellers start to resolve itself right where we have companies or investors that need liquidity and are now willing to part with some of their assets to raise liquidity. When we have these market transactions, it gives us comps. It helps us understand really where the market is and that investors more confidence that people can transact at certain levels without encountering what we would classically call in the know investment profession like career risk, which is, you know, when you stand out and go and do something that’s apart from the crowd, you know, you’re kind of taking this risk. Whereas now if you’re somebody who’s transacting on either the buy or sell side, you have these other comps, both public market comps and private market comps that we can now point to to support these valuations. And so for like great companies are down 50%. So if you’re a good company, you’re probably down more than that. A mediocre company is going to be down even more than that. And and I think we’re we’re now starting to reach the point where companies that can raise liquidity are sorry, companies that could raise liquidity have done that exact could response. Companies that have to raise funds are now are now going to go out to market. And we’re actually to find, you know, who’s going to be successful or not. And there’s probably be a clean up the herd. And so I think that’s the point where I kind of know you know, that begs the question, you know, Travis kind of like, what are you seeing clients and and where is our specific market, you know, selling out?

Travis Jarae [00:09:22] Yeah, I know. It’s a great question. And, you know, I think this is a definitely a moving target, but generally speaking, kind of added here. So for those that are watching this on video versus the podcast, we have some company comps we believe they’re normalizing to pre-pandemic rates. So we’re seeing a handful of companies go out at 6 to 8 X on 2023, estimated revenues earlier this year, January, February, that could have been as high as 2025 ex forward looking revenues and then 10 to 12 X for 2022 actual revenues. So, you know, big time drops in terms of valuations across the board to kind of contextualize that companies with 100 million growing at 30%, you know, we’re two or $3 billion companies now. They’re trading at 1.1, 1.2 billion. So it’s it is a big drop for folks. But I do think that this normalization is actually pretty healthy across the board and it’s actually leading into bigger conversations around consolidation. So what we’ve always seen in terms of these markets is, you know, these these valuations will drop. As you kind of mentioned, companies will have a liquidity issue or looking for a liquidity event. Maybe the board starts to get skittish. And at the same time, we have the companies that are large established incumbents, which is why they are large established incumbents, start to get hungry and begin to look at consolidating the market. So right now, we are spending a lot of our time here at Liminal focused on consolidation efforts. How does this look? What are the product features that larger platforms need to really build the next large platform? Or build for the future. Maybe it’s not even building a larger platform, but maybe it’s improving their technology, adding headcount from, you know, with experience engineers, you know, buying revenue, all of these things add up and definitely on the table right now, which leads us kind of where we see things really shifting. And the biggest shift is really the companies focused on onboarding because those are the ones heavily indexed to current market conditions. And as you can see here on this slide, you know, the digital identity adoption curve, something we’ve talked about quite a bit on the investing in identity form. This is something that has started to flatten out much earlier than many people expected. And that digital adoption, digital identity adoption curve is really about digital adoption. It’s about new users going going to new platforms online. So, you know, for developed countries like the U.S., most of our listeners are in the U.S. Most people are already digital ecosystem users. However, globally, you know, we we see more developing countries like Indonesia still kind of seeing that rapid adoption curve for digital adoption. So you’re probably going to see this less flattening out for them. But here in the U.S., we’re starting to see this digital identity adoption curve flatten out much sooner. So what does that mean? Well, we have less volume for onboarding vendors, so we’re seeing 50, 70% revenue drops for a lot of these companies that are focused on onboarding. And so what do they do? They’re moving across the consumer journey of that customer journey, so pre-onboarding so that pre engagement to post onboarding. And so here on the right we have our landscape view where your onboarding solutions highlighted as well as recurring solutions. So these are kind of not onboarding these for transaction hiring, log in authentication authorization, you know, fraud risk signals could be a handful of different things as well as solutions used across the user lifecycle. And what we are seeing is when we think about consolidation, the consolidation is really happening around those onboarding solutions. So these are the solutions that we are seeing as kind of the first ones to start to either get to merge with other solutions, maybe for product feature alignment, operational efficiencies, whatever it is. Or we’re starting to see platforms outside of the onboarding realm, buying onboarding solutions to actually have a full lifecycle product suite.

David Fields [00:13:37] Yeah. I mean, so, you know, look, I mean, there’s a couple of interesting things, right? I just wanted to tease out one comment, you know, in the difference between what we’re seeing in the U.S. or developed markets versus Indonesia. And I think that one of the big things when I see play out is, you know, uncertain sort of growth markets or, you know, you know, they’re what we’re seeing is increasing primary account penetration, right. Where we still have like a user base of, you know, cellphones and bank accounts. The primary purpose is still growing. Whereas, you know, a lot of the onboarding volumes were driven by things like, you know, crypto, Robinhood things which are no longer going to be tailwinds for these onboarding companies. I think most of the pitches and you look at the websites and most of the onboarding companies talk about building comprehensive sort of lifecycle identity management, you know, product suites. And I wonder now if they’re still going to be able to get that right. But just to you know, I think you probably put it a little bit more nuanced than I’m putting it right now. But just to make it real concrete, what we’re saying, like there’s going to be some real headwinds. And and is this market turmoil now going to going to stop a lot of people and kind of these business model expansions? And are we actually going to find that actually starting out at either potentially the authorization or the authentication layer may actually be the better spot to then bolt on onboarding versus vice versa, which is, I think, where a lot of companies were trying to had call it like 18, 24 months ago when you had this explosion in onboarding volumes and in the U.S. and Europe.

Travis Jarae [00:15:03] Yeah, well, I think we’re you know, we’re doing a whole bunch of research internally here on what we’re calling integrated identity platforms, which are defined heavily by real time decision orchestration networks. So, you know, a lot of what we’ve been talking about over the past 12 to 18 months around orchestration, what does that actually turn into? So we’ll we’ll be spending a lot more time coming up on that maybe in January and February, talking about the integrated identity platforms. But it is to your point very specifically, we don’t see onboarding as the place to to kind of land and expand like we have over the past two years.

David Fields [00:15:43] Yeah.

Travis Jarae [00:15:43] So with that, I know we’re kind of at time here, so just want to kind of highlight one quick thing, which is our recently released research. So for those of you listening that are already members, you guys already have this in your portals. But over the past couple of months here, we’ve produced some pretty interesting research on Passwordless authentication. We’ve seen a lot of a lot of interest in Passwordless authentication, especially after the Fido two announcement at the Lemonhall Executive Summit in La Hoya in May. And you know that along with large tech companies really adopting Fido to is the next standard. So if you’re interested in how Passwordless authentication is going to impact your business, I definitely would recommend that outside in report as well as to other very interesting outside and reports that Gallard and Steve from our research team have put together one on the future of I.T and air travel. Air travel is one of those use cases that is begging for a reusable identity solution. And so we expect to see some really interesting kind of approaches to reusable identity and air travel. Definitely check out that air. And lastly is our behavioral analytics that account preregistration to improve customer experience. Behavior analytics is one of those hot topics that we at Liminal have been spending quite a bit of time on over the last 12 months and expect to spend even more time on in the future. And speaking of the future, what to look forward to. We have two research reports coming out in December, one on geolocation and another on age assurance, both big topics that our members have asked us to dig into. Further. We’ve completed our new 2023 digital identity landscapes. We’re going to give you guys a sneak peek that if you’re if you’re already on our membership list in early January and then in early January, you’ll also get to see our 2020 to look back and our 2023 predictions, as well as what companies to watch for in 2023. So that’s what’s to look forward to if you guys have any questions or want to chat with either Dave myself on any of the topics we talk about today, or if you’re interested in becoming a member having access to our research, please do reach out at members at Liminal DOT CEO with that. Thank you all for listening.