Last recession was ‘more of a debt crisis’ for small business owners: Post House Capital CEO
Post House Capital CEO Jackie Reses sat down with Yahoo Finance’s Brian Sozzi at the Goldman Sachs 10,000 Small Businesses Summit to discuss recession risks and how small businesses can manage inflation and other economic concerns.
Jared Blikre: Tech valuations have been hammered as the bear market rages on, and that includes valuations of private companies such as Klarna. Yahoo Finance’s Brian Sozzi spoke to prominent fintech executive Jackie Reses about the outlook for the industry. Reses also sits on the boards of Affirm, Endeavor and New Bank. Listen to what he had to say.
JACKIE RESES: If you’re a small business, the only thing you need to be careful about is preparing for when things go sideways or south. And so there are two things that I would recommend a small business do. First, do the financial preparation now. Be sure to review the negative scenarios so you understand where you have weaknesses. Make cuts. Make adjustments. Do what you have to do. But be well planned.
The second thing you should do is make sure you have access to financing now when you don’t need it. The best thing to do is to have access to credit, either through online technology tools or through a traditional lender. So I would advise small businesses to get out there, seek financing, make sure they know all of their options, and be prepared.
BRIAN SOZZI: How would you compare the funding or access to capital environment today compared to the last recession?
JACKIE RESES: Well, the last recession was more of a debt crisis. So today, it’s more of an inflationary crisis. And so we have very different dynamics today. And so the challenge facing small businesses today is one of cost inflation. So the cost of personnel, cost of goods, supply chain challenges. And all of this means there are cash flow issues that small businesses need to be more vigilant than ever in managing their cash flow.
BRIAN SOZZI: Is the economy going south?
JACKIE RESES: Well, today we have some amazing jobs numbers from the past week. We have excellent employment numbers overall. But there are a lot of challenges to deal with the supply cycle challenges associated with the war in Ukraine, coupled with continued inflation. And so I think there’s a lot of economic uncertainty plaguing businesses.
And so, if you’re not feeling that today, and we’re starting to see some of the numbers a little softer than expected in terms of the consensus direction on US public companies, then you should at least be prepared for that, because a lot of people would say we are entering tougher economic times.
BRIAN SOZZI: And Jackie is modest here. She’s also on the boards of Affirm, Endeavor and New Bank, right?
JACKIE RESES: Absolutely.
BRIAN SOZZI: So let’s take a step back from that. What do you think the fintech vibe is like right now? We’ve seen valuations come back a lot. There are concerns about this in potential consolidations. How do you see it?
JACKIE RESES: Well, if you look across fintech, there has been significant dislocation in public markets. And companies are having their trading multiples reset. It has been quite significant since the first sign of inflation in mid-November at the end of last year. And so anytime you have a reset around rising rates, you’re going to see companies like fintechs being affected by that from a multiple market perspective.
Now, what you’re also starting to see is the dislocation that’s hitting private businesses. And you’re also seeing very large valuation resets on the private side. Despite this, there are still some amazing companies in the fintech space that are growing incredibly strong today, even with some of the challenges of the current market environment.
BRIAN SOZZI: The descents were remarkable. What’s the end game here?
JACKIE RESES: Well, the end game is that big business will continue to thrive. So growing their revenue and profitability might take longer than a straight line to the right. But companies that are big business, like many public fintechs, will continue to thrive in any environment because their companies are, in many cases, incredibly impressive, strong and resilient companies. So I expect there will be haves and have-nots. I would expect the haves, some of these larger public fintech companies, to do quite well in this environment.
BRIAN SOZZI: Do they become consolidators?
JACKIE RESES: They could. They could. In fintech, you haven’t seen a lot of companies being strong consolidators. You’re starting to see a bit more of that since late last year. There are definitely a lot of people sniffling around. Even traditional companies are starting to look at some of the fintech companies where the valuations have really put them in a place where they could be consolidated. And so it gives more traditional companies the opportunity to look at technology opportunities that they didn’t have before.
BRIAN SOZZI: Do you think we are close to a valuation floor? Because I think of all the discussions I had during this event. And it is clear that the rates are increasing. And they could increase more dramatically. Does this cause another fintech reset?
JACKIE RESES: Well, I think the next six months are going to be a really tough time. And I suspect we’re at the bottom. But I also see challenges – tough times loom around supply chain, oil and gas. And so with that, I think it’s going to be a rocky road for the next six months.
BRIAN SOZZI: Finally, you had a very interesting career. What prompted you to get into fintech?
JACKIE RESES: I’ve spent my entire career in financial services, creating esoteric financial products. And so whether it’s in the context of a private equity firm or in the context of a company like Square, where I worked until a year ago, it’s always a place where you can create products that are new to financial services to help bring more people into the open system and change the way funding is done. It is one of the largest sectors by market capitalization of the US economy. And it’s also one of the oldest, which means there’s plenty of room to make life-changing changes for businesses and consumers alike.