Oracle's fraud battle rages on...

PRESENTED BY The GOTO Market Institute

Welcome to this week’s SaaS Sentinel! This time, Oracle's court battle rages on, hedge funds rain on the tech parade, and VCs are getting imaginative about returns.

• Despite Oracle’s denials, the legendary cloud company is still battling fraud lawsuits over NetSuite sales practices. Customers are alleging $1M+ in damages from software capability misrepresentations.

• Sentiments are shifting negative on tech's prospects as hedge funds rapidly short tech stocks across sectors, resulting in the largest anti-tech stance in 5 years.

• With liquidity becoming so rare these days, VCs are getting creative to return investor cash.

Oracle's Courtroom Saga Continues

Oracle just can't shake off a pesky fraud lawsuit alleging it misled customers about its NetSuite capabilities.

River Supply Inc. (RSI) first filed suit against Oracle back in 2020, claiming Big Red overpromised what its NetSuite ERP software could deliver in order to land a sale. RSI explained it needed complex catalog management and auto-purchase order updating abilities critical for their products business.

According to the amended complaint, Oracle assured RSI its software was up for the job despite needing customizations down the road. But after months of delays post-implementation, Oracle allegedly backtracked and said RSI would need to pony up big bucks for change requests to get the promised functionalities working.

RSI cried foul to the tune of over $1 million in damages from sunk implementation costs, lost revenue, and investing resources in the failed NetSuite rollout.

While a judge dismissed most of RSI's initial claims, one fraud allegation stuck. And despite Oracle contesting vigorously, the judge is allowing that critical complaint to move forward for now.

More pre-trial deliberations and a conference will determine if this case has enough merits for a courtroom showdown. But for now, it's advantage to RSI as Oracle scrambles to swat away assertions of bait-and-switch sales tactics misrepresenting its ERP capabilities early on.

Read more here.

Hedge Funds Rain on Tech's Rally

Well that was fun while it lasted. After enjoying a nice rally off the back of strong earnings and AI hype, tech stocks are now facing an onslaught of short selling from hedge funds.

According to Goldman Sachs, hedge funds rapidly shorted tech shares across various sectors like semiconductors, hardware, and software in the week leading up to February 23rd. This wave of tech betting against tech marks hedge funds' most bearish stance in nearly 5 years.

The negative sentiment shift comes despite optimistic gains by the likes of Nvidia, which saw a record $277 billion value increase in a single day last week after crushing earnings.

But perhaps hedge funds don't see the AI-fueled momentum as sustainable long-term. The number of hedge funds shorting tech now doubles those still betting on further upside.

Between inflation sticking, rate hikes continuing, and broader economic uncertainty, the smart money seems to think tech's hot streak is due for a cool down.

We'll have to see whether the rally was just taking a quick breath or if storm clouds are really gathering over tech's outlook among the institutional investing class. Nothing like a bunch of downer hedge funders to throw cold water on the Animal Spirits euphoria

Read more here.

VCs Are Conjuring Up Continuation Funds

Desperate times call for creative measures in the world of venture capital. With the funding freeze also putting the kibosh on exits, VCs are cooking up new schemes to generate liquidity for their investors.

One increasingly popular tactic is continuation funds. Here’s how they work — VCs establish a new fund which buys out ownership stakes in existing portfolio companies at reduced valuations.

This cash injection gives current investors a way to recoup some returns while providing portfolio companies extra runway. It's a repricing that reflects the new reality of valuations rather than forcing unviable companies to market or leave founders in the lurch.

And continuation funds aren't just for mega-funds like Insight and Lightspeed. Even smaller firms are getting in on the action. When IPOs and acquisitions are harder to come by, you have to get imaginative as an investor.

Whether it's continuation funds, secondary sales, or other unorthodox routes, necessity breeds invention in this funding downturn. As long as the ideas provide some liquidity relief and keep potentially promising startups alive, it’s a creative win-win for now.

Read more here.

Parting Thoughts

Well, that’s the tech news that’s fit to brew this week. Hit reply and let us know if you learned from today’s newsletter.

Until next week!