Earlier today, TechCrunch examined the new IPO price range for Toast. The U.S. software-and-fintech company moved its valuation materially higher in anticipation of pricing tomorrow after the bell and trading on Wednesday. It was not alone in doing so.
Freshworks is also targeting a higher IPO price range, it disclosed today in a fresh SEC filing. The customer service-focused software firm now expects to charge between $32 and $34 per share in its debut, up from the $28 to $32 per-share range that it initially disclosed.
Doing some back-of-the-envelope math, Freshworks’ IPO valuation could just pass the $10 billion mark, calculated on a fully diluted basis. Its simple IPO valuations, while rising, are lower than that figure.
Mathing that out, Freshworks expects to have 284,283,200 shares outstanding when public, inclusive of its underwriters’ option, but not inclusive of vested shares present in RSUs or options. At its new IPO price range, Freshworks would be worth between $9.1 billion and $9.7 billion.
Gingko Bioworks, a synthetic biology company now valued at around $15 billion, begins trading on the New York Stock Exchange today.
Gingko’s market debut is one of the largest in biotech history. It’s expected to raise about $1.6 billion for the company. It’s also one of the biggest SPAC deals done to date — Gingko is going public through a merger with Soaring Eagle Acquisition Corp., which was announced in May.
Shares opened at $11.15 each this morning under the ticker DNA — biotech dieharders will recognize it as the former ticker used by Genentech.
The exterior of the NYSE is decked out in Gingko decor. The imagery is clearly sporting Jurassic Park themes, as MIT Tech Review’s Antonio Regalado pointed out. It’s probably intentional: Jason Kelly, the CEO of Ginkgo Bioworks, has been re-reading Jurassic Park this week, he tells TechCrunch.
The decor also sports a company motto: “Grow everything.”
Ginkgo was founded in 2009, and now bills itself as a synthetic biology platform. That’s essentially premised on the idea that one day, we’ll use cells to “grow everything,” and Gingko’s plan is to be that platform used to do that growing.
Kelly, who often uses language borrowed from computing to describe his company, likens DNA to code. Gingko, he says, aims to “program cells like you can program computers.” Ultimately, those cells can be used to make stuff: like fragrances, flavors, materials, drugs or food products.
The biggest lingering question over Gingko, ever since the SPAC deal was announced, has centered on its massively high valuation. When Moderna, now a household name thanks to its Covid-19 vaccines, went public in 2018, the company was valued at $7.5 billion. Gingko’s valuation is double that number.
“I think that surprises people to be honest,” Kelly says.
How is Gingko going to make money?
Ginkgo’s massive valuation seems even starker when you look at its existing revenues. SEC documents show that the company pulled in $77 million in revenue in 2020, which increased to about $88 million in the first 6 months of 2021 (per an August investor call) The company has also reported losses: including $126.6 million in December 2020 and $119.3 million in 2019.
Gingko is aiming to increase revenue a significant amount in 2021. SEC documents initially noted that the company aimed to draw about $150 million in revenue in 2021, but the August earning call updated that total for the year to over $175 million.
Gingko aims to make money in two ways: first it contracts with manufacturers during the research and development phase (i.e. while the company works out how to manufacture a cell that spits out a certain fragrance, bio-based nylon, or a meatless burger). That process happens in Gingko’s “foundry” a massive factory for bioengineering projects.
This source of money is already starting to flow. Gingko reported $59 million in foundry revenue for 2020, and anticipates $100 million in 2021, per the August investor call.
This revenue, though, isn’t covering the full costs of Gingko’s operations according to the information shared by the company in SEC documents. It is covering an increasing share, though, and as Gingko scales up its platform, costs will come down. Based on fees alone, Kelly projects Gingko will break even by 2024 or 2025.
The second type of revenue comes from royalties, milestone payments, or in some cases equity stakes in the companies that go on to sell products, like fragrances or meatless burgers, made using Gingko’s facilities or know-how. It’s this source of income that will make up the vast majority of the company’s future worth according to its expectations.
Once the product is made and marketed by another company, it requires little to no more work on Gingko’s part – all the company does is collect cash.
The company is often hesitant to incorporate these earnings into projections, because they rely on other companies bringing products to market. That means it’s hard to know for sure when these downstream payments will emerge. “In our models, we are very sensitive that, at the end of the day, they’re not our products. I cannot predict when Roche might bring a drug to market and give me my milestones,” says Kelly.
Kelly says there’s evidence this model will start to work in the near-term.
Gingko earned a “bolus” milestone payment of 1.5 million shares of The Cronos Group, a cannabis company, for developing a commercially viable, lab grown rare cannabinoid called CBG for commercial use (there are seven more in strains development, says Kelly). These milestone payments (in cash or shares) are earned when a company achieves some predetermined goal using Gingko’s platform.
Gingko has also worked with Aldevron to manufacture an enzyme critical to the production of mRNA vaccines, and plans to collect royalty payments from that relationship — though no foundry fees were collected from this project.
Finally, Gingko has negotiated an equity stake in Motif Foodworks, a spinout company based on its technology. That company has so far raised about $226 million, and will aim to launch a lab-grown beef product developed at Gingko’s foundry, paying Gingko the aforementioned foundry fees already for this contribution.
“The biggest value driver” of Gingko, according to Kelly
This rich source of cash will depend a lot on the outside contractor’s ability to manufacture and sell products made using Gingko’s platform. This opens the company up to some risk that’s beyond its control. Maybe, for instance, it turns people don’t want bio-manufactured meat as much as many anticipated – that means some types of downstream payments may not materialize.
Kelly says he’s not particularly worried about this. Even if one particular program fails, he’s planning on having so many programs running that one or two are bound to succeed.
“I’m just sorta like: some will work, some won’t work. Some will take a year, some will take three years. It doesn’t really matter, as long as everybody is working with us,” he says. “Apple doesn’t stress about what apps are going to be the next big app in the app store,” he continues.
One key metric to watch for Gingko going forward will be how many new cell programs they’re managing to close. So far, Gingko has added thirty programs this year, says Kelly. Last year, there were 50 programs.
Remember: some of the projects are Gingko spinouts, like Motif Foodworks, not customers that come to the platform on their own. And historically, the number of companies Gingko has partnered with has been a point of criticism. Per SEC documents, the majority of revenue came from two large partners in 2020 – though Kelly told Business Insiderthat this was a pandemic-related downturn.
The more programs Gingko has, the more it becomes insulated from the success or failure of any one product. Plus it’s a sign that people are at least using the “app store” for biology.
“The biggest value driver of Gingko is how quickly we add programs,” Kelly says.
ForgeRockfiled its form S-1 with the Securities and Exchange Commission (SEC) this morning as the identity management provider takes the next step toward its IPO.
The company did not provide initial pricing for its shares, which will trade on the New York Stock Exchange under the symbol FORG. The IPO is being led by Morgan Stanley and J.P. Morgan Chase & Co., with the company being valued as high as $4 billion, according to Bloomberg, which is a significant uplift over the $730 million post-money value thatPitchBook had for the company after its last round in 2020.
With the ever-increasing volume of cybersecurity attacks against organizations of all sizes, the need to secure and manage user identities is of growing importance. Based in San Francisco, ForgeRock has raised $233 million in funding across multiple rounds. The company’s last round was a$93.5 million Series E announced in April 2020, which was led by Riverwood Capital alongside Accenture Ventures. At that time, CEO Fran Rosch told TechCrunch that the round would be the last before an IPO, which was also what former CEO Mike Ellis told us after the startup’s$88 million Series D in September 2017.
While the timing of its IPO might have been unclear over the last few years, the company has been on a positive trajectory for growth. In itsS-1, ForgeRock reported that as of June 30, its annual recurring revenue (ARR) was $155 million, representing 30% year-over-year growth.
While revenue is growing, losses are narrowing as the company reported a $20 million net loss down from $36 million a year ago. There certainly is a whole lot of room to grow, as the company estimates that the total global addressable market for identity services to be worth $71 billion.
Among the many competitors that ForgeRock faces is Okta, which went public in 2017 and has been growing in the years since. In March, Oktaacquired cloud identity startup Auth0 for $6.5 billion in a deal thatraised a few eyebrows. Another competitor is Ping Identity, which went public in 2019 and is also growing, reporting on August 4 that its ARR hit $279.6 million in its quarter ended June 30, for a 19% year-over-year gain. There have also been a few big exits in the space over the years, including Duo Security, which wasacquired by Cisco for $2.35 billion in 2018.
“ForgeRock has a good access management tool and they continue to be a strong player in customer identity and access management (CIAM),” commented Michael Kelley, senior research director at Gartner.
Kelley noted that in 2020, ForgeRock converted most of its core access management services to a SaaS delivery model, which helped the company catch up with the rest of the market that already offered access management as SaaS. Also last year the company expanded into identity governance, introducing a brand new identity, governance and administration (IGA) product.
“I think one of the more interesting products that ForgeRock offers is ForgeRock Trees, which is a no-code/low-code orchestration tool for building complex authentication and authorization journeys for customers, which is particularly helpful in the CIAM market,” Kelly added.
ForgeRock was founded in 2010, but its roots go back even further to an open-source single sign-on project known as OpenSSO that was created by Sun Microsystems in 2005. When Oracle acquired Sun Microsystems in early 2010, a number of its open-source efforts were left to languish, which is what led a number of former Sun employees to start ForgeRock.
Over the last decade, ForgeRock has expanded significantly beyond just providing a single sign-on to providing an identity platform that can handle consumer, enterprise and IoT use-cases. The company’s platform today handles identity and access management as well as identity governance.
The ability to scale is a key selling point that ForgeRock makes in the S-1, noting that its platform can handle over 60,000 user-based access transactions per second per customer.
“As of June 30, 2021, we had four customers with 100 million or more licensed identities, the company stated in the S-1. “Our ability to serve mission-critical needs in complex environments for large customers enables us to grow our base of large customers and expand within each of them. “
Brazil’s startup market is reaching new heights, and its domestic stock market could benefit from the boom.
According to data from KPMG, Brazilian startups raised the most capital in a single quarter in Q1 2021, when some $1.4 billion flowed into domestic technology upstarts. That record stood until the second quarter of 2021 saw $2.7 billion raised by Brazilian startups.
The Exchange explores startups, markets and money.
Acquisitions are merely one path to liquidity, however. IPOs are another. The good news for Brazil and its startup ecosystem is that despite a historical dearth of technology public offerings on domestic exchanges, the IPO market for Brazilian tech startups could be gearing up for more volume.
GetNinjas, a platform for hiring local labor for household needs like plumbing and painting, went public earlier this year on the B3 exchange, located in São Paulo. And it’s not alone.
The IPO market in Brazil is changing, data indicates. TechCrunch noted last year that in the decade leading up to 2020, just two of the 56 IPOs in Brazil were technology companies. More recently, the number of technology companies listed in the country has swelled to at least 16, up from just four in 2019.
Will the trend of domestic IPOs continue for Brazilian technology companies? Or will U.S. IPOs play a preeminent role for the country’s leading tech startups?
The question is not idle, with São Paulo-based fintech giant Nubank heading toward an eventual public offering and more capital than ever wagered on the country’s current generation of startups, all of which must aspire to the most famous of exit paths. Brazil is also minting new unicorns, with at least four graduating to the valuation threshold this year alone.
But even that data point is outdated: Just this morning, Nuvemshop, a Brazilian e-commerce company, announced a new $500 million round valuing it at more than $3 billion.
To better understand the recently expanding number of domestically listed Brazilian technology offerings, and what could be ahead for the country’s startups, The Exchange spoke to GetNinjas CEO Eduardo L’Hotellier about its IPO and Renata Quintini from Renegade Partners, a venture capital firm, about what’s happening in the country. We’ll lean on data as we go. Let’s explore Brazil!
What’s driving rising technology IPO volume in Brazil?
The number of public companies, overall depressed compared to historical highs in the Brazilian market, is impacted by both sector-specific and more macro trends. When we consider what is driving more technology offerings in Brazil, we’ll want to think about larger macroeconomic factors along with what’s happening in technology more specifically.
Update:Trading of Robinhood shares has been halted due to volatility. The company’s stock paused at $65.60 on Robinhood itself. Yahoo Finance has a higher $77.03 price on the company’s equity, up a stunning 64.59% today. Things are fluid, but Robinhood may have been halted and then rose again when it resumed trading. Stonks indeed.
Shares of Robinhood, an investing-focused consumer fintech company, soared this morning in pre-market trading. The stonk phenomenon, which helped propel minor companies like GameStop and AMC earlier this year, appears to be impacting Robinhood’s own stock; that much GameStop and AMC trading took place on Robinhood’s platform during stonk-fever is irony not lost on this publication.
Recall that Robinhood went public at $38 per share, the low end of its range, and sank in its early trading sessions to below its IPO price. Now, it’s worth $54 per share.
Normally we’d crack a joke and close this small news item here, but with Robinhood’s IPO featuring a unique twist on the traditional public offering, we have to do a bit more work. When it went public, Robinhood reserved a chunk of its equity for purchase by its own users. The impact of this was that more retail investors likely owned Robinhood equity at the start of its trading life than would be normal with a traditional IPO.
One hypothesis regarding Robinhood’s somewhat slack early trading performance was that early retail demand for its shares was sated by its effort to allow its users to buy stock in its shares, leading to a less-skewed supply/demand curve when it debuted.
Checking the Robinhood IR page, there’s no news. Robinhood did not recently report earnings. And the company’s recent 606 filings that deal with PFOF incomes seemed to match up with expectations in revenue terms regarding what the company detailed in its Q2 2021 flash numbers. Perhaps there was more crypto in there than expected, but nothing truly wild.
It appears that Robinhood is simply going up because it is. This happens in 2021; we just have to get used to it.
But what matters most for our purposes is that Robinhood’s decision to sell some IPO stock to its users did not manage to create so much float for the now-public unicorn to diminish weird trading. You can go public in an unusual manner and still catch a stonk wave. Now we know.
Robinhood priced its public offering at $38 per share last night, the low end of its IPO range. The company was worth around $32 billion at that price.
But once the U.S. consumer investing and trading app began to allow investors to trade its shares, they went down sharply, off more than 10% in the first hours of its life as a floating stock. Robinhood recovered some in later trading, but closed the day worth $34.82 per share, off 8.37%, per Yahoo Finance.
The company sold 55,000,000 shares in its IPO, generating gross proceeds of $2.1 billion, though that figure may rise if its underwriting banks purchase their available options. Regardless, the company is now well-capitalized to chart its future according to its own wishes.
So, why did the stock go down? Given the hungry furor we’ve seen around many big-brand, consumer-facing tech companies in the last year, you might be surprised that Robinhood didn’t close the day up 80%, or something similar. After all, DoorDash and Airbnb had hugedebuts.
Thinking out loud, a few things could be at play:
Robinhood made a big chunk of its IPO available to its own users. Or, in practice, Robinhood curtailed early retail demand by offering its investors and traders shares at the same price and level of access that big investors were given. It’s a neat idea. But by doing so, Robinhood may have lowered unserved retail interest in its shares, perhaps reshaping its early supply/demand curve.
Or maybe the company’s warnings that its trading volumes could decline in Q2 2021 scared off some bulls.
Regardless, in the stonk and meme-stock era, Robinhood’s somewhat downward debut is a bit of a puzzler. More as the company’s stock finds its footing and we dig more deeply into investor sentiment regarding its future performance.
We have more coming on the company’s debut, including notes from an interview with the company’s CFO about its IPO coming tomorrow morning on Extra Crunch.
While the Chinese technology market digests a new regulatory landscape impacting the country’s edtech market in a sharply negative manner, U.S. education technology companies have something to cheer about: Duolingo’s IPO priced very well.
That’s the sort of IPO pricing run that we tend to see from hot enterprise software companies (SaaS) that investors have favored heavily in recent quarters. But the stock market has also provided nigh-indulgent valuations to consumer-facing tech companies with strong brands, like Airbnb. So, the Duolingo IPO’s pricing strength should not be an utter surprise.
But it is a welcome result for U.S. edtech, regardless. When the company set its first IPO price range, TechCrunch noted that it was on track to earn a new, higher valuation. This led us to the following set of conclusions:
If Duolingo poses a strong debut, consumer edtech startups will be able to add a golden data point to their pitch decks. A strong Duolingo listing could also signal that mission-driven startups can have impressive turns.
And now Duolingo has managed to price above its raised range. Yeehaw, as they say.
In more prosaic terms, Duolingo has set a higher multiple for edtech revenue than we expected it to, implying that the exit value of edtech top line could be greater than private-market investors anticipated. After all, Duolingo was valued at around $2.4 billion last November. At its IPO price, the company’s nondiluted valuation is now $3.66 billion, not counting 765,916 shares that its underwriters may purchase at the $102-per-share price if they so choose.
TechCrunch previously called the Duolingo debut a bellwether of sorts for the larger U.S. edtech ecosystem; if Duolingo can price and trade well, investors in private companies may be more willing to invest, given a more proven and attractive exit market. On the other hand, if Duolingo prices weakly or trades poorly, the company could place a wet blanket atop the startup edtech world.
The fact that Duolingo is raising its IPO price range indicates that we are more likely on the path for a strong offering than a weak one.
For edtech companies that have hit unicorn status — like Masterclass, Course Hero, Quizlet and Outschool — it’s good news. For reference, those companies have raised $461.4 million, $97.4 million, $62 million and $130 million, respectively, per Crunchbase data.
What’s Duolingo worth?
The terms of the company’s IPO have not changed, aside from its proposed price. So, Duolingo is still selling 3.7 million shares in its debut, and some 1.41 million shares will be sold by existing equity holders. The company’s underwriters also reserved their right to buy 765,916 shares of the company’s stock at IPO price in the 30 days following its debut.
At the upper and lower bands of the company’s IPO price, its simple valuation excluding underwriter shares now lands between $3.41 billion and $3.59 billion. Inclusive of its greenshoe offering, those numbers rise to $3.48 billion and $3.67 billion.
Recall that when private, Duolingo’s November 2020 Series H valued the company at just over $2.4 billion. So long as Duolingo prices in its range, it will provide investors with a nice bump in the value of their investment. Duolingo was valued at just $1.6 billion in mid-2020, indicating that it has more than doubled in value since that investment.
The well-known U.S. consumer fintech giant intends to sell shares in its public market debut at a price between $38 and $42 per share. Robinhood is selling 52,375,000 in its IPO, worth $2.0 billion to $2.2 billion. Another 2,625,000 are being offered by existing shareholders, while its underwriting banks have the option to purchase a further 5,500,000 shares in the transaction.
All told, Robinhood could see shares trade hands worth just over $2.5 billion in its IPO at the top end of its initial price range.
The Exchange explores startups, markets and money.
We want to know Robinhood’s simple and diluted IPO valuation ranges, and we want to dig into the company’s newly released preliminary Q2 2021 results. Then we’ll do some fun math to better understand just how rich, or not, Robinhood’s current price range seems to be. From there, we’ll discuss whether we expect to see Robinhood raise its price range before it debuts.
Sound good? Let’s get into it.
What’s Robinhood worth?
We’ll start by calculating a few valuation marks for Robinhood to help put its $38 to $42 per-share IPO price range into context.
First, Robinhood’s post-IPO simple share count is expected to be 835,675,280, not including shares reserved for possible underwriter purchase. That share count values Robinhood at $31.8 billion at $38 per share and $35.1 billion at $42 per share. Those figures rise by $209 million and $231 million, respectively, if we count the 5.5 million shares that its banks may purchase as part of the IPO.
But what folks will want to chat on Twitter about the company’s fully diluted valuation. At the midpoint of its price range, Robinhood is worth more than $38 billion when shares tied up in vested RSUs and options are counted. That figure lands around $40 billion at the top end of Robinhood’s price range.
Robinhood would therefore be worth $35 billion, calculated using a simple share count, or as much as $40 billion if more equity is counted. Both numbers are fucking huge and indicate that Robinhood’s ascent in the last 18 months from breakout unicorn to category-defining upstart is about to be embraced by the public market, provided that it prices at least in range.
How do those prices feel, given our read of today’s market dynamics?
The American IPO market is hot for many companies, but surprisingly cool for others. The gap between the two cohorts of private companies looking to list is becoming notable.
When Chinese ride-hailing giant Didi first set an IPO price range, The Exchange was curious about why the company felt so inexpensive. Compared to its American comps, shares in Didi simply felt underpriced at its proposed valuation interval. Recently, Didi stuck to its initial expectations by pricing at $14 per share, the upper end of its range, but no higher.
This week also brought a lackluster float for Chinese grocery-delivery company DingDong, which cut its IPO raise but only managed a flat American debut. Another China-based online grocery delivery service that went public domestically last week, Missfresh, is doing even worse.
With just those few data points, you’d be hard-pressed to be particularly bullish about U.S.-listed IPOs. Why go public in the United States if you are going to be underpriced and then trade poorly? The answer is that while many Chinese companies are seemingly struggling to find the demand that they expect for their shares on American exchanges, domestic companies are seeing some opposite results.
We’re talking tech companies here, I should add; The Exchange doesn’t track IPO results for commodities diggers and biotech labs. It’s a big world. We have to focus.
There are contrary data points to our general thesis. Nio’s recent share price appreciation could be construed as such. But if we parse recent IPO news from SentinelOne and Xometry in contrast to what we’ve seen from Chinese tech companies’ own paths to the American public markets, there really does seem to be a gap forming.
Didi’s IPO price of $14 per share values the company at around $67 billion on a non-diluted basis, and as high as $70 billion if we counted more shares in its market cap calculations. As we previously calculated, with around $6.5 billion in total Q1 2021 revenue and positive net income, the company is trading at a stiff multiples discount to Uber.
Indeed, Uber’s trailing price/sales ratio is north of 8x. If we valued Didi’s revenues from the last twelve months at the same price, it would be worth nearly $179 billion. It’s not. And that’s the gap that we want to stress.
That a few other Chinese tech IPOs listed in the United States underperformed in the last week is contrasted by a blizzard of positive IPO results from domestic companies from just this week:
SentinelOne’s IPO, expected to price on June 29 and trade June 30, is a fascinating debut. Why? Because the company sports a combination of rapid growth and expanding losses that make it a good heat-check for the IPO market. Its debut will allow us to answer whether public investors still value growth above all else. And this week, the company gave us an early dataset regarding its market value in the form of an IPO price range. This means we can do some unpacking and thinking.
A reminder regarding why we dwell on the exit market for unicorns: We care because the value of late-stage startups when they reach a liquidity point helps set valuation comps for myriad smaller startups. Furthermore, the level of public-market enthusiasm for loss-making, growth-focused companies will determine the scale of returns for many a venture capitalist, founder, and early employee.
So, let’s talk about SentinelOne’s cybersecurity IPO price range; Sprinklr’s social-media software debut will play foil.
The price of growth
It can make good sense to pay up for a quickly growing company’s shares. This is why you may hear of a startup raising an early-stage round at a very high revenue multiple.
Why put a $50 million price tag on a startup that just crossed the $1 million annual recurring revenue (ARR) threshold? If it’s growing sufficiently quickly, the math can pencil out. If that startup was growing at 300% per year, say, the revenue multiple that you paid in the round valuing the startup at $50 million would fall sharply over the next year, at which point other investors would probably scramble to put more capital into the firm at a higher price.
Bingo! You just got a markup on your initial investment, and the company has found someone else to lead their next round at a higher price, giving it even more capital to keep its growth game going and make your early investment appear prescient. See? Venture capital is easy.1
The same general idea applies to companies going public. Growth matters, and the more rapidly a company is adding revenue, the more money it will be worth because investors can anticipate its future scale (within reason). Some companies that sport quick growth can have other issues that impact their value. Extensive debt, for example, a history of uneven growth, or deteriorating economics could come into play. Or simply very high losses.
SentinelOne, a late-stage security startup that helps organizations secure their data using AI and machine learning, has filed for an IPO on the New York Stock Exchange (NYSE).
In an S-1 filing on Thursday, the security company revealed that for the three months ending April 30, its revenues increased by 108% year-on-year to $37.4 million and its customer base grew to 4,700, up from 2,700 a year prior. Despite this pandemic-fueled growth, SentinelOne’s net losses more than doubled from $26.6 million in 2020 to $62.6 million.
“We also expect our operating expenses to increase in the future as we continue to invest for our future growth, including expanding our research and development function to drive further development of our platform, expanding our sales and marketing activities, developing the functionality to expand into adjacent markets, and reaching customers in new geographic locations,” SentinelOne wrote in its filing.
The Mountain View-based company said it intends to list its Class A common stock using the ticker symbol “S” and that details about the price range and number of common shares to be put up for the IPO are yet to be determined. The S-1 filing also identifies Morgan Stanley, Goldman Sachs, Bank of America Securities, Barclays and Wells Fargo Securities as the lead underwriters.
SentinelOne, which was founded in 2013 and has raised a total of $696.5 million through eight rounds of funding, is looking to raise up to $100 million in its IPO, and said it’s intending to use the net proceeds to increase its visibility in the cybersecurity marketplace and for product development and other “general corporate processes.”
SentinelOne is going public during a period of heightened public interest in cybersecurity. There has been a wave of high-profile cyberattacks during the COVID-19 pandemic, with hackers taking advantage of widespread remote working necessitated as a result.
“The world is full of criminals, state actors, and other hostile agents who seek to exfiltrate and exploit data to disrupt our way of life,” Weingarten said in SentinelOne’s SEC filing. “Our mission is to keep the world running by protecting and securing the core pillars of modern infrastructure: data and the systems that store, process, and share information. This is an endless mission as attackers evolve rapidly in their quest to disrupt operations, breach data, turn profit, and inflict damage.”
Brazilian mobile payments app PicPay filed an F-1 with the Securities and Exchange Commission (SEC) for an IPO valued at up to $100 million on Wednesday. The company plans to list on the Nasdaq under the ticker symbol PICS.
PicPay operates largely as a financial services platform that includes a credit card; a digital wallet similar to that of Apple Pay; a Venmo-style P2P payments element; e-commerce, and social networking features.
“We want to transform the way people and companies interact, make transactions, and communicate in an intelligent, connected, and simple experience,” said José Antonio Batista, CEO of PicPay, in a statement.
While the company is based in Sao Paulo now and operates across Brazil, PicPay originally launched in Vitoria in 2012, a coastal city north of Rio. In 2015 the company was acquired by the group J&F Investimentos SA, a holding company owned by Brazilian billionaire brothers Wesley and Jose Antonio Batista, which also own the gigantic meatpacker JBS SA.
2020 was an explosive year for PicPay as the company saw its active userbase grow from 28.4 million to 36 million as of March 2021. According to the company’s 2020 financial report, which PicPay shared with TechCrunch, the company’s revenues also grew drastically from $15.5 million in 2019, to $71 million in 2020. The company is not yet profitable, however, and PicPay shelled out $146 million in 2020 to fuel its growth.
“We believe that the growth of our base and user engagement in our ecosystem demonstrates the scalability of our business model and reveals a great opportunity to generate more value for these customers,” Batista added.
Fintech is one of the most popular sectors in Brazil today, because there’s a lot of room for improvement in the region. The country has traditionally been controlled by four major banks, which have been slow to adapt to technology and also charge very high fees.
PicPay’s IPO is being led by Banco Bradesco BBI, Banco BTG Pactual, Santander Investment Securities Inc., and Barclays Capital Inc.
*The Brazilian Real was valued at 5.50 to $1 USD on the date of publication.
This morning, well-known robotic process automation (RPA) unicorn UiPath has filed to go public.
The company’s S-1 filing comes after it raised billions of dollars while private, making it amongst the best-funded startups in history. Over the last year, for example, the company’s rapid-fired fundraising included its Series E and Series F rounds of capital, both of which came inside the last 12 months.
UiPath’s filing details a rapidly growing company. From its fiscal year ending January 31, 2020, to its fiscal year ending January 31, 2021, UiPaths’s revenues grew from $336.2 million to $607.6 million, which translates to just under 81% growth. That top-line expansion brought with it GAAP net income of –$519.9 million in its year ending in early 2020, and -$94.7 million in the year ending January 31 2021.
For the company’s 27 known investors, the IPO filing is a critical moment. If UiPath can defend its rich private valuation, its IPO could be viewed as a success. However, investors in that final round — Alkeon Capital and Coatue, the investors that also led its Series E — will want to see its market value appreciate.
If UiPath can reach a public valuation of more than $35 billion remains to be seen.
The company’s financials paint the picture of a high-growth company that got its costs in line after a very expensive fiscal year ending January 31, 2020. UiPath cut its sales and marketing costs, its research and development spend, and even its general and administrative budget in its most recent fiscal year. The result is that its gross profit scaled against a smaller cost base. And the result of that was dramatically improved profitability, and cash generation.
As the S-1 notes: “[UiPath’s] operating cash flows were $(359.4) million and $29.2 million and our free cash flows were $(380.4) million and $26.0 million in the fiscal years ended January 31, 2020 and 2021, respectively.” That’s a massive turnaround, perhaps one that’s even more impressive than the company’s improving GAAP net margins.
There’s more to come from UiPath, namely a dive into its quarterly results, which the company says will come in a “subsequent amendment to [its] prospectus.”
All told, UiPath’s most recent fiscal year shows material operating leverage — something that not every software company going public can brag about.
The end of 2020 will be marked by a series of high-profile consumer technology IPOs. Among the companies on file are several marketplace businesses including home rental giant Airbnb, food delivery service DoorDash, grocery delivery company Instacart and the online shopping platform Wish.
Poshmark, a social commerce platform in which Menlo Ventures invested early, has also filed to go public. While the public market will soon assign value to these marketplace businesses, the dominance of these businesses underscores the strength of the marketplace business model. It’s interesting then, to dig into the numbers to understand the state of marketplace businesses today.
What to make of 2020?
Typically, we’d spend most of our time analyzing the most recent data. But, it will surprise no one that 2020 is an outlier. Thankfully, we don’t need to throw the data out. There are some interesting insights. The pandemic impacted businesses broadly, some boomed while others went bust. How the marketplace category fared varied from business to business, depending on the category.
The large public marketplaces continued to perform. If we look at the top 20 publicly traded marketplaces, we see that their combined market cap increased ~63% in 2020. This growth rate is lower than the ~99% growth of the 20 public SaaS leaders.
Not surprisingly companies like the video meeting platform Zoom and Shopify, a commerce platform that allows anyone to set up an online store and sell their products, benefitted from new dynamics introduced by the pandemic.
If we look at the top 20 publicly traded marketplaces, we see that their combined market cap increased ~63% in 2020.
Similarly, some of the largest public marketplaces, like Amazon, Etsy and Delivery Hero were boosted by changes in consumer behavior including spikes in online shopping and delivery.
Acquisition efficiencies increased with increased demand from consumers and merchants that resulted in favorable growth plus EBITDA pairing.
Take Etsy as an example: In the last quarter, it grew at a whopping 128% YoY compared to 32% the year before with EBITDA margin of 30% versus 15% from the year before.
But where some marketplace categories were propelled by COVID-19 tailwinds, categories like travel and fitness struggled against the headwinds created by the pandemic. This is where we saw some exciting innovation from startups — which tend to be more nimble than their public counterparts — adapted to the new normal. Take Classpass, which was originally conceived as a platform to connect gym goers with the right studio/fitness classes.
Roblox filed confidentially to go public in mid-October, but its numbers were unreleased until today when it published its S-1 document.
The company is not the first gaming platform company to go public this year, with gaming engine Unity debuting earlier this year. After its IPO, Unity shares have rocketed, perhaps preparing the public markets for Roblox’s own debut.
This post will provide an overview of Roblox’s business results, and a quick dig into its history of raising private capital and who owns what in the company as it stands today. TechCrunch will have more on venture capital results, and the nuances of Roblox’s business model, once we tease them out of its fresh SEC filing.
Roblox is a free-to-play game and developer platform, which means users don’t pay to access its service, but there are in-game purchases through a currency called Robux and a subscription service called Roblox Premium, which comprise the bulk of the company’s revenues.
Third-party developers can create experiences on the platform that cost Robux, a model that has seen significant uptake over time. According to Roblox, its developer and creator pool earned $72.2 million in the first three quarters of 2019, a figure that soared to $209.2 million in the same period of 2020. (TechCrunch has a deep-dive into Roblox and its pre-IPO success here if you want more depth in its business mechanics. We’ve also dug into its tech stack evolution here, if that is your jam.)
Roblox has seen similar growth in its total revenues, growing 139% to $312.8 million in 2018, and 56% to $488.2 million in 2019. More recently, the company’s revenue expanded 68% in the first three quarters of 2020 from its 2019 result over the same period, to $588.7 million.
The company, then, has grown more quickly in 2020 to date than it did in 2019, an impressive acceleration at scale. A COVID-derived tailwind has helped the company, with Roblox stating in its S-1 filing that it enjoyed “rapid growth” in part of Q1, and all of Q2 and Q3 that it says was “due in part to the COVID-19 pandemic given our users have been online more as a result of global COVID-19 shelter-in-place policies.”
The unicorn gaming company also warned that “in future periods” it anticipates “growth rates for our revenue to decline,” going on to warn that it “may not experience any growth in bookings or our user base during periods” that are later compared to its COVID-boosted 2020 results.
How investors weigh that warning against the company’s growth remains to be seen, but Roblox has had an extraordinary 2020. For example, the company’s bookings — what it defines as “sales activity in a given period without giving effect to certain non-cash adjustments” — grew 62% in 2018 to $499.0, 39% in 2019 to $694.3 million, and 171% to $1.24 billion in the first three quarters of 2020, when compared to the same period of 2019.
That growth is downright impressive. As you’d imagine, the company’s impressive sales gains were derived from rising user interest, with Roblox averaging “31.1 million average DAUs across over 180 countries” during the first nine months of 2020, up from 17.1 million during the same portion of 2019.
Along with more consumers coming to the Roblox platform, the hours engaged also increased. Users on Roblox spent 22.2 billion hours in the first nine months of 2020, up 122% during the same portion of 2020. Daily active users spend an average of 2.67 hours per day on the platform.
Despite its rapid growth, Roblox, like many unicorns, is still unprofitable. The company lost $97.2 million in 2018, $86.0 million in 2019. Its losses exploded in 2020, with the company posting a net loss of $203.2 million in the first three quarters of the year, compared to just $46.3 million during the same portion of 2019.
Those losses appear to be driven mainly from rising spend across its operations, and an increase in the cost of share-based compensation in 2020 compared to 2019.
However, on a cash basis Roblox appears to be in much better shape than its GAAP numbers would have you initially estimate. The firm’s operating cash flow grew from $62.6 million in the first nine months of 2019 to $345.3 million in the same period of this year. Over the same period, the company’s free cash flow was $6.0 million and $292.6 million.
Roblox’s numbers demonstrate that its space can be large, and economically interesting. So much so that the company will make a number of VCs rich.
While private, Roblox raised $335.7 million, according to Crunchbase data, with rounds led by Altos Ventures, First Round Capital, Meritech, Index, Greylock, Tiger Global and Andreessen Horowitz powering its life until today.
Roblox has around $810 million in cash and equivalents heading into its IPO. And once it goes public, the company’s investors will start a clock on when they can convert their formerly illiquid shares into cash.
The S-1 gives an idea of who owns how much of the gaming developer platform, and thus who might benefit the most from the IPO. Altos Ventures is the principal stockholder, holding 23.9% of the company at 114,261,961 shares. This is not surprising, given how many Roblox rounds it helped lead. Right behind Altos comes Meritech Capital, which owns 11.6% of Roblox; Index Ventures, with 11.1%; Tiger Global at 8.2%; and First Round Capital at 7%.
The executive team, in aggregate, holds just 6.8% of the company. David Baszucki, the co-founder and CEO of Roblox, owns 8,252,471 shares, or 1.6% of the company, indicating the true effects of dilution when you are as richly funded a company as Roblox.
Beyond the numbers
In its S-1, Roblox did address that its success depends on its ability to “provide a safe online environment” for children, or else its “business will suffer dramatically.”
In 2018, Roblox responded to a grotesque hack that allowed a young girl’s avatar to be raped on a playground on one of its games. Other allegations continue, including that the business has offered a platform to criminal offenders to lure children into interacting with creeps off-platform, according to the S-1.
“While we devote considerable resources to prevent this from occurring, we are unable to prevent all such interactions from taking place,” the document states. However, the document does go on to say that communications on its platform are not encrypted “at this time” and that they have an “increased risk” of data security incidents around access and disclosure. With children on the platform, this is a huge weak spot for Roblox.
The business intends to list on the New York Stock Exchange under the symbol “RBLX.”
DoorDash filed to go public today, publishing numbers that showed rapid growth, enhanced profitability and an improving cash flow record which helped explain how the company had grown to a $16 billion valuation while private. The unicorn’s impending liquidity event will enrich a host of venture capital firms that bet on its eventual maturity.
Instead of posting this entry of The Exchange on Monday, we’ve put it out today for your Friday and weekend reading. Enjoy! — Alex and Walter.
But notable in DoorDash’s impressive results is the impact of COVID-19, accelerating secular trends already in place, and boosting the unicorn’s growth. Before we get into pricing this IPO and guessing what the company might be worth, let’s strive to understand what portion of its 2020 business gains could stem from the pandemic — and might not persist into the future.
We’re not being pessimistic; we merely want to better understand the company. And DoorDash agrees with our general thrust, writing in its S-1 filing that “58% of all adults and 70% of millennials say that they are more likely to have restaurant food delivered than they were two years ago,” adding that it believes “the COVID-19 pandemic has further accelerated these trends.”
Even more, elsewhere in its filings DoorDash states plainly that COVD-19 led it to experience “a significant increase in revenue, Total Orders, and Marketplace [gross order volume] due to increased consumer demand for delivery, more merchants using our platform to facilitate both delivery and take-out, and improved efficiency of our local logistics platform.” The company then went on to warn investors that the “circumstances that have accelerated the growth of our business stemming from the effects of the COVID-19 pandemic may not continue in the future, and we expect the growth rates in revenue, Total Orders, and Marketplace [gross order volume] to decline in future periods.”
We’re not idly speculating.
Let’s observe how DoorDash’s growth accelerated from 2019 through 2020 and then peek at how the company’s economics improved during the same period, giving the company a shot at adjusted profitability for the full year, a nearly unheard of result in the on-demand market.
DoorDash generates revenue when a customer orders food via its service, splitting the total bill of food costs, taxes, fees and tips, distributing them to itself, the merchant creating the goods and the delivery person.
In an “illustrative” example that DoorDash notes its 2019 “approximate average per-order information,” the split works out as follows:
Merchant: $20.10, or 61%
DoorDash: $4.90, or 15%
Delivery person: $7.90, or 24%
Given that the company is giving us old data and DoorDash’s performance has been stellar this year in terms of generating more gross profit, I wonder what has happened amidst 2020’s upheaval. But, the old numbers do for what we need, which is to understand the link between gross order volume (GOV) and DoorDash revenue. When the former goes up, the latter goes up.
It’s somewhat complicated to do this, not least because they are sprawled across a number of Tencent properties and, unlike Ant, don’t go by a single brand or operational structure — at least, not one that is obvious to the outside world.
However, when you tease out Tencent’s fintech activity across its wider footprint — from direct operations like WeChat Pay through to its sizeable strategic investments and third-party marketplaces — you have something comparable in size to Ant, and in some services even bigger.
Ant refuted the comparison with Tencent or anyone else. In a reply to China’s securities regulator in September, the Jack Ma-controlled, Alibaba-backed fintech giant said it is “not comparable” to WeChat Pay, the fintech tool inside WeChat, Tencent’s flagship messenger.
“In the space of digital payments and merchant service, there are many players around the world, including Tencent’s WeChat Pay. But the payments services offered by these companies are different from our digital payments and merchant services. They are not comparable. In terms of digital finance, our way of working with and serving financial institutions, as well as our revenue model, are novel and do not have a counterpart,” the company noted in a somewhat hubristic reply.
There’s no denying that Ant is a pioneer in expanding financial inclusion in China, where millions remain outside the formal banking system. But Tencent has played catch-up in digital finance and made major headway, especially in electronic payments.
Both companies ventured into fintech by first offering consumers a way to pay digitally, though the brands “Alipay” and “WeChat Pay” fail to reflect the breadth of services touted by the platforms today. Alipay, Ant’s flagship app, is now a comprehensive marketplace selling Ant’s in-house products and myriad third-party ones like micro-loans and insurance. The app, like WeChat Pay, also facilitates a growing list of public services, letting users see their taxes, pay utility bills, book a hospital visit and more.
Tencent, on the other hand, embeds its financial services inside the payment features of WeChat (WeChat Pay) and the giant’s other popular chat app, QQ. It has thus been historically difficult to make out how much Tencent earns from fintech, something the giant doesn’t disclose in its earnings reports. This is reflective of Tencent’s “horse racing” internal competition, in which departments and teams often rival fiercely against each other rather than actively collaborate.
Screenshots of WeChat Pay inside Tencent’s WeChat messenger
As such, we have pulled together estimates of Tencent’s fintech businesses ourselves using a mix of quarterly reports and third-party research — a mark of how un-transparent some of this really is — but it begs some interesting questions. Will (should?) Tencent at some point follow in Alibaba’s footsteps to bring its own fintech operations under one umbrella?
The Alipay app recorded 711 monthly active users and 80 million monthly merchants in June. Among its 1 billion annual users, 729 million had transacted in at least one “financial service” through the platform. As in the PayPal-eBay relationship, Alipay benefits tremendously by being the default payments processor for Alibaba marketplaces like Taobao.
As of 2019, more than 800 million users and 50 million merchants used WeChat to pay monthly, a big chunk of the 1.2 billion active user base of the messenger. It’s unclear how many people tried Tencent’s other fintech products, though the firm did say about 200 million people used its wealth management service in 2019.
Ant reported a total of 121 billion yuan or $17 billion in revenue last year, nearly doubling its sum from 2017 and putting it on par with PayPal at $17.8 billion.
In 2019, Tencent generated 101 billion yuan of revenue from its “fintech and business services. The segment mainly consisted of fintech and cloud products, industry analysts told TechCrunch. With its cloud unit finishing the year at 17 billion yuan in revenue, we can venture to estimate that Tencent’s fintech products earned roughly or no more than 84 billion yuan ($12 billion), from the period — paled by Ant’s figure, but not bad for a relative latecomer.
The sheer size of the fintech giants has made them highly attractive targets of regulation. Increasingly, Ant is downplaying its “financial” angle and billing itself as a “technology” ally for traditional institutions rather than a challenger. These days, Alipay relies less on selling proprietary financial products and bills itself as an intermediary helping state banks, wealth managers and insurers to reach customers. In return for facilitating the process, Ant charges administrative fees from transactions on the platform.
Now, let’s turn to the rivals’ four main business focuses: payments, microloans, wealth management and insurance.
Ant vs. Tencent’s fintech businesses. Sources for the figures are companies’ quarterly reports, third-party research and TechCrunch estimates.
In the year ended June, Alipay processed a whopping 118 trillion yuan in payment transactions in China. That’s about $17 trillion and dwarfs the $172 billion that PayPal handled in 2019.
Tencent doesn’t disclose its payments transaction volume, but data from third-party research firms offer a hint of its scale. The industry consensus is that the two collectively control over 90% of China’s trillion-dollar electronic payments market where Alipay enjoys a slight lead.
Alipay processed 55.4% of China’s third-party payments transactions in the first quarter of 2020, according to market research firm iResearch, while another researcher Analysys said the firm’s share was 48.44% in the period. In comparison, Tenpay (the brand assigned to the company-wide infrastructure that powers WeChat Pay and the less-significant QQ Wallet, yet another name to confuse people) trailed behind at 38.8%, per iResearch data, and 34% according to Analysys.
At the end of the day, the two services have distinct user scenarios. The fact that WeChat Pay lies inside a messenger makes it a tool for social, often small, payments, such as splitting bills and exchanging lucky money, a custom in China. Alipay, on the other hand, is associated with online shopping.
That’s changing as Tencent tries to increase its ticket size through alliances. It’s tied WeChat Pay to portfolio e-commerce companies like JD.com, Pinduoduo and Meituan — all Alibaba’s competitors.
Payments still account for the bulk of Ant’s revenues — 43%, or a total of 51.9 billion yuan ($7.6 billion) in 2019, but the percentage was down from 55% in 2017, a sign of the giant’s diversifying business.
Ant has become the go-to lender for shoppers and small businesses in a country where millions aren’t qualified for bank-issued credit cards. The firm had worked with about 100 banks, doling out 1.7 trillion yuan ($250 billion) of consumer loans and 400 billion yuan ($58 billion) of small business loans in the year ended June. That amounted to 41.9 billion yuan or 34.7% of Ant’s annual revenue.
The size of Tencent’s loan business is harder to gauge. What we do know is that Weilidai, the microloan product sold through WeChat, had issued an aggregate of 3.7 trillion yuan ($540 billion) to 28 million customers between its launch in 2015 and 2019, according to a report from WeBank, the Tencent-backed private bank that provides the WeChat-based loan.
As of June, Ant had 4.1 trillion yuan ($600 billion) assets under management, making it one of the world’s biggest money-market funds. Working with 170 partner asset managers, the segment brought in about 17 billion yuan or 14% of total revenue in 2019.
Tencent said its wealth management platform accumulated assets of over 600 billion yuan in 2018 and grew by 50% year-over-year in 2019. That should put its AUM in 2019 at around 900 billion yuan ($131 billion).
Last but not least, both giants have made big pushes into consumer insurance. Besides featuring third-party plans, Alipay introduced a new way to insure customers: mutual aid. The novel scheme, which is not regulated as an insurance product in China, is free to sign up and does not charge any premium or upfront payment. Users pay small monthly fees that are pooled to pay for claims of critical illnesses.
Insurance premiums and mutual aid contributions on Ant’s platform reached 52 billion yuan, or $7.6 billion, in the year ended June. Working with about 90 partner insurers in China, the segment contributed nearly 9 billion yuan, or 7.4%, of the firm’s annual revenue. More than 570 million Alipay users participated in at least one insurance program in the year ended June.
Tencent, on the other hand, taps partners in its relatively uncharted territory. Its insurance strategy includes in-house platform WeSure that works like a middleman between insurers and consumers, and Tencent-backed Waterdrop, which provides both traditional insurances and a rival to Ant’s mutual aid product Xianghubao.
In the first half of 2020, WeSure, Tencent’s main insurance operation that sells through WeChat, paid out a total of 290 million yuan ($42.4 million), it announced. The unit does not disclose its amount of premiums or revenues, but we can find clues in other figures. Twenty-five million people used WeShare services in 2019 and the average premium amount per user was over 1,000 yuan ($151). That is, WeShare generated no more than 25 billion yuan, or $3.78 billion, in premium that year because the user figure also accounts for a good number of premium-free users.
Moving forward, it remains unclear whether Tencent will restructure its fintech operations in a more cohesive and collaborative way. As they expand, will investors and regulators demand that? And what opportunities are there for others to compete in a space dominated by two huge players?
One thing is for sure: Tencent will need to tread more carefully on regulatory issues. Ant’s achievement is a win for entrepreneurs looking to “disrupt” China’s financial sector, but its halted IPO, which is tied to regulatory issues and reportedly Jack Ma’s hubris, also sounds an alarm to contenders that policymaking in China can be capricious.
After all those years of startups not going public, 2020 is a little bit different. It feels like more companies are filing, and more companies are seeing their debuts through. We’re even seeing direct listings and SPAC-led deals, along with a trove of traditional IPOs.
Data backs up how we feel about this year’s IPO market. Notably, however, the year did not start out too hot.
Quite a lot of 2020’s IPO results came in Q3, with the quarter’s IPO tally setting a record in terms of IPO volume and dollars raised since at least the start of 2016, according to data from PwC. But on the back of the third quarter, 2020 is going to be a good year for tech debuts, at least compared to recent history.
Why? It’s a good question. Parsing through the Root IPO filing this morning a TechCrunch reader asked why we’re seeing so many IPOs after they were out of vogue for so long; after a decade of staying private being the hot thing, why are so many companies trying to get public now?
There are a few reasons, I think. Here are some good ones:
This means that it is a good time to go public if you eventually have to, as public equities are near all-time highs. If you are a company that is going to go public in the next few years, why not do so now, when there is demonstrated demand for growth-oriented shares, and you can probably defend your valuation? It just makes sense!
And good news, there are so many ways to go public now! Finally, there are myriad options available to companies looking to list. Don’t want to price via a traditional IPO? No worries. How about a direct listing? Don’t want that or a traditional IPO? No worries. How about one of around a dozen SPACs that are hunting for companies to take public?
You gotta make hay while the sun is out, and with the Nasdaq still over 11,000 and rumor of more federal relief ever present to keep markets high, it’s a fine time to list. Hence the wave.
In closing, it’s worth noting that the average 2020 pace of unicorn IPOs is still not nearly enough to clear the rolls. There are going to be a lot of unicorns stuck in their pen once the public market, inevitably, turns.
There’s definitely a lot of talk about SPACs these days. But the tried-and-true IPO is still the long-term liquidity goal for most tech startups. CEOs dream of ringing the bell on the floor of the New York Stock Exchange, or seeing their face splashed across Nasdaq’s giant video screen in Times Square. Late last month, five high-profile tech companies filed on the same day to go public through traditional IPOs, presumably gunning to get out before the November election.
There is obviously a ton of operational, financial and regulatory preparation that goes into a successful initial public offering. But one aspect of IPO planning that often gets short shrift, particularly at B2B-focused companies chasing relatively niche buyer audiences, is branding and communications. As the head of marketing and communications for a big investment firm, I see this all the time. I believe companies who skimp here are throwing away significant equity value.
Simply put, a highly public financing event like an IPO is an enormous branding opportunity for most companies. It’s a free pass for companies to tell their stories to a huge, global audience and rack up high-level press coverage — both at the time of the IPO and in the future, since many publications (like my former employer, the Wall Street Journal) often focus on coverage of larger, publicly traded companies.
Why do so many companies fall down in this area? I think a lot of it has to do with the broader shift toward data-driven, online marketing and away from branding at many companies. Because highly technical companies in areas like hybrid-cloud computing or DevSecOps (yes, that’s a thing) often struggle in their early days to get journalists interested in their stories, they never make communications a priority inside the company. This comes back to haunt them when, all of the sudden, they’ve filed an S-1 and their exec team has zero experience explaining the company’s story in clear, persuasive terms to a general audience.
But smart companies can avoid this trap. Here are five ways you can get the most branding bang out of your tech IPO, no matter how arcane your company’s business is.
This is honestly the most important point to take away here. Successful PR and communications around an IPO are a result of long-term planning that starts at least 12 to 18 months before you file your offering document with the SEC. Once you think an IPO is in the offing, take a hard look at both your (1) marketing/communications staffing and (2) your existing digital footprint.
When startup entrepreneurs think about going public, they typically think about gearing up for an initial public offering (IPO). Going public via a special purpose acquisition company (SPAC), commonly referred to as a reverse merger process, is another route that’s becoming more popular and is also worth considering.
When Manish Patel, one of Shift’s board members, first suggested that I learn about SPACs back in 2019, I had no clue what he was talking about.
Now, just over a year later, we’ve almost completed Shift’s SPAC process. I hope that what we’ve learned from our experience is useful for other CEOs and founders considering a SPAC.
Shift announced its SPAC in June 2020 and is expected to complete the process of going public later this year. Here are a few of the things you and your team might want to get in order if you’ve decided that a SPAC might be a fit for you and your business:
Be prepared to become a SPAC expert
SPACs have been around for a number of years, but they have become en vogue in recent months, especially given how well the public markets have held up in the COVID-19 era. Even still, don’t expect others to understand the SPAC process right off the bat.
If you go the SPAC route, you’ll need to become an expert at financial engineering. When we first started the process, I had to spend a lot of time educating our investors and team about how SPACs work and their validity. So I’ve had to come to the table with examples of when SPACs have worked and why, with a lot of data to back up my claims. Keep in mind that going through a SPAC will likely be a new process for all of them too. Even if you’ve been through a successful IPO process, you’ll still need to educate yourself — the SPAC process and the IPO process are completely different.
Seedrs — the UK’s first full-function private equity secondary market to launch back in 2017 — is launching its secondary market offering to all private businesses. The idea is that this will allow founders, employees and early investors to realize secondary liquidity without having to wait for an IPO or exit event. Seedrs has offered secondary shares on its platform for the last three years, but previously this was only open to those already working directly with Seedrs .
Investors will now be able to list their shares directly on the Secondary Market in a “direct listing” and sell to the Seedrs investor network; sell their shares via a “secondary campaign” to a community of customers and existing shareholders, or sell via a “private listing” and access the Seedrs network of institutional investors and funds.
To date, Seedrs has raised a total of $40 million in funding from investors, including Augmentum Fintech and Schroders plc (formerly Woodford Investment Management). The platform’s most notable exits include Pod Point, Wealthify, and FreeAgent .
Prior to this opening up, the Seedrs Secondary Market was running at 22,000 secondary transactions and has been averaging £500k/month in secondary trades over the last 6 months. In 2020, Revolut shareholders sold over £1.5m in shares at a 598% average profit on the market. The Secondary Market service has now added dynamic pricing to allow shares to be sold at price premiums and discounts.
Earlier this year Seedrs and Capdesk created a joint initiative whereby any business listed on Capdesk could sell shares and adjust the cap table via Seedrs marketplace.
Jeff Kelisky, CEO at Seedrs said in addition to primary raises, the company is adding 30 new companies to the Secondary Market every month.
“Access to secondary liquidity is increasingly critical in the private company investment ecosystem, especially in the current climate, where we are seeing businesses staying private for longer. As we build out our full-scale marketplace for private equity investment, we see secondaries in private businesses as an essential and expected ingredient in the investment journey,” he said.
During the COVID-19 pandemic, Seeds says it has seen an increased demand from investors wanting to use the Secondary Market and fielded more inquiries from private businesses and their shareholders wanting to access it.
Online child safety startup SafeToNet, has been the first to launch its secondary campaign. It secured a £2.5M primary funding round from 150 investors, followed by an additional £300,000 in secondaries made available from its founders and employees.
In a statement Richard Pursey, co-Founder of SafeToNet said: “We were delighted after hitting our £2.5M fundraising target so quickly, to be able to offer more investors a chance to join our community via a secondary share sale. It’s really important for us to provide an exit opportunity to some of our existing shareholders, while also continuing the growth journey of SafeToNet as an independent business. This has also been a great way for us to welcome new investors on board, building up our customer community with passionate brand advocates, without having to part with any additional equity.”
Speaking exclusively, co-founder and Chairman Jeff Lynn told Techcrunch: “It’s something we’ve been working on for a while. We were letting people do secondary trading off the back of campaigns where we’d already done the primary. Now we’re starting to work with companies that haven’t done anything with us, to help facilitate secondaries for some of their early investors and employees. The demand and interest has been super high.”
“I think it’s probably indicative of the evolution ecosystem as we now get to the point where a lot of that wave of tech businesses that were funded the first part of 2010 are still growing, doing well, but not necessarily an IPO, so there’s a lot of desire for early investors to get some liquidity and we’re trying to offer that.”
He noted that competitor Crowdcube has been helping companies facilitate secondary offerings, but that Seedrs was also doing direct listings on the secondary market, “so we’re allowing investors from companies to come in and simply sell shares directly through the secondary market without ever doing the full campaign. And we’re also baking it into our institutional product. So bringing, bringing secondary offerings into what we call our anchor investor service, which allows a puts deals in front of a range of about 350 institutional quasi-institutional investors.”
Globally the secondary market, especially for tech companies, has been growing as private equity service providers consolidate.
The move puts the home-sharing service on a path to a public offering sooner rather than later, and comes after reports that the company was prepping an IPO filing this month. Those same reports indicated that Airbnb could go public as soon as the end of the year.
A Q3 or Q4 Airbnb offering is therefore a distinct possibility.
The company promised in 2019 that it would go public in 2020, but that pledge seemed far-off in the middle of the year. Since then, Airbnb has made noise about different parts of its business coming back to life, although changed by new travel and work and vacation patterns from its users.
If Airbnb has filed, we can presume that present results are good enough to get it life, else the firm would have not filed and would have simply gone public later. The question now becomes if its Q2 numbers were good enough to get it out the door, or if the company intends to update its S-1 filing with Q3 numbers, push the filing live and go public with more recovery time in its results.
Airbnb joins other companies that have filed privately like DoorDash in waiting by the wings for the right moment to go public, or the right set of results.
We’ll see, but the company’s public debut is back to being impending. Now the question becomes whether Airbnb intends to go public in an IPO, as the wording of its filing appears to suggest, or if a direct listing could still be in the cards. We think it’s more likely the former and not the latter, but, hey, in 2020 you never know.
The good news for the Boston-based startup focused on the insurance market, however, is that recent technology IPOs have seen strong performance at similar stock market levels. So, the recent market chop for its future cohort of public software companies may not prove too deleterious to its public offering hopes.
This morning let’s calculate an updated valuation range for Duck Creek, re-run our math on its implied revenue multiples and compare those figures to today’s public market averages.
Duck Creek’s products target the property and casualty insurance provider space, serving companies that sell coverage for automobile, rental and homeowners insurance.
When tinkering with Duck Creek’s first IPO price range ($2.44 billion to $2.70 billion), the company appeared to be reasonably priced. Let’s see what happens when it raises its share-price targets.
A new valuation
As before, Duck Creek is selling 15 million shares, a figure that rises to 17.25 million if its underwriters exercise their option to purchase more stock at the IPO price. So, at its new $23 to $25 per-share IPO price range, the company could raise between $396.75 million and $431.25 million.
For a company that had revenue of $153.35 million in the three quarters ending May 31, 2020, it’s a large sum.
Discounting the shares up for purchase by its underwriters, Duck Creek is worth between $2.95 billion and $3.21 billion. Including the extra equity, the figures rise to $3.00 billion and $3.26 billion.
And then there’s Duck Creek Technologies, a domestic tech company looking to go public on the back of growing SaaS revenues. This morning let’s quickly spin through Duck Creek’s history, peek at its financial results, calculate its expected valuation and see how its pricing fits compared to current norms.
Duck Creek is a Boston-based software company that serves the property and casualty (P&C) insurance market. Its customers include names like AIG, Geico and Progressive, along with smaller players that aren’t as well known to the American mass market.
The KE IPO will be a big affair because the company is huge and profitable with $3.86 billion in H1 2020 revenue leading to $227.5 million in net income. The Xpeng IPO will be interesting because Tesla’s strong share price has given float to a great many EV boats. But Duck Creek is a company slowly letting go of perpetual license software sales and scaling its SaaS incomes while still generating nearly half its revenues from services. It’s a company we can understand, in other words.
So let’s get under the skin of the Boston-based company that also claims low-code functionality. This will be fun.
Software valuations are bonkers, which means it’s a great time to go public. Asana, Monday.com, Wrike and every other gosh darn software company that is putting it off, pay attention. Heck, even service-y Palantir could excel in this market.
Before some additions, there are now 65,843,546 shares of BigCommerce in the world, giving the company an IPO valuation of around $1.58 billion.
Given that the company’s Q2 expected revenue range is “between $35.5 million and $35.8 million,” the company sported a run-rate multiple of 11.1x to 11x, depending on where its final revenue tally comes in. That felt somewhat reasonable, if perhaps a smidgen light.
Then the company opened at $68 per share today, currently trading for $82 per share. Hello, 1999 and other insane times. BigCommerce is now worth, using some rough math, around $5.4 billion, giving it a run-rate multiple of around 38x, using the midpoint of its Q2 revenue range.
How and when should startup founders think about the “exit”? It’s the perennial question in tech entrepreneurialism, but the how’s and when’s are questions to which there are a multitude of answers. For one thing, new founders often forget that the terms of the exit may not eventually be entirely in their control. There’s the board to think of, the strategic direction of the company, the first-in investors, the last-in. You name it. We’ll be chatting about this at Disrupt 2020.
Exits normally happen in only one of two ways: Either the startup gets acquired for enough money to give the investors a return or it grows big enough to list on the public markets. And it just so happens we have two perfect founders who will be able to unpack their own journeys on those two roads.
When Cloudflare went public last year it certainly wasn’t the end of its 10-year journey, and nor was it PlanGrid’s when it was acquired by Autodesk in 2018.
Cloudflare’s Michelle Zatlyn saw every nook and cranny of the company’s journey towards its IPO, which received a warm reception, even if there were a few bumps along the road leading up to it. What comes after an IPO and how to do you even get there in the first place? Zatlyn will be laying it all out for us.
PlanGrid’s journey to acquisition by Autodesk was equally fascinating, and Tracy Young – who, as CEO and co-founder, shepherded the company to an $875 Million exit – will be able to give us an insight into what it’s like to dance with a potential acquirer, go through that (often fraught) process, and come out the other side.
In a recent article, I covered all of the reasons you might be tempted to hold a highly concentrated position in your company stock as a tech founder and how it fits into your portfolio. I then followed up with a rundown on why resisting diversification is generally a bad idea and the subconscious biases that hold us back from selling.
So now that you understand the benefits of diversification and have taken inventory of your portfolio, what is the most effective way for you to move forward? I will share with you what to keep in mind before selling, how to decide when to sell, and strategies to execute sales such as options, exchange funds, prepaid variable forward contracts, qualified small business stock and tax considerations. Now, let’s take a deep dive into strategic approaches to take as a shareholder and important tax implications to consider.
Keep in mind: Lockups and blackout periods
Most tech companies that IPO have a 180-day lockup period that prevents insiders, employees and VC funds from selling immediately. There is usually language that also prohibits hedging with derivatives (options) during that period. Lockups are intended to help prevent insider trading and provide the company with additional post-IPO price stability.
It is also important to abide by the company’s blackout periods, which prohibit transactions during more share-price-sensitive times, such as earnings or material nonpublic information releases.
Concentrated stock strategies
Ad hoc selling — This is the most straightforward and involves the outright sale of your shares. However, this can be difficult for various reasons such as selling restrictions, the perception by others that you are unloading stock and many psychological biases that act as internal mental obstacles.
Scheduled selling — Selling all your stock at once could be both emotionally challenging and tax-inefficient. Scheduled selling involves the selling of a set number of shares over a specific period. This selling strategy can help by spreading the tax impact over a few years. It also provides an advantage from a psychological standpoint since the plan is determined upfront, then mechanically executed.
As an example, a founder might plan to sell 500,000 shares over 18 months. The founder is comfortable selling quarterly, which equals six selling periods of 83,333 shares per quarter. In a scenario where a founder is subject to blackout periods, a 10b5-1 trading plan can be implemented and set on autopilot. The company may even allow you to sell your shares during blackout periods with a 10b5-1 trading plan. See the example of scheduled selling below.
Image Credits: Keystone Global Partners
Hedging with options — Multiple hedging strategies can be implemented to protect your downside; however, some of the more common approaches used are the protective put and the protective collar. Below are basic examples of how these strategies are executed, for illustrative purposes.
Image Credits: Keystone Global Partners
Protective put: Buying protection against the downside.
Collar: Give up some upside to limit some downside.
Each strategy allows the owner to continue holding the stock while providing some downside protection against a stock’s decline. However, these strategies are not tax-efficient and are complicated, so working with an expert is essential. Both puts and certain types of collars would have been extremely expensive to implement during the recent market crisis because market volatility is a factor in options prices. See the below chart of the VIX (volatility index) during peak crisis. However, in some instances, these strategies can make sense.
Jamf still intends to sell up to 18.4 million shares in its debut, including 13.5 million in primary stock, 2.5 million shares from existing shareholders and an underwriter option worth 2.4 million shares. The whole whack at $21 to $23 per share would tally between $386.4 million and $423.2 million, though not all those funds would flow to the company.
At the low and high-end of its new IPO range, Jamf is worth between $2.44 billion and $2.68 billion, steep upgrades from its prior valuation range of $1.98 billion to $2.21 billion.
Jamf follows in the footsteps of recent IPOs like nCino, Vroom and others in seeing demand for its public offering allow its pricing to track higher the closer it gets to its public offering. Such demand from public-market investors indicates there is ample demand for debut shares in mid-2020, a fact that could spur other companies to the exit market.
Coinbase, Airbnb and DoorDash are three such companies that are expected to debut in the next year’s time, give or take a quarter or two.
In anticipation of the Jamf debut that should come this week, let’s chat about the company’s recent performance.
Observe the following table from the most-recent Jamf S-1/A:
From even a quick glance we can learn much from this data. We can see that Jamf is growing, has improving gross margins and has managed to swing from an operating loss to operating profit in Q2 2020, compared to Q2 2019. And, for you fans out there of adjusted metrics, that Jamf managed to generate more non-GAAP operating income in its most recent period than the year-ago quarter.
In more precise terms:
Jamf grew from 26.5% to 29.0% on a year-over-year basis in Q2 2020
Its gross margin grew by 6% in gross terms, and 8.3% in relative terms
Its non-GAAP operating income grew 123.4%, to 150.9% in Q2 2020 compared to the year-ago quarter
Profits! Growth! Software! Improving margins! It’s not a huge surprise that Jamf managed to bolster its IPO price range.
Finally, for the SaaS-heads out there, the following:
This data lets us have a little fun. Recall that we have seen possible valuations for Jamf at IPO that started at $1.98 billion to $2.21 billion, and now include $2.44 billion and $2.68 billion? With our two ARR ranges for the end of Q2, we can now come up with eight ARR multiples for Jamf, from the low-end of its initial IPO price estimate, to the top-end of its new range.
Here they are:
Multiple at $1.98 billion valuation and $238 million ARR: 8.3x
Multiple at $1.98 billion valuation and $241 million ARR: 8.2x
Multiple at $2.21 billion valuation and $238 million ARR: 9.3x
Multiple at $2.21 billion valuation and $241 million ARR: 9.2x
Multiple at $2.44 billion valuation and $238 million ARR: 10.3x
Multiple at $2.44 billion valuation and $241 million ARR: 10.1x
Multiple at $2.68 billion valuation and $238 million ARR: 11.3x
Multiple at $2.68 billion valuation and $241 million ARR: 11.2x
From that perspective, the pricing changes feel a bit more modest, even if they work out to a huge spread on a valuation basis.
Regardless, this is the current state of the Jamf IPO. Rackspace also filed a new S-1/A today, but we can’t find anything useful in it. A bit like the Jamf S-1/A from Friday. Perhaps we’ll get a new Rackspace document soon with pricing notes.
On the heels of nCino’s blockbuster debut, GoHealth’s public offering proved a more sedate affair, at least when comparing the two companies’ initial trading days.
GoHealth priced above its anticipated IPO range, selling more shares than initially planned in the process. By vending 43.5 million shares at $21 apiece — $1 per share more than the top of its preceding $18 to $20 range, and four million shares more than its target of 39.5 million — the insurance technology company put more than $900 million onto its balance sheet this week.
The debut is a win for Chicago’s industry and tech scenes. GoHealth was worth a little less than $6.7 billion at its IPO price, not counting shares that may be sold to its underwriters, which would boost its valuation.
Despite its better-than-anticipated pricing, however, GoHealth shares sagged in afternoon trading, slipping to $19.00 per share, down 9.5% as of the time of writing. The declines stand in contrast to the recent debuts of nCino, Lemonade and others, which saw their shares instantly gain value after going public.
GoHealth’s CEO, however, stressed the long-term vision of his company in an interview with TechCrunch. Speaking with Clint Jones during GoHealth’s first trading day, the executive told TechCrunch that his company’s offering was oversubscribed, and had met its goal of accumulating long-term investors during its IPO process.
The company intends to hire with its new funds, including 1,000 more licensed insurance agents, the CEO said.
Asked whether the company has plans to acquire smaller companies with its IPO funds, Jones told TechCrunch that it could be “opportunistic” regarding buying tech platforms, or smaller teams with particular talent. For the many startups competing in other parts of the insurance marketplace world — TechCrunch has covered the space extensively, including a bevy of funding rounds for insurtech startups — a newly wealthy public company could provide an interesting exit opportunity.
The company’s strong IPO pricing, if somewhat slack first-day’s trading, feels akin to a wash for related, smaller firms watching its public offering with interest; how GoHealth trades moving forward could help set the tone for select insurtech startup valuations.
For today, however, we have yet another unicorn tech-ish offering all wrapped up. GoHealth’s path to the public market’s wasn’t as straightforward as some, but it got there all the same.