Affirm files to go public

Affirm, a consumer finance business founded by PayPal mafia member Max Levchin, filed to go public this afternoon.

The company’s financial results show that Affirm, which doles out personalized loans on an installment basis to consumers at the point of sale, has an enticing combination of rapidly expanding revenues and slimming losses.

Growth and a path to profitability has been a winning duo in 2020 as a number of unicorns with similar metrics have seen strong pricing in their debuts, and winsome early trading. Affirm joins DoorDash and Airbnb in pursuing an exit before 2020 comes to a close.

Let’s get a scratch at its financial results, and what made those numbers possible.

Affirm’s financials

Affirm recorded impressive historical revenue growth. In its 2019 fiscal year, Affirm booked revenues of $264.4 million. Fast forward one year and Affirm managed top line of $509.5 million in fiscal 2020, up 93% from the year-ago period. Affirm’s fiscal year starts on July 1, a pattern that allows the consumer finance company to fully capture the U.S. end-of-year holiday season in its figures.

The San Francisco-based company’s losses have also narrowed over time. In its 2019 fiscal year, Affirm lost $120.5 million on a fully-loaded basis (GAAP). That loss slightly fell to $112.6 million in fiscal 2020.

More recently, in its first quarter ending September 30, 2020, Affirm kept up its pattern of rising revenues and falling losses. In that three-month period, Affirm’s revenue totaled $174.0 million, up 98% compared to the year-ago quarter. That pace of expansion is faster than the company managed in its most recent full fiscal year.

Accelerating revenue growth with slimming losses is investor catnip; Affirm has likely enjoyed a healthy tailwind in 2020 thanks to the COVID-19 pandemic boosting ecommerce, and thus gave the unicorn more purchase in the realm of consumer spend.

Again, comparing the company’s most recent quarter to its year-ago analog, Affirm’s net losses dipped to just $15.3 million, down from $30.8 million.

Affirm’s financials on a quarterly basis — located on page 107 of its S-1 if you want to follow along — give us a more granular understanding of how the fintech company performed amidst the global pandemic. After an enormous fourth quarter in calendar year 2019, growing its revenues to $130.0 million from $87.9 million in the previous quarter, Affirm managed to keep growing in the first, second, and third calendar quarters of 2020. In those periods, the consumer fintech unicorn recorded a top line of $138.2 million, $153.3 million, and $174 million, as we saw before.

Perhaps best of all, the firm turned a profit of $34.8 million in the quarter ending June 30, 2020. That one-time profit, along with its slim losses in its most recent period make Affirm appear to be a company that won’t hurt for future net income, provided that it can keep growing as efficiently as it has recently.

The COVID-19 angle

The pandemic has had more impact on Affirm than its raw revenue figures can detail. Luckily its S-1 filing has more notes on how the company adapted and thrived during this Black Swan year.

Certain sectors provided the company with fertile ground for its loan service. Affirm said that it saw an increase in revenue from merchants focused on home-fitness equipment, office products, and home furnishings during the pandemic. For example, its top merchant partner, Peloton, represented approximately 28% of its total revenue for the 2020 fiscal year, and 30% of its total revenue for the three months ending September 30, 2020.

Peloton is a success story in 2020, seeing its share price rise sharply as its growth accelerated across an uptick in digital fitness.

Investors, while likely content to cheer Affirm’s rapid growth, may cast a gimlet eye at the company’s dependence for such a large percentage of its revenue from a single customer; especially one that is enjoying its own pandemic-boost. If its top merchant partner losses momentum, Affirm will feel the repercussions, fast.

Regardless, Affirm’s model is resonating with customers. We can see that in its gross merchandise volume, or total dollar amount of all transactions that it processes.

GMV at the startup has grown considerably year-over-year, as you likely expected given its rapid revenue growth. On page 22 of its S-1, Affirm indicates that in its 2019 fiscal year, GMV reached $2.62 billion, which scaled to $4.64 billion in 2020.

Akin to the company’s revenue growth, its GMV did not grow by quite 100% on a year-over-year basis. What made that growth possible? Reaching new customers. As of September 30, 2020, Affirm has more than 3.88 million “active customers,” which the company defines as a “consumer who engages in at least one transaction on our platform during the 12 months prior to the measurement date.” That figure is up from 2.38 million in the September 30, 2019 quarter.

The growth is nice by itself, but Affirm customers are also becoming more active over time, which provides a modest compounding effect. In its most recent quarters, active customers executed an average of 2.2 transactions, up from 2.0 in third quarter of calendar 2019.

Also powering Affirm has been an ocean of private capital. For Affirm, having access to cash is not quite the same as a strictly-software company, as it deals with debt, which likely gives the company a slightly higher predilection for cash than other startups of similar size.

Luckily for Affirm, it has been richly funded throughout its life as a private company. The fintech unicorn has raised funds well in excess of $1 billion before its IPO, including a $500 million Series G in September of 2020, a $300 million Series F in April of 2019, and a $200 million Series E in December of 2017. Affirm also raised more than $400 million in earlier equity rounds, and a $100 million debt line in late 2016.

What to make of the filing? Our first-read take is that Affirm is coming out of the private markets as a healthier business than the average unicorn. Sure, it has a history of operating losses and not yet proven its ability to turn a sustainable profit, but its accelerating revenue growth is promising, as are its falling losses.

More tomorrow, with fresh eyes.

#affirm, #fintech, #fundings-exits, #ipo, #public, #s-1, #startups

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#DealMonitor – Finiata bekommt weitere Millionen – Leonardo DiCaprio investiert in EnPal


Im aktuellen #DealMonitor für den 12. November werfen wir wieder einen Blick auf die wichtigsten, spannendsten und interessantesten Investments und Exits des Tages. Alle Deals der Vortage gibt es im großen und übersichtlichen #DealMonitor-Archiv.

INVESTMENTS

Finiata
+++ Die “großen” Alt-Investoren und der European Investment Fund (Corona Matching Facility) investieren 7 Millionen Euro in Finiata. In den vergangenen Jahren investierten DN Capital, Point Nine Capital, Redalpine Venture Partners, Fly Ventures, LaFamiglia, der tschechische Private Equity-Investor ENERN und das polnische Family Office Kulczyk Investments rund 20 Millionen Euro in den Berliner Kredit-Anbieter, der derzeit in Polen aktiv ist. Zuletzt fiel Finiata durch eine sogenannte Pay-to-Play-Runde auf. “Die Bewertung ohne das neue Geld (Pre-Money) dürfte bei etwa zehn Millionen Euro liegen”, berichtet FinanceFWD.

EnPal
+++ Der amerikanische Investmentfonds Princeville Climate Technology, hinter dem unter anderem der Schauspieler Leonardo DiCaprio steckt,  investiert einen mittleren einstelligen Millionenbetrag in EnPal – siehe Der Spiegel. Gerade erst investierten die zalando-Macher Robert Gentz, David Schneider und Rubin Ritter eine Millionensumme in Enpal. Das Berliner Solarunternehmen, das 2017 von Mario Kohle (Käuferportal-Gründer), Viktor Wingert und Jochen Ziervogel gegründet wurde, vermietet Solaranlagen an Privatkunden. Vor den zalando-Macherin investierten bereits Picus Capital sowie Spreadshirt-, Circ- und Delivery Hero-Gründer Lukasz Gadowski in das Berliner GreenTech.

Newsadoo
+++ Die Altinvestoren FFG und aws investieren weitere 2,2 Millionen Euro in das Linzer Startup Newsadoo. Der Nachrichtendienst, der 2017 von David Böhm, Alexandra Auböck und Susanna Wurm gegründet wurde, “bündelt den Content aus allen relevanten Quellen an einem Ort, analysiert ihn automatisiert mittels künstlicher Intelligenz und liefert ihn ganz individuell und mit vielen Zusatzfunktionen an seine User”.

VENTURE CAPITAL

Speedinvest
+++ Der Wiener Kapitalgeber Speedinvest legt seinen zweiten Speedinvest x Fonds, einen sogenannten “Fokus-Fonds für Netzwerkeffekte”, auf. “Im sogenannten ‘First Closing’ wirbt der Fonds über  33 Millionen Euro für den neuen Speedinvest x Fonds 2 ein”, teilt der Kapitalgeber mit. Zielvolumen sind 50 Millionen Euro. “Als Ankerinvestoren für den neuen Fonds konnten die Medienhäuser Russmedia und Styria Media Group gewonnen werden”, heißt es in der Presseaussendung. Zudem wird Julian Blessin, Mitgründer von Tier Mobility, neuer Partner bei Speedinvest.

IPO

myTheresa
+++ Der Münchner Mode-Händler myTheresa strebt an die Börse. Der IPO soll Anfang 2021 in den USA stattfinden. “Die angestrebte Bewertungsspanne liege bei rund 1 Milliarde Dollar bis 1,5 Milliarden Dollar, hiess es. Je nach Verlauf des Weihnachtsgeschäfts könnte das Ziel sich jedoch auch noch verändern” – berichtet HZ.  myTheresa entstand 2006 als Ableger eines stationären Modehauses. Derzeit beschäftigt das Unternehmen mehr als 700 Mitarbeiter.  Im Geschäftsjahr 2019/20, das im Juni abgeschlossen wurde, erwirtschaftete myTheresa einen Umsatz in Höhe von 450 Millionen Euro.

Achtung! Wir freuen uns über Tipps, Infos und Hinweise, was wir in unserem #DealMonitor alles so aufgreifen sollten. Schreibt uns eure Vorschläge entweder ganz klassisch per E-Mail oder nutzt unsere “Stille Post“, unseren Briefkasten für Insider-Infos.

Startup-Jobs: Auf der Suche nach einer neuen Herausforderung? In der unserer Jobbörse findet Ihr Stellenanzeigen von Startups und Unternehmen.

Foto (oben): azrael74

#aktuell, #berlin, #enpal, #finiata, #fintech, #ipo, #leonardo-dicaprio, #linz, #munchen, #mytheresa, #newsadoo, #princeville-climate-technology, #promi-investor, #speedinvest, #venture-capital

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China postpones Ant’s colossal IPO after closed-door talk with Jack Ma

The Shanghai and Hong Kong stock exchanges announced postponing Ant Group’s colossal initial public offering, a day after Chinese regulators weighed a slew of new fintech rules and summoned Jack Ma and other top executives to a closed-door meeting.

The rare talk between China’s top financial regulators and Ant, which revealed “major changes in the fintech regulatory environment,” may disqualify the firm from listing on November 5, the bourse said in a statement on the evening of November 3.

It’s unclear what those “changes” are, though the bourse has ordered Ant to disclose them. It’s worth noting that in late October, Ma gave a provoking speech criticizing China’s financial regulation. The conference was attended by China’s senior leaders and later on stirred widespread controversy.

Ant has over the years tried to be in the good graces of the authorities. When it rebranded from Ant Financial to Ant Technology this year, the gesture was seen as an attempt to shed the firm’s image as an intimidating financial giant and stress the one of a benevolent technology provider. The campaign began a few years ago, prompting the firm to devise awkward coinages like “techfin” (as opposed to “fintech”) and declare it wasn’t competing with traditional financial institutions, many of which were state-led.

The promises weren’t merely a show. Ant has slowly grown into an online marketplace matching hundreds of millions of customers with financial products offered by traditional players. It’s also brought on heavyweight state actors like the National Social Security Fund and China International Capital Corporation as shareholders, which are slated for handsome returns from their investments.

But the amount of reassurance did not seem enough. China’s financial authorities released a new wave of proposals on Monday to rein in the fintech sector, days before Ant was scheduled to raise $34.5 billion in the world’s largest initial public offering. The draft, though not explicitly aimed at Ant, coincided with the financial regulators’ meeting with Ant executives.

“Views regarding the health and stability of the financial sector were exchanged,” an Ant spokesperson told TechCrunch earlier in a statement. “Ant Group is committed to implementing the meeting opinions in depth and continuing our course based on the principles of: stable innovation; embrace of regulation; service to the real economy; and win-win cooperation.”

The message was clear: Ant strives to abide by Beijing’s wishes.

“We will continue to improve our capabilities to provide inclusive services and promote economic development to improve the lives of ordinary citizens,” the firm added.

The proposal was just the latest move in China’s ongoing effort to bring stability to its flourishing fintech sector. The draft rules include a ban on interprovincial online loans unless otherwise approved by authorities; a maximum online loan amount of 300,000 yuan ($45,000) for each individual; and a 1 billion yuan registered capital threshold for online microloan lenders.

At issue is Ant’s ballooning lending business, which contributed 41.9 billion yuan or 34.7% to its annual revenue, according to the firm’s IPO prospectus. In the year ended June, Ant 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.

Over the years, China’s financial regulators have dropped numerous other policies limiting the expansion and profitability of fintech players. For instance, Ant’s payments service Alipay and its rivals could no longer generate lucrative interest returns from customer reserve funds starting last year.

Ant has not responded to a request for comment on the IPO halt.

#alibaba, #ant-financial, #ant-group, #ant, #asia, #china, #fintech, #fundings-exits, #government, #ipo, #jack-ma, #tc

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#DealMonitor – Dance bekommt 15 Millionen – About You plant IPO – UVC Partners legt 150 Millionen-Fonds auf


Im aktuellen #DealMonitor für den 22. Oktober werfen wir wieder einen Blick auf die wichtigsten, spannendsten und interessantesten Investments und Exits des Tages. Alle Deals der Vortage gibt es im großen und übersichtlichen #DealMonitor-Archiv.

INVESTMENTS

Dance
+++ Holtzbrinck Ventures investiert 15 Millionen Euro in das junge Berliner Mobility-Startup Dance, das von den Soundcloud-Gründern Alexander Ljung und Eric Quidenus sowie Jimdo-Macher Christian Springub gegründet wurde. Hinter Dance verbirgt sich ein Subscription-Service für E-Bikes. Schon vor dem Start investierte der Berliner Kapitalgeber BlueYard in Dance.  Zudem investierten auch Szeneköpfe wie Ilkka Paananen (Supercell), Jeannette zu Fürstenberg (La Famiglia), Kevin Ryan (Alleycorp, Doubleclick und MongoDB), Neil Parikh (Casper) und Bjarke Ingels (BIG Architects) in das sehr junge Unternehmen. Das Unternehmen ging im Juli mit einem Invite-only-Programm in Berlin an den Start.

Limehome
+++ Holtzbrinck Ventures, Lakestar und Picus Capital investieren weitere 10 Millionen Euro in das Münchner Startup Limehome. Das junge Unternehmen, das 2018 von Lars Stäbe und Josef Vollmayr gegründet wurde, mietet Wohnungen an und richtet diese als Apartments zur kurz- und langfristigen Miete ein. Lakestar, Holtzbrinck Ventures, Picus Capital und Global Growth Capital investierten erst Anfang dieses Jahres 21 Millionen Euro in Limehome.

Schrott24
+++ Statkraft Ventures, der Wagniskapitalableger des norwegischen Energiekonzerns, investiert gemeinsam mit FJ Labs sowie Gisbert Rühl, Vorstandschef des Duisburger Stahlhändlers Klöckner, 2,8 Millionen Euro in Schrott24 – siehe WiWo Gründer.  Der Altmetall-Marktplatz wurde 2016 von Alexander Schlick und Jan Pannenbäcker gegründet. Das Grazer Unternehmen sicherte sich zuletzt auch eine EU-Förderung in Höhe von 1,2 Millionen Euro.

breathe ilo
+++ Der aws Gründerfonds investiert 3 Millionen Euro in das österreichische Femtech Carbomed Medical Solutions, das den Fruchtbarkeitstracker breathe ilo anbietet. Entwickelt wurde das Gerät von dem Reproduktionsmediziner Ludwig Wildt und Medizintechniker Horst Rüther. “Nur ein Jahr nach dem Marktstart liegt der Exportanteil bei bereits 80 Prozent – mit 75 Prozent davon ist Deutschland der Hauptabsatzmarkt, wo breathe ilo seit Januar diesen Jahres verfügbar ist”, teilt das Startup mit.

Acapela
+++ Visionaries Club, Entrepreneur First und Business Angels wie Christian Reber (Pitch und Wunderlist) sowie Taavet Hinrikus (Transferwise) investieren 2,5 Millionen US-Dollar in das Berliner Startup Acapela. Das Berliner Unternehmen, das von Dubsmash-Gründer Roland Grenke und Heiki Riesenkampf, zuletzt Google, gegründet wurde entwickelt eine asynchrone Meeting-Plattform. Über die Plattform sollen Unternehmen flexibler als per Videobotschaft und persönlicher als per Slack kommunizieren können.

Peter Park
+++ Ein deutsches Family-Office investiert eine siebenstellige Summe in das Münchner IoT-Startup Peter Park. Das 2019 von Maximilian Schlereth, Florian Schaule, Patrick Bartler und Stefan Schenk gegründete Unternehmen entwickelt ein modulares Betriebssystem für Parkflächen. “Mit der neuen Finanzierung wird der Fokus auf das konsequente Wachstum des Teams gelegt, was als Fundament für die anstehende Internationalisierung dient”, teilt die Jungfirma mit.

Novum
Dr. Hettich Beteiligungen und der High-Tech Gründerfonds (HTGF) investieren eine siebenstellige Summe in Novum. Das 2014 in Dresden gegründete Startup entwickelt eine Technologie, die das Großspeichermonitoring von Batterien auch offline möglich macht. “Mit dem frischen Kapital soll das Produktportfolio im Bereich Großspeicher und 2nd life Schnelltests für die Automobilindustrie erweitert werden”, teilt das Unternehmen mit.

EXIT

OOTP Developments
+++ Der südkoreanische Spiele-Entwickler Com2Us, bekannt für Summoners War, übernimmt das deutsche Studio OOTP Developments. Seit 1999 setzt OOTP mit Sitz in Hollern-Twielenfleth auf PC-Sportsimulationen wie Out of the Park Baseball und Franchise Hockey Manager. OOTP stieg erst im Januar beim The Walking Dead-Studio Skybound Entertainment. Weitee Zukäufe sind geplant.

Grapevine
+++ Das Wiener Startup Orderlion, eine Bestell-App für Gastronomen und Lieferanten, übernimmt das Wein-Startup Grapevine. “Mit Grapevine kommt nun ein Startup dazu, dass bisher (der Name verrät es bereits) im Weinsegment unterwegs war und etwa 200 Winzer als Kunden aufgebaut hat” – berichtet Trending Topics. Orderlion wurde 2017 von Stefan Strohmer und Patrick Schubert gegründet. Die Jungfirma konkurriert mit Startups wie Choco, Rekki und Co.

IPO

About You
+++ Der Modeversender About You bereitet seinen Börsengang vor – siehe manager magazin. “About You, bei der letzten Finanzierungsrunde 2018 mit knapp einer Milliarde Euro bewertet, soll beim Börsengang einen Marktwert von mindestens drei Milliarden Euro anstreben. Wächst man weiter wie bisher, hoffen manche gar auf fünf Milliarden Euro”, heißt es im Bericht. Als Termin ist März 2021 anvisiert.

VENTURE CAPITAL

UVC Partners
+++ Der Münchner Kapitalgeber UVC Partners legt seinen dritten Fonds (150 Millionen Euro) auf. “Die Investorenbasis des neuen Fonds ist breit gestreut und reicht von erfolgreichen Startup-Unternehmern wie den FlixBus-Gründern über institutionelle Investoren und Family Offices bis zu Familienunternehmen und Corporates”, teilt der Geldgeber mit. UVC Partners investiert vorrangig in “herausragende europäische B2B-Startups”. Im zweiten UVC-Fonds waren 82 Millionen.

Achtung! Wir freuen uns über Tipps, Infos und Hinweise, was wir in unserem #DealMonitor alles so aufgreifen sollten. Schreibt uns eure Vorschläge entweder ganz klassisch per E-Mail oder nutzt unsere “Stille Post“, unseren Briefkasten für Insider-Infos.

Startup-Jobs: Auf der Suche nach einer neuen Herausforderung? In der unserer Jobbörse findet Ihr Stellenanzeigen von Startups und Unternehmen.

Foto (oben): azrael74

#about-you, #acapela, #aktuell, #breathe-ilo, #carbomed-medical-solutions, #com2us, #dance, #dr-hettich-beteiligungen, #dresden, #entrepreneur-first, #femtech, #fj-labs, #grapevine, #graz, #hamburg, #high-tech-grunderfonds, #holtzbrinck-ventures, #ipo, #kapital, #lakestar, #limehome, #novum, #ootp-developments, #orderlion, #peter-park, #picus-capital, #schrott24, #statkraft-ventures, #uvc-partners, #venture-capital, #visionaries-club, #wein, #wien

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Miniso, the Japanese-looking variety store from China, sees shares jump in US IPO

Investors are jumping aboard a value store chain that is bringing Japanese-inspired lifestyle goods to consumers around the world. The company, Miniso, raised $608 million from an initial public offering in New York on Thursday. It debuted at $24.40, above its pricing range of $16.50 to $18.50, and finished the day up 4.4%.

Everything about the seven-year-old firm — from its name, branding, products, to its website — suggests it is Japanese, except in fact it was born and bred in China. It bears a striking similarity to Muji, Uniqlo and dollar store Daiso in many ways, and has been called a copycat of its Japanese lifestyle predecessors.

The company, backed by Tencent and Hillhouse Capital, seems to intentionally, albeit misleadingly, brand itself as Japanese. In its public messaging, such as this press release and its country-specific site, it describes itself as a firm co-founded by Chinese entrepreneur Ye Guofu and Japanese designer Miyake Junya in Tokyo in 2013. But its Japanese origin is nowhere to be seen in its IPO prospectus.

Instead, the document lists the southern Chinese metropolis Guangzhou as the firm’s first base and Ye as the sole founder and current chief executive. All key directors and executives appear to be Chinese.

Branding confusion aside, there’s no denying Miniso has successfully wooed many young, price-sensitive consumers who welcome choice overload. Over 80% of its store visitors in China are under the age of 40. As of June, more than 95% of its products in China were below 50 yuan or $7.08 — thanks to the vicinity of abundant manufacturers — and the firm prides itself on the goal to launch 100 new SKUs every seven days.

Miniso’s revenue reached $1.4 billion in 2019, compared to $17.85 billion for 71-year-old Uniqlo and $4.17 billion for 39-year-old Muji. It recorded a loss of $44 million last year. 

The firm’s retail stores, decorated by its iconic bright red color reminiscent of the Uniqlo brand, span over 80 countries today. 40% of its 4,200 stores are outside of China. Over 90% of its outlets are franchise stores, one reason why it’s able to expand rapidly, but the model also means Miniso has limited control over its large network of third-party operators.

#asia, #china, #fundings-exits, #ipo

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Why are VCs launching SPACs? Amish Jani of FirstMark shares his firm’s rationale

It’s happening slowly but surely. With every passing week, more venture firms are beginning to announce SPACs. The veritable blitz of SPACs formed by investor Chamath Palihapitiya notwithstanding, we’ve now seen a SPAC (or plans for a SPAC) revealed by Ribbit Capital, Lux Capital, the travel-focused venture firm Thayer Ventures, Tusk Ventures’s founder Bradley Tusk, the SoftBank Vision Fund, and FirstMark Capital, among others. Indeed, while many firms say they’re still in the information-gathering phase of what could become a sweeping new trend, others are diving in headfirst.

To better understand what’s happening out there, we talked on Friday with Amish Jani, the cofounder of FirstMark Capital in New York and the president of a new $360 million tech-focused blank-check company organized by Jani and his partner, Rick Heitzmann. We wanted to know why a venture firm that has historically focused on early-stage, privately held companies would be interested in public market investing, how Jani and Heitzmann will manage the regulatory requirements, and whether the firm may encounter conflicts of interest, among other things.

If you’re curious about starting a SPAC or investing in one or just want to understand how they relate to venture firms, we hope it’s useful reading. Our chat has been edited for length and clarity.

TC: Why SPACs right now? Is it fair to say it’s a shortcut to a hot public market, in a time when no one quite knows when the markets could shift?

AJ: There are a couple of different threads that are coming together. I think the first one is the the possibility that [SPACs] works and really well. [Our portfolio company] DraftKings [reverse-merged into a SPAC] and did a [private investment in public equity deal]; it was a fairly complicated transaction and they used this to go public and the stock has done incredibly well.

In parallel, [privately held companies] over the last five or six years could raise large sums of capital, and that was pushing out the the timeline [to going public] fairly substantially. [Now there are] tens of billions of dollars in value sitting in the private markets and [at the same time] an opportunity to go public and build trust with public shareholders and leverage the early tailwinds of growth.

TC: DraftKings was valued at $3 billion when it came out and it’s now valued at $17 billion, so it has performed really, really well. What makes an ideal target for a SPAC versus a traditional IPO? Does having a consumer-facing business help get public market investors excited? That seems the case.

AJ: It comes down to the nature and the growth characteristics and the sustainability of the business. The early businesses that are going out, as you point out, tend to be consumer based, but I think there’s as good an opportunity for enterprise software companies to use the SPAC to go public.

SPAC [targets] are very similar to what you would want in a traditional IPO: companies with large markets, extremely strong management teams, operating profiles that are attractive, and long term margin profiles that are sustainable, and to be able to articulate [all of that] and have the governance and infrastructure to operate in a public context. You need to be able to do that across any of these products that you use to get public.

TC: DraftKings CEO Jason Robins is an advisor on your SPAC. Why jump into sponsoring one of these yourselves?

AJ: When he was initially approached, we were, like most folks, pretty skeptical. But as the conversations evolved, and we began to understand the amount of customization and flexibility [a SPAC can offer], it felt very familiar. [Also] the whole point of backing entrepreneurs is they do things differently. They’re disruptive, they like to try different formats, and really innovate, and when we saw through the SPAC and the [actual merger] this complex transaction where you’re going through an M&A and raising capital alongside that and it’s all happening between an entrepreneur and a trusted partner, and they’ve coming to terms before even having to talk about all of these things very publicly, that felt like a really interesting avenue to create innovation.

For us, we’re lead partners and directors in the companies that we’re involved with; we start at the early stages at the seed [round] and Series A and work with these entrepreneurs for over a decade, and if we can step in with this product and innovate on behalf of our entrepreneurs and entrepreneurs in tech more broadly, we think there’s a really great opportunity to push forward the process for how companies get public.

TC: You raised $360 million for your SPAC. Who are its investors? Are the same institutional investors who invest in your venture fund? Are these hedge funds that are looking to deploy money and also potentially get their money out faster?

AJ: I think a bit of a misconception is this idea that most investors in the public markets want to be hot money or fast money. You know, there are a lot of investors that are interested in being part of a company’s journey and who’ve been frustrated because they’ve been frozen out of being able to access these companies as they’ve stayed private longe. So our investors are some are our [limited partners], but the vast majority are long-only funds, alternative investment managers, and people who are really excited about technology asa long term disrupter and want to be aligned with this next generation of iconic companies.

TC: How big a transaction are you looking to make with what you’ve raised?

AJ: The targets that we’re looking for are going to look very similar to the kind of dilution that a great company would take going public —  think of that 15%, plus or minus, around that envelope. As you do the math on that, you’re looking at a company that’s somewhere around $3 billion in value.  We’re going to have conversations with a lot of different folks who we know well, but that’s that’s generally what we’re looking for.

TC: Can you talk about your “promote,” meaning how the economics are going to work for your team?

AJ: Ours [terms] are very standard to the typical SPAC. We have 20% of the original founders shares. And that’s a very traditional structure as you think about venture funds and private equity firms and hedge funds: 20% is is very typical.

TC: It sounds like your SPAC might be one in a series.

AJ: Well, one step at a time. The job is to do this really well and focus on this task. And then we’ll see based on the reaction that we’re getting as we talk to targets and how the world evolves whether we do a second or third one.

TC: How involved would you be with the management of the merged company and if the answer is very, does that limit the number of companies that might want to reverse-merge into your SPAC?

AJ: The management teams of the companies that we will target will continue to run their businesses. When we talk about active involvement, it’s very much consistent with how we operate as a venture firm, [meaning] we’re a strong partner to the entrepreneur, we are a sounding board, we help them accelerate their businesses, we give them access to resources, and we leverage the FirstMark platform. When you go through the [merger], you look at what the existing board looks like, you look at our board and what we bring to bear there, and then you decide what makes the most sense going forward. And I think that’s going to be the approach that we take.

TC: Chamath Palihapitiya tweeted yesterday about a day when there could be so many VCs with SPACs that two board members from the same portfolio company might approach it to take it public. Does that sound like a plausible scenario and if so, what would you do?

AJ: That’s a really provocative and interesting idea and you could take that further and say, maybe they’ll form a syndicate of SPACs. The way I think about it is that competition is a good thing. It’s a great thing for entrepreneurship, it’s a good thing overall.

The market is actually really broad. I think there’s something like 700-plus private unicorns that are out there. And while there are a lot of headlines around the SPAC, if you think about technology-focused people with deep tech backgrounds, that pool gets very, very limited, very quickly. So we’re pretty excited about the ability to go have these conversations.

You can listen in on more of this conversation, including around liquidation issues and whether FirstMark will target its own portfolio companies or a broader group or targets, here.

#amish-jani, #draftkings, #firstmark-capital, #ipo, #pinterest, #recent-funding, #spac, #spotify, #startups, #venture-capital

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Amid a boom in SPACs, few women investors

If you’ve been following the SPAC boom, you may have noticed something about these blank-check vehicles that are springing up left and right in order to take public privately held companies. They are being organized mostly by men.

It’s not surprising, given the relative dearth of women in senior financial positions in banking and the venture industry. But it also begs the question of whether women, already hustling to overcome a wealth gap, could be left behind if the trend gains momentum.

Consider that studies have shown women investors are are twice as likely to invest in startups with at least one female founder, and more than three times as likely to invest in startups with female CEOs. It’s not a huge leap to imagine that women-led SPACs might also be more inclined to identify women-led companies with which to merge and take public.

More, the SPAC sponsors themselves are reaping financial rewards. In return for sponsoring a SPAC in its pre-IPO stage, sponsors typically receive 25% of the SPACs founder shares, which can mean a lot of money in a short amount of time, given that SPACs typically aim to merge with a target company in two years or less. In fact, even if the SPAC performs terribly — say the company with which it merges is later accused of fraud — those sponsors get paid.

Eventbrite cofounder Kevin Hartz, who is overseeing a $200 million SPAC, explained it to us in August this way: “On a $200 million SPAC, there’s a $50 million ‘promote’ that is earned.” But “if that company doesn’t perform and, say, drops in half over a year or 18-month period, then the shares are still worth $25 million. (Hartz himself called this guaranteed payout “egregious,” though he and his partner in the SPAC, Troy Steckenrider, didn’t structure their SPAC any differently, saying that as a first-time SPAC sponsor, they wanted to make sure that the investment community understood their offering.)

Women aren’t entirely unaccounted for in the current SPAC craze.

Thanks to a state law passed in California in 2018 that mandates that all publicly traded companies with headquarters in the state include at least one woman on their boards of directors, nearly all SPACs based in California have a female director, as reported earlier by Axios.

In the last week, too, at least three SPACs to register with the SEC have been launched exclusively or in part by sponsors who are women. Hope Taiz, a New York-based investor who began her investment banking career first as a M&A analyst and then as an associate at Drexel Burnham Lambert, registered plans this week with the SEC to raise a $300 million blank-check company called Aequi Acquisition.

Northern Star Acquisition, a consumer-focused SPAC led by magazine vet Joanna Coles and New York Islanders co-owner Jonathan Ledecky, meanwhile filed for a $300 million IPO last week, and Climate Change Crisis Real Impact I Acquisition, a SPAC focused on climate technology, raised $200 million in an IPO. The blank check company is led by Mary Powell, the former CEO of Green Mountain Power, and David Crane, a former CEO of the competitive energy supplier NRG Energy.

Betsy Cohen, a founder and former CEO of the financial services company Bancorp has established four fintech-related shell firms, in fact, taking public the newest of these vehicles, a $750 million SPAC, just last month.

As an interesting aside, the SPAC programs of both Goldman Sachs and Jefferies are led by women (Olympia McNerney and Tina Pappas, respectively).

In fact, some might wonder — reasonably — if it isn’t a little early to worry about women missing out on this apparent gold rush. After all, while 133 SPACs have raised more than $50 billion in proceeds this year at last count, the number of tech investors who’ve organized them remains very small, if exclusively male.

Among the only investors to jump into the pool to date are Chamath Palihapitiya of Social Capital (who has dozens of SPACs in mind); Hartz and Steckenrider; entrepreneur-investors Reid Hoffman and Mark Pincus, Ribbit Capital’s Mickey Malka; former Uber executive Emil Michael; and the founders of FirstMark Capital.

Still, with the apparent blessing of well-regarded investors, including Benchmark’s Bill Gurley, SPACs seem poised to explode in popularity. If they do, it will be interesting to see if more women, including in venture capital, take advantage of them to get more privately held companies into the public market.

A number of top women VCs with whom we’ve talked say they’re following the action and weighing how to participate. One such prominent investor told us she’s been researching under what circumstances it makes sense for VC firms to engage in a SPAC’s origination.

Others may well gain exposure first to SPACs through their portfolio companies. Dana Grayson of Construct Capital, for example, led an early investment in the 3D printing company Desktop Metal — which is going public through a SPAC-led deal —  while a partner the firm NEA. At TechCrunch’s recent Disrupt event, Grayson, speaking about Desktop Metal, called SPACs a “great new viable alternative for companies.”

With “most banking things, SPACs skew heavily male,” observes Kristi Marvin, a former investment banker who now runs the data site SPACInsider. It’s not time to panic yet, however, she suggests. For one thing, the SPAC market is on the verge of overheating.

“You have 10 deals trying to price in the same day, and investors are tapped out.”

SPACs also require a learning curve that some underestimate. “It’s why you see hedge funds and PE firms more involved in SPACs; they have infrastructure to do them versus three guys who are facing a ton of work just to do the administrative side of things,” notes Marvin.

As with other financial products, Marvin expects to see more women embrace SPACs over time. That said, she adds, “If in a year or two, it’s still only male VCs who’ve dipped their toe into SPACs, it may be a problem.”

#chamath-palihapitiya, #desktop-metal, #ipo, #sec, #spac, #tc, #venture-capital

0

Palantir publishes 2020 revenue guidance of $1.05B, will trade starting Sept 30th

It’s been a long road for Palantir as it has submitted amendment after amendment with the SEC related to its S-1 filing over the past two months. But after weeks of back and forth, it’s official: Palantir’s S-1 has been marked effective, which means that it has been accepted by the SEC and its target market the NYSE and should be ready to go as the company heads toward a public direct listing.

The company will begin trading on Wednesday, September 30th, under the ticker PLTR. Palantir originally had planned to start trading today, but moved the date back to the 29th a few filings ago, and finally ended up with the 30th. It is not floating new stock, although the company effectively raised “IPO money” back in July of about $1 billion from the private markets.

Palantir yesterday also offered revenue guidance to fill out the rest of its calendar year. The company estimated it would target roughly $1.05 billion in revenue for 2020, with non-GAAP operating income (excluding stock-based compensation and some other major line items) of $116-126 million. It expects its head count to remain roughly flat, growing just 4%.

Palantir had revenue of $595 million in 2018 and $743 million in 2019 according to its S-1 filing. If it hits its new target revenue, that would be a growth rate of 41% from last year, an acceleration from the roughly 25% growth rate in the previous year. The company’s Q3 revenue is estimated to reach $278-280 million with a growth rate of 46-47%, according to the company’s projections. So it seems to be accelerating every so slightly in the back half of this year as customers presumably start ramping up their IT purchases following the global pandemic.

While we have talked extensively about Palantir’s woes on governance, the reality behind the company is reasonably decent: it’s a quick if not rapid growth company, predominantly in software rather than services, with a growing customer base including both government and enterprise customers. The company has very recently started to talk more about its Apollo product, which has helped it cut sales times and make more of its product self-service, or at least, reduced-service.

For comparison though, check out Snowflake, which is also in the data infrastructure space although a bit lower in the stack and just went public last week. In most of 2018 (the company has a Feb 1 fiscal calendar), the company generated $97 million in revenue, and then grew to an astonishing $265 million for most of 2019. Snowflake had a net loss of 131% of revenue, compared to Palantir, which had a net loss of 78% of revenue last year.

Snowflake was considered one of the best IPOs of the year, given its high net dollar retention rate, extremely rapid growth, and huge market size waiting to be tapped. Palantir is a much larger company in terms of revenues, but growing significantly slower, but with a bit better cash flow position, particularly in the last two years as it has made its operations much more efficient.

We’ll have to wait a week to see how the markets react. For now though, it looks like Palantir has gotten out of its own way and can finally start trading.

#finance, #fundings-exits, #ipo, #palantir-technologies

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Can’t stop won’t stop: Social Capital Hedosophia just filed for its fourth SPAC, says new report

According to a new report in Bloomberg, Social Capital Hedosophia has filed plans confidentially with the SEC to raise $500 million for its newest blank-check company.

It will be the fourth special purpose acquisition company, or SPAC, to be raised by the outfit, which is headed up by Chamath Palihapitiya and Ian Osborne. Astonishingly, dozens more may be in the works. On the “All-In Podcast,” co-hosted by Palihapitiya, he revealed recently that has reserved the symbols from “IPOA” to “IPOZ” on the New York Stock Exchange. He also said he has $100 million of his own involved in each deal to demonstrate his alignment with potential investors.

What’s the play? In the podcast, Palihapitiya pointed to the Federal Reserve’s economic and interest rate forecasts and its plans to keep interest rates at zero for years to come. “I mean, quite honestly,” Palihapitiya said, “there’s no path to any near-term inflation of any kind whatsoever.”

It’s why he thinks investors are going to “get paid to be long [on] equities, because your risk-free rate is zero and will soon be negative. And what are you supposed to do if you’re an asset manager?”

Here’s how he framed it: “Let’s say you’re the California pension system, you have hundreds of billions of dollars, and you need to generate five or 6% a year to make sure that your pension isn’t insolvent, and the government is paying you zero. When everybody is in that situation, you’re overwhelmingly long equities . . .So all of these opportunities are generally buying opportunities, and I’m more bullish now than I was before.”

Indeed, when it comes to private or public market investing, said Palihapitiya, “I think it really is just public companies [that are worth getting behind]. . . I mean like, no offense, but if you’re a very good stock picker in the public markets, you’re generating better returns [than] Sequoia, Benchmark — name your best venture fund.  I see all these people spouting off on Twitter about how good they are in the early-stage markets, but it’s all kind of small dollars and not that meaningful.”

Certainly, he has reasoned to feel emboldened. The first SPAC of Social Capital Hedosophia, raised in 2017, ultimately merged last year with the space tourism company Virgin Galactic, and it’s now valued at slightly more than $4 billion by public market shareholders.

The outfit’s second fund, which was raised in April, announced yesterday that it will merge with Opendoor, a company that buys and sells residential real estate and that might have had trouble going public through a traditional IPO process, given its still-uncertain economics.

Social Capital Hedosophia’s third SPAC, also raised in April, has not yet named its target but the company has said it will use its IPO proceeds to buy a tech company that’s primarily outside of the United States.

Certainly, SPACs — which haven’t had a stellar reputation historically — have a growing number of other investors intrigued. According to SPACInsider, nearly 100 SPACs have been raised in 2020 already up from just 7 a decade ago.

Though Sequoia Capital is having a stellar year — given its stake in Zoom, Bytedance, and Snowflake, among many other headline-leading companies — its U.S. head, Roelof Botha, suggested in an interview yesterday that Sequoia hasn’t ruled out the possibility of forming SPACs, even while he implied that it was unlikely. “I love the fact that there’s more innovation” around the IPO process, he said. “It gives more choice to the companies.”

#chamath-palihapitiya, #ipo, #opendoor, #social-capital-hedosophia, #spac, #tc, #virgin-galactic

0

JFrog and Snowflake’s aggressive IPO pricing point to strong demand for cloud shares

After raising their IPO price ranges, both JFrog and Snowflake priced above their refreshed intervals last night. At their final IPO prices, the two debuts are aggressively valued, showing continued optimism amongst public investors that cloud shares are an attractive bet, even if their growth is financed through a history of steep losses, as in the case of Snowflake .


The Exchange explores startups, markets and money. Read it every morning on Extra Crunch, or get The Exchange newsletter every Saturday.


The JFrog IPO pricing is notable because it shows how much public investors are willing to pay for 50% growth and recent profits from a SaaS company. And Snowflake’s pricing is noteworthy for showing the value of huge growth and improving economics.

This morning we’ll explore the two companies’ final values, compare those results to their initial IPO price ranges and calculate their current revenue multiples based on last-quarter’s annual run rates. This is going to be fun.

Later today we’ll have updates on how they open to trade. For now, let’s get into the math and valuation nuance you and I both need to understand just where the public market is today as so many unicorns are either en route towards an IPO, or are standing just outside the pool with a single hoof dipped to check the temperature.

Price this, you filthy animal

JFrog priced its IPO at $44 per share, above its raised range of $39 to $41 per share and comically higher than its first price interval of $33 to $37 per share. Indeed, the company’s final IPO price was 33.3% higher than the lowend of its first proposed pricing range.

Though I doubt anyone expected the company to go for so little as $33 per share, JFrog’s pricing run shows strong demand even before it began to float.

#fundings-exits, #ipo, #jfrog, #snowflake, #startups, #tc, #the-exchange

0

Opendoor to go public by way of Chamath Palihapitiya SPAC

Today, Social Capital Hedosophia II, the blank-check company associated with investor Chamath Palihapitiya, announced that it will merge with Opendoor, taking the private real estate startup public in the process.

The transaction comes during a wave of market interest in special purpose acquisition companies, or SPACs, often called blank-check companies. They exist as publicly traded entities in search of a private company to combine with, taking the private entity public without the hassle of an IPO.

In this case, the SPAC Social Capital Hedosophia II is combining with Opendoor, a richly-valued private technology company that operates in the real-estate market.

“This is one of many milestones towards our mission and will help us accelerate the path towards building the digital one-stop-shop to move,” Eric Wu, co-founder and CEO of Opendoor said to TechCrunch in a statement. “I am grateful for the continued support from my teammates and shareholders and most thankful for the tens of thousands – and I hope soon to be hundreds of thousands – of families, couples and individuals that trust Opendoor with the largest financial decision of their life.”

Palihapitiya, and his press team did not immediately respond to requests for comment from TechCrunch over phone and e-mail.

Shares of Social Capital Hedosophia II, which trade under the ticker symbol IPOB, were up around 14% in pre-market trading this morning.

According to a notice associated with the transaction, Opendoor will have an enterprise value of $4.8 billion in the deal, including equity value of around $6.2 billion and around $1.5 billion in cash. Social Capital Hedosophia II will provide “up to” $414 million in cash as part of the deal, while a private investment in public equity transaction, or PIPE, will provide another $600 million.

Some $200 million of the $600 million PIPE, or a third, will be funded by investors in the SPAC, with Chamath Palihapitiya himself providing $100 million.

Palihapitiya is not subtle about his plans to use SPACs to pursue his ambitions to be the next Berkshire Hathaway. He famously brought Virgin Galactic to the public markets through a SPAC, which played a role in the $1.7 billion profit that Social Capital made in 2019.

If not acquiring a public through a SPAC, he’s also used personal capital to take majority stakes in businesses. When describing his appetite for acquisitions, he put it curtly to TechCrunch: “I like businesses that build non-obvious data links.”

The rest of the PIPE will be funded by another Palihapitiya group, some private entities like Access Industries, and what a release hyped as “top-tier institutional investors” including Blackrock and a pension plan.

A total of $1 billion in cash is expected to be provided in the transaction. Notably all the cash will flow to Opendoor itself, with shareholders in the company “rolling 100 percent of their equity into the combined company,” per a notice. Along with the transaction, Adam Bain, former Twitter COO and founder of 01 advisors, will join the board, CNBC reports.

Opendoor last raised $300 million at a $3.5 billion pre-money valuation in March of 2019. Of that, $1.3 billion was in equity with nearly $3 billion in debt financing. Investors in the company include General Atlantic, the SoftBank Vision Fund, NEA, Norwest Venture Partners, GV, GGV Capital, Access Technology Ventures, SV Angel, Fifth Wall Ventures, along with others.

#chamath-palihapitiya, #exits, #ipo, #opendoor, #real-estate, #social-capital, #spac, #startups, #tc

0

DCM has already made nearly $1 billion off its $26 million bet on Bill.com

David Chao, the cofounder of the cross-border venture firm DCM, speaks English, Japanese, and Mandarin. But he also knows how to talk to founders.

It’s worth a lot. Consider that DCM should see more than $1 billion from the $26.4 million it invested across 14 years in the cloud-based business-to-business payments company Bill.com, starting with its A round. Indeed, by the time Bill.com went public last December, when its shares priced at $22 apiece, DCM’s stake — which was 16% sailing into the IPO — was worth a not-so-small fortune.

Since then Wall Street’s lust for both digital payments and subscription-based revenue models has driven Bill.com’s shares to roughly $90 each. Little wonder that in recent weeks, DCM has sold roughly 70 percent of its stake for nearly $900 million. (It still owns 30 percent of its position.)

We talked with Chao earlier today about Bill.com, on whose board he sits and whose founder, René Lacerte, is someone Chao backed previously. We also talked about another very lucrative stake DCM holds right now, about DCM’s newest fund, and about how Chao navigates between the U.S. and China as relations between the two countries worsen. Our conversation has been edited lightly for length and clarity.

TC: I’m seeing you owned about 33% of Bill.com after the first round. How did that initial check come to pass? Had you invested before in Lacerte?

DC: That’s right. Renee started [an online payroll] company called PayCycle and we’d backed him and it sold to Intuit [in 2009] and Renee made good money and we made money. And when he wanted to start this next thing, he said, ‘Look, I want to do something that’s a bigger outcome. I don’t want to sell the company along the way. I just want this time to do a big public company.’

TC: Why did he sell PayCycle if that was his ambition?

DC: It was largely because when you’re a first-time CEO and entrepreneur and a large company offers you the chance to make millions and millions of dollars, you’re a bit more tempted to sell the company. And it was a good price. For where the company was, it was a decent price.

Bill.com was a little bit different. We had good offers before going public. We even had an offer right before we went public.  But Renee said, ‘No, this time, I want to go all the way.’ And he fulfilled that promise he’d made to himself. It’s a 14-year success story.

TC: You’ve sold most of your stake in recent weeks for $900 million; how does that outcome compare with other recent exits for DCM? 

DC: We actually have another recent one that’s phenomenal. We invested in a company called Kuaishou in China. It’s the largest competitor to Bytedance’s TikTok in China. We’ve invested $49.3 million altogether and now that stake is worth $3.8 billion. The company is still private held, but we actually cashed out around 15% of our holdings. and with just that sale alone we’ve already [seen 10 times] that $30 million.

TC: How do you think about selling off your holdings, particularly once a company has gone public?

DC: It’s really case by case. In general, once a company goes public, we probably spend somewhere between 18 months to three years [unwinding our position]. We had two big IPOs in Japan last year. One company [had] a $1 billion market cap; the other was a $2 billion company. There are some [cases] that are 12 months and there are some [where we own some shares] for four or five years.

TC: What types of businesses are these newly public companies in Japan?

DC: They’re both B2B. One is pretty much the Bill.com of Japan. The other makes contact management software

TC: Isn’t DCM also an investor in Blued, the LGBTQ dating app that went public in the U.S. in July?

DC: Yes, our stake wasn’t  very big,  but we were probably the first major VC to jump in because it was controversial.

TC: I also saw that you closed a new $880 million early stage fund this summer.

DC: Yes, that’s right. It was largely driven by the fact that many of our funds have done well. We’re now on fund nine, but our fund seven is on paper today 9x, and even the fund that Bill.com is in, fund four, is now more than 3x. So is fund five. So we’re in a good spot.

TC: As a cross-border fund, what does the growing tension between the U.S and China mean for your team and how it operates?

DC: It’s not a huge impact. If we were currently investing in semiconductor companies, for example, I think it would be a pretty rough period, because [the U.S.] restricts all the money coming from any foreign sources. At least, you’d be under strong scrutiny. And if we invested in a semiconductor company in China, you might not be able to go public in the U.S.

But the kinds of deals that we do, which are largely B2B and B2C — more on the software and services side — they aren’t as impacted. I’d say 90% of our deals in China focus on the domestic market. And so it doesn’t really impact us as much.

I think some of the Western institutions putting money into the Chinese market — that might be decreasing, or at least they’re a little bit more on the sidelines, trying to figure out whether they should be continuing to invest in China. And maybe for Chinese companies, less companies will go public in the U.S., etcetera. But some of these companies can go public in Hong Kong.

TC: How you feel about U.S. administration’s policies?  Do you understand them? Are you frustrated by them?

DC: I think it requires patience, because what [is announced and] goes on the news, versus what is really implemented and how it truly affects the industry, there’s a huge gap.

#bill-com, #china, #cross-border, #david-chao, #dcm, #exit, #ipo, #kuaishou, #recent-funding, #startups, #tc, #venture-capital

0

Snowflake’s IPO could value it as high as $24B, Salesforce and Berkshire to invest

On the heels of new filings from both Sumo Logic and JFrog, Snowflake, a venture-backed unicorn looking to go public on the strength of its data-focused cloud service, set an initial price range for its IPO.

The $75 to $85 per-share IPO price target values the firm at between $20.9 billion and $23.7 billion, huge sums for the private company. Its IPO could raise more than $2.7 billion for the startup.

Snowflake was last valued at around $12.5 billion when it raised a Series G worth $479 million earlier this year.

Built into those valuation projections are two private placements of stock in Snowflake, $250 million apiece from both Salesforce, the well-known CRM player, and Berkshire Hathaway, better known for its investment returns in the 80s and 90s, Cherry Coke, and Charlie Munger’s humor.

Jokes aside, the inclusion of Salesforce in the IPO is notable, but not a shock, but Berkshire taking part in the public market debut of Snowflake, a company with historic losses that are nigh-tyrannical, is.

Here’s the S-1/A text on the setup:

Immediately subsequent to the closing of this offering, and subject to certain conditions of closing as described in the section titled “Concurrent Private Placements,” each of Salesforce Ventures LLC and Berkshire Hathaway Inc. will purchase $250 million of our Class A common stock from us in a private placement at a price per share equal to the initial public offering price. Based on an assumed initial public offering price of $80.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, each of Salesforce Ventures LLC and Berkshire Hathaway Inc. would purchase 3,125,000 shares of our Class A common stock. […]

In addition, Berkshire Hathaway Inc. has agreed to purchase 4,042,043 shares of our Class A common stock from one of our stockholders in a secondary transaction at a price per share equal to the initial public offering price that will close immediately subsequent to the closing of this offering.

That second paragraph makes it clear that Berkshire is actually looking to snooker even more shares into its corner, for a total purchase price that might scale to more than $500 million.

What is so attractive about Snowflake? TechCrunch wrote a bit about that when the company filed, but the short gist is that it has epic growth, improving gross margins, and dramatically curtailed losses. The package adds up to one valuable IPO, and something durable enough to tempt Buffett.

Regardless, what could be the most highly-valued IPO of the year — Airbnb depending — here in America just got a lot more exciting.

#fundings-exits, #ipo, #salesforce, #snowflake-computing, #startups, #storage, #tc

0

An IPO expert bats back at the narrative that traditional IPOs are for “morons”

Lise Buyer has been advising startups on how to go public for the last 13 years through her consultancy, Class V Group. She built the business after working as an investment banker, and then as a director at Google, where she helped architect the company’s famously atypical 2004 IPO.

It’s perhaps because Google’s offering was so misunderstood that Buyer has come to think more highly of traditional IPOs over the years, likening herself to a golf caddie who has “played the course a whole lot of times” and can tell a management team what will happen in different circumstances.

Indeed, while Buyer says she is “paid the same regardless” of whether a team chooses a regular IPO, an auction model, a SPAC or a direct listing, she doesn’t believe the world needs direct listings or SPACs nearly as much as the investors forming them have made it seem. Rather, she thinks the traditional IPO process has been unfairly maligned in recent years, helped along by an outraged Bill Gurley.

(If you somehow missed it, the famed VC began pushing back very publicly on IPOs last year, calling them a “bad joke” because of the pre-IPO stakes handed by banks to favored institutional investors, who sometimes reap tens of millions of dollars from a company’s first day on the public market — money that would otherwise go to the issuers themselves. Gurley even hosted an invitation-only event in San Francisco last fall called “Direct Listings: A Simpler and Superior Alternative to the IPO.” )

Certainly, it irks Buyer that companies that choose the traditional route have been made out more recently to be “morons” that are taken advantage of by the investment banks that underwrite their deals.

“It’s so much more nuanced than that,” she says. “It’s a little pathetic that the conversation has evolved the way it has.”

What is it these discussions that do not ring true to her? Primarily, she says, these first-day “pops” are sanctioned by management teams. “It’s not up to Bill Gurley to choose the right price,” she says. It “isn’t just bankers [who] come in and say, ‘We think you’re worth $40 [per share] you’re going to sell at $20 [per share]. Have have it.” It is “up to the management team, which generally has to think about much more than just day one. Some want a pop, some don’t. It’s their call.”

Buyer points to the videoconferencing company Zoom, whose shares soared 72% on the day of its April IPO last year (and have kept surging through this pandemic). CEO Eric Yuan and the executive suite he’d built “knew the stock was going to jump” and agreed to the stock’s pricing anyway, according to Buyer.  They wanted to set realistic, achievable expectations, rather than begin racing to meet inflated ones.

Management “doesn’t want to be on the hook just because the market is temporarily willing to pay something astronomical — by in in many cases, people who really don’t understand the fundamentals,” she says. Otherwise, she continues, “when three months later the company comes out with a forecast that doesn’t match [those] crazy expectations, management has to live with that for very long time.”

Similarly, Buyer highlights the software company Bill.com, which saw its shares jump 60% on the day of its IPO this past December.  While there might have been hand-wringing over money left on the table, she thinks it was the right move and one for which the company was quickly rewarded.

“With Bill.com, management knew that demand dramatically outstripped supply and they could have priced that deal significantly higher,” she says. They didn’t raise their shares pricing because they didn’t want to “message anything unusual about Wall Street,” she continues, but also the company already had in mind its secondary stock sale. Indeed, in June, with Bill.com’s business accelerating and its shares ticking upward, management sold a much larger percentage of the company — at a much higher price.

One could argue the company benefited unexpectedly from the pandemic, as have many software businesses. Buyer sees it differently, though. “Because they’d previously established a good rapport and trust with investors with that lower priced IPO, such that they were able to raise so much more money and take less dilution four months later, who’s to say they made a mistake [on opening day], giving the public pension funds a little bit of a jump?”

Whether one of the most highly anticipated IPOs of the year — Airbnb — chooses a traditional path for some of these same reasons should become apparent soon enough. It was reported by Bloomberg just today that the company rebuffed a takeover by the SPAC of hedge fund billionaire Bill Ackman in favor of a traditional IPO.

In the meantime, the accommodations giant is far from alone in having to decide right now on the best way forward for its business. SPACs in particular right now are capturing the imagination of founders and investors alike. Says Buyer of her own clients, “There are folks who were not considering a SPAC six weeks ago who are getting tapped on the shoulder now and are trying to evaluate the specific terms — and the specific trade-offs — of these potential merger-partner-slash acquirers.”

As for direct listings — which have been lauded as a less expensive way to go public and, as of an SEC order last week, will allow companies to raise money as they are making that shift — Buyer isn’t exactly on the fence when it comes to these, either.

“With a direct listing that includes primary raise, it will be interesting to see if the company engages underwriters as opposed to advisors, and therefore if the expenses are lower – or perhaps even higher – than [with] an IPO. It could be either, we just don’t know yet.

“Again,” Buyer adds, “I have no horse in the hunt. I just see this as a solution desperately in search of an actual, as opposed to drummed-up, problem.”

#airbnb, #bill-com, #class-v-group, #direct-listings, #ipo, #lise-buyer, #spac, #tc, #zoom

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What will a Wish IPO look like? Seems we’ll find out sooner than later

Wish, the San Francisco-based, 750-person e-commerce app that sells deeply discounted goods that you definitely don’t need but might buy anyway when priced so low — think pool floaties, guinea pig harnesses, Apple Watch knockoffs — said yesterday that it has submitted a draft registration to the SEC for an IPO.

Because it filed confidentially, we can’t get a look at its financials just yet; we only know that its investors, who’ve provided the company with $1.6 billion across the years, think the company was worth $11.2 billion as of last summer, when it closed its most recent financing (a $300 million Series H round). Meanwhile, Wish itself says it has more than 70 million active users across more than 100 countries and 40 languages.

The big question, of course, is whether the now 10-year-old company can maintain or even accelerate its momentum. It’s not a no-brainer. On the one hand, it’s a victim of the increasingly chilly relations between the U.S. and China, from where the bulk of Wish’s goods come. Then again, Wish has been beefing up its business elsewhere in the world partly as a result of the countries’ shifting stance toward one another. For example, it told Recode last year that it’s increasingly looking to Latin American markets — Mexico, Argentina, Chile — for growth, and that it’s planning a bigger push into Africa, where it’s already available in South Africa, Ghana, and Nigeria, among other countries.

But let’s back up a minute first. If you don’t know, Wish was cofounded by CEO Peter Szulscewski, a computer scientist by training, who previously spent 6.5 years at Google before cofounding a company call ContextLogic, from which Wish evolved. The idea was to build a next-generation, mobile ad network to compete with Google’s AdSense network, but Szulscewski and his cofounder, Danny Zhang, realized they were “pretty bad at business development,” as he once said at an event hosted by this editor, so eventually they pivoted to Wish.

Wish began as an app that asked people to create wish lists, then the company approached merchants, letting them know a certain number of customers wanted, say, a certain type of table. It was smart to recognize that showing the right recommendations to shoppers would become critical to its users, though it didn’t necessarily foresee the types of merchants it would ultimately work with, most of them in China, Indonesia and elsewhere in East Asia and Southeast Asia who are focused on value-conscious customers and who, at the time, didn’t have other ways to sell to or communicate with customers elsewhere in the world (so didn’t mind paying Wish a 15% take to handle this for them).

Wish also quickly focused around lightweight items that it could ship cheaply from China, if slowly, using something called ePacket. It’s a shipping option agreement that established nine years ago with the cooperation of the US Postal Service and Hong Kong Post (and later made available to 40 countries altogether) that enables products coming from China and Hong Kong to be sent cheaply as long as they meet certain criteria — they don’t weigh too much, they aren’t worth too much, they adhere to certain minimum and maximums regarding their size, and so forth.

The mix has proved powerful for Wish, despite growing competition from China-based outfits like AliExpress that offer many of the same goods to the same customers around the world. (Wish has also competed, always, with Walmart and Amazon.)

The company has also soldiered on despite apparent struggles to keep customers coming over time, too. Because it doesn’t sell essential items but rather a grab bag of different items, people tend to cycle out of the app after a few months of their first visit, as The Information once reported.

A bigger issue now is that, as of two months ago, a new USPS pricing structure went into effect that raises rates on international shipments. It also requires foreign recipient countries to ratify new rates under ePacket (whose recipient countries, by the way, have been downsized from 40 to 12). That means that companies like Wish either pay more to ship their goods — forcing its vendors to charge more — or they move to commercial networks.

Of course, a third option — and one that may position Wish well for the future — would be for Wish to invest in more local warehousing in the U.S, Europe and others of its growing markets, which it told Recode that it is doing, along with seeking out more local vendors near its biggest markets.

Given shifts in the way that commercial real estate is being used — with retail-to-industrial property conversions accelerating, driven by the growth of e-commerce  — it’s probably as good a time as any for Wish to be making these moves. Whether they are enough to sustain and grow the company is something that only time will tell.

Again, we’ll collectively know much more when we can get a look at that filing. It should make for interesting reading.

Wish’s private investors include General Atlantic, GGV Capital, Founders Fund, Formation 8, Temasek Holdings and DST Global, among others.

#dst-global, #ecommerce, #formation-8, #founders-fund, #general-atlantic, #ggv, #ipo, #startups, #tc, #temasek, #venture-capital, #wish

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The good and the less-good from Sumo Logic’s updated IPO filing

Sumo Logic filed an S-1/A this week, updating the world to its latest financial results ahead of its IPO pricing.

Today, just over a week after we first looked at Sumo Logic’s recent financial performance when it filed its first S-1 document, let’s explore what’s new in the document and what the numbers tell us.

For those of you in a hurry: Sumo Logic’s quarter ending July 31, 2020, has lots to like: growth, slimming operating costs, and its smallest losses in some time. But it also has some elements to it that are less inspiring, like slowing growth. How investors sort through the different signals is going to prove fascinating.

There is a lot of IPO news coming, so let’s get our head around Sumo Logic’s new results and its strengths and weaknesses before any more of it drops.

New results

The key difference between Sumo Logic’s initial S-1 and its new, S-1/A filing is the inclusion of a new quarter’s results, namely the quarter ending July 31, 2020. With this new reporting period we get to see how the company did during COVID a bit more clearly.

Here’s the results set for the quarter in simple form:

#computing, #information-technology, #ipo, #logic, #network-management, #sumo, #sumo-logic, #system-administration, #tc

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SaaS stocks survive earnings, keeping the market warm for software startups, exits

We’re on the other end of nearly every single SaaS earnings report that you can name, with the exception of Slack, and shares of software companies are holding onto their year’s gains. Which means SaaS and cloud companies have made it through a somewhat steep gauntlet largely unscathed.

There were exceptions, of course, but when we consider public software and cloud companies, the tale of the tape is somewhat clear. And it appears to indicate that today’s huge revenue multiples will stick around for a while yet.

 


The Exchange explores startups, markets and money. You can read it every morning on Extra Crunch, or get The Exchange newsletter every Saturday.


This is great news for startups, given that delivering software as a managed service (SaaS) has become the most popular business model for upstart tech companies. If the set of public SaaS companies are richly valued, it reflects well on their private peers. Warm public markets can help with exit valuations and provide encouragement to private investors to keep investing in SaaS startups.

The most recent earnings reports tell a somewhat simple story: Generally strong growth, and generally good forecasts. A few weeks back, Appian beat on revenue growth and profitability and guided a bit above market expectations. Given the nearly 50% run company’s stock that it has enjoyed in 2020, the results were welcome.

#as-a-service, #cloud, #cloud-computing, #cloud-infrastructure, #earnings, #fundings-exits, #ipo, #jamin-ball, #saas, #software-as-a-service, #startups, #tc, #the-exchange

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Everyone filed to go public Monday

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast (now on Twitter!), where we unpack the numbers behind the headlines.

We’re back out of sequence, because literally every company you can name (well, almost) dropped an S-1 yesterday so we had to sit down and parse them out a bit. That so many filings dropped during the same two days when we had Y Combinator’s two-day Demo Day at the same time meant that we were all a bit punchdrunk, but we rallied.

Natasha and Danny and Chris and myself all piled back onto the mics to dig through all the numbers. Here’s a rundown of the companies we went through:

  • Palantir, which filed its formal S-1 during our recording session. Danny covered most of the news last Friday, but the public doc is now live, so happy sleuthing.
  • Unity’s huge IPO that shows how big gaming is. Natasha connected it to the broader Apple-Epic dustup, and we all reviled in its growth results.
  • Snowflake had Danny so excited he was conjuring scripted segues, and we were all impressed at its historical growth. Sure, it lost a lot of money last year, but, hey, Snowflake has dialed that back as well.
  • And then there was Asana, a company I’ve covered quite a lot over the years. Our general take is that the company’s growth has been good, if it is losing more money than we anticipated. Still, Asana could set a neat new precedent of raising debt ahead of a direct listing. This is one to watch.
  • And then we spent a little time on JFrog and Sumo Logic (more here), because we are nothing if not completionists.

Got all of that? It was a lot of facts to get through, but we did our best and we hope this helps. More tomorrow as we talk Y Combinator with a special guest host. Chat tomorrow!

Equity drops every Monday at 7:00 a.m. PT and Friday at 6:00 a.m. PT, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts.

#asana, #direct-listing, #equity, #ipo, #jfrog, #palantir, #podcasts, #s-1, #snowflake-computing, #sumo-logic, #unity-technologies, #venture-capital

0

Sutter Hill strikes ice-cold, $2.5B pre-market return with Snowflake’s IPO filing

Today is the day for huge VC returns.

We talked a bit about Sequoia’s coming huge win with the IPO of game engine Unity this morning. Now, Sequoia might actually have the second largest return among companies filing to go public with the SEC today.

Snowflake filed its S-1 this afternoon, and it looks like Sutter Hill is going to make bank. The long-time VC firm, which invests heavily in the enterprise space and generally keeps a lower media profile, is the big winner across the board here, coming out with an aggregate 20.3% stake in the data management platform, which was last privately valued at $12.4 billion earlier this year. At its last valuation, Sutter Hill’s full stake is worth $2.5 billion. My colleagues Ron Miller and Alex Wilhelm looked a bit of the financials of the IPO filing.

Sutter Hill has been intimately connected to Snowflake’s early buildout and success, providing a $5 million Series A funding back in 2012, the year of the company’s founding according to Crunchbase.

Now, there are some caveats on that number. Sutter Hill Ventures (aka “the fund”) owns roughly 55% of the firm’s total stake, with the balance owned by other entities owned by the firm’s management committee members. Michael Speiser, the firm’s partner who sits on Snowflake’s board, owns slightly more than 10% of Sutter Hill’s stake directly himself according to the SEC filing.

In addition to Sutter Hill, Sequoia also got a large slice of the data computing company: its growth fund is listed as having an 8.4% stake in the coming IPO. That makes for two Sequoia Growth IPOs today — a nice way to start the week this Monday afternoon.

Finally, Altimeter Capital, who did the Series C owns 14.8%, ICONIQ owns 13.8%, and Redpoint, who did the Series B, owns 9.0%.

To see the breakdown in returns, let’s start by taking a look at the company’s share price and carrying values for each of its rounds of capital:

On top of that, what’s interesting is that Snowflake broke down the share purchases by firm for the last four rounds (D through G-1) the company fundraised:

That level of detail actually allows us to grossly compare the multiples on invested capital for these firms.

Sutter Hill, despite owning large sections of the company early on, continued to buy up shares all the way through the Series G, investing an additional $140 million in the later-stage rounds of the company. Adding in the entirety of its $5 million Series A round and a bit from the Series B assuming pro rata, the firm is looking on the order of a 16x return (assuming the IPO price is at least as good as the last round price).

Outside Sutter Hill, Redpoint has the best multiple return profile, given that it only invested $60 million in these later-stage rounds while still maintaining a 9.0% ownership stake. Both Sutter Hill and Redpoint purchased roughly 20% of their overall stakes in these later-stage rounds. Doing some roughly calculating, Redpoint is looking at a return of about 12-13x.

Sequoia’s multiple on investment is capped a bit given that it only invested in the most recent funding rounds. Its 8.4% stake was purchased for nearly $272 million, all of which came in these late-stage rounds. At Snowflake’s last round valuation of $12.4 billion, Sequoia’s stake is valued at $1.04 billion — a return of slightly less than 4x. That’s very good for mezzanine capital, but nothing like the multiple that Sutter Hill or Redpoint got for investing early.

Doing the same back-of-the-envelope math and Altimeter is looking at a better than 6x return, and ICONIQ got 7x. As before, if the stock zooms up, those returns will look all the better (and of course, if the stock crashes, well…)

One final note: The pattern for these last four funding rounds is unusual for venture capital: Snowflake appears to have “spread the love around,” having multiple firms build up stakes in the startup over several rounds rather than having one definitive lead.

#altimeter-capital, #enterprise, #finance, #fundings-exits, #iconiq-capital, #ipo, #redpoint-ventures, #sequoia-capital, #snowflake, #sutter-hill-ventures

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Palantir targeting 3 class voting structure according to leaked S-1, giving founders 49.999999% control in perpetuity

We are continuing to make progress through Palantir’s leaked S-1 filing, which TechCrunch attained a copy of recently. We have covered the company’s financials this morning, and this afternoon we talked about the company’s customer concentration. Now I want to talk a bit about its ownership and stock valuation.

First, let’s talk about ownership. Having read through our leaked copy of the S-1 the past few hours, I can only summarize the situation as: wow, this is a really complicated ownership structure.

At the highest level, the founders of the company — Peter Thiel, Alex Karp, and Stephen Cohen — own 30.2% of the stock of the company as of the end of July of this year. Thiel controls much more than that though through his myriad investments made through Founders Fund, Mithril Capital, Clarium Capital, and quite literally dozens of other investment management funds listed in the filing.

In terms of overall corporate voting power today, Thiel has 28.4% at his disposal, Karp 8.9%, and Cohen 3.1% according to the company’s calculation.

This is where things get interesting. As is typical with most modern tech IPOs, the founders of the business are looking to create multiple voting classes of stock in order to protect their voting power even while their total ownership of the company diminishes. It is pretty common today to see a two-class structure where the plebian stock class for retail investors offers one vote, and a special class is offered to founders that has 10 votes. This allows a founder with 5% of the company through these special shares to control a majority of a company’s voting authority.

Palantir wants to push the envelope further though with a three-class structure that would prioritize Thiel, Karp, and Cohen above all others. In Palantir’s model, there would be a Class A share with 1 vote, a Class B share with 10 votes, and a special “Class F” share with variable votes.

Class F shares would share 49.999999% (six 9s in the decimal – I counted twice) of the voting power of Palantir at all times, regardless of the underlying ownership of shares. Important to note that that is not a “majority” and thus they will not have literally a controlling stake in the public company.

In fact, Palantir has spent much of the last few months building the case for why it needs this special tripartite system of corporate governance. It hired several new members to its board of directors including Alexandra Schiff, Spencer Rascoff, and Alexander Moore earlier this year in order to build a “Special Governance Committee” that would make these changes to the company’s Delaware charter. Given that the founders were practically the only directors of the company outside of Adam Ross, it was hard to give themselves control by their own vote.

Palantir’s leaked S-1 has dozens of pages of the timeline and discussions that resulted, and why the committee ended up deciding to go with what can only be described as Byzantine method of voting.

That resolution still has to be supported by shareholders and of course, Wall Street. Much in the way that Palantir is going to have a lockup on its employees in a novel variant of the direct listing model, it seems it wants to pioneer a new model of founder ownership as well.

Stock valuation

Now, let’s switch over to a little chart showing Palantir’s preferred stock prices since inception and the current carrying value of those shares:

Immediately, we can see here that Palantir starting in 2013 really came into its own. The company, which was founded in 2003, showed little sign of deep outside investor interest for much of its early history. Its preferred stock share price grew linearly and slowly from its Series C in 2008 to its Series H in 2013.

Then, something interesting happens. There is almost immediately a radically increasing growth in the value of the stock with new issues in the Series H through K showing quick growth in value.

Recent stock sales have been common shares, and not preferred.

According to the company’s leaked S-1 we attained, only three shareholders passed the 5% threshold required for SEC disclosure. Founders Fund is listed as owning 12.7% of the company’s Class B shares, Japanese insurance giant SOMPO Holdings is listed as owning 20.3% of the company’s Class A shares, and investment bank UBS is at 5.7% of Class A shares. The company said that it had 529 million Class A shares and 1.09 billion Class B shares outstanding as of the end of June this year.

#direct-listing, #fundings-exits, #ipo, #palantir-technologies

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Leaked Palantir S-1 shows company has 125 customers after 17 years

We are still walking through Palantir’s leaked S-1, which as of the time of this writing, hasn’t yet been filed and published by the SEC. This morning, we discussed some of Palantir’s financials, including its revenues, margins, and net losses.

The company’s customer base — and it’s high-degree of concentration — is a recurring theme in the leaked S-1 filing that TechCrunch has been reading all day.

Palantir has precisely 125 customers as of the end of the first half of 2020. Palantir notes that customers from different parts of the same government department or company are considered separately (Palantir’s example is that the CDC and NIH are both part of the Department of Health and Human Services, but would be billed separately and are thus considered separate customers for the purpose of its calculation).

As of the end of 2019, the average revenue per customer for Palantir was $5.6 million. In comparison to many other SaaS stocks, that is a gargantuan number, but mostly driven by the fact that Palantir doesn’t have the soft onboarding strategies of products like Slack or Amazon Web Services, where small organizations can start using a product even though they aren’t massive moneymakers.

Palantir notes that over the past decade, average revenue per customer has increased 30%.

What’s perhaps more worrying though is the sheer revenue concentration of Palantir. The company’s top three customers — which aren’t disclosed — together represented 28% of the company’s revenue for 2019. Its top twenty customers represented 67% of total revenues, with each one of those customers averaging $24.8 million in revenue.

As we reported this morning, 53.5% of the company’s revenue is derived from government contracts, with the balance from commercial clients.

Palantir’s filing says that 40% of revenue is generated in the U.S., with 60% generated internationally. The company says that it has clients in 150 countries (of course, reconciling 150 countries with 125 customers is left as a math exercise for the reader).

Palantir sees great growth opportunities in both its government and commercial businesses. On the government side, the company said in its note to shareholders that:

The systemic failures of government institutions to provide for the public — fractured healthcare systems, erosions of data privacy, strained criminal justice systems, and outmoded ways of fighting wars — will continue to require both the public and private sectors to transform themselves. We believe that the underperformance and loss of legitimacy of many of these institutions will only increase the speed with which they are required to change.

Palantir argues that its total addressable market is $119 billion.

#fundings-exits, #ipo, #palantir

0

Leaked S-1 screenshots show Palantir losing $579M in 2019

Palantir filed an S-1 confidentially to the SEC in early July, but we have so far been waiting for the final document to be published for weeks now with nary a murmur. Now, thanks to some leaked screenshots to TechCrunch from a Palantir shareholder, we might have some top-line numbers.

In screenshots of a draft S-1 statement dated yesterday (August 20), Palantir is listed as generating revenues of roughly $742 million in 2019 (Palantir’s fiscal year is a calendar year). That revenue was up from $595 million in 2018, a gain of roughly 25%. That’s growth, although not particularly great given some of the massive SaaS growth we have seen in recent IPOs like Datadog.

The company’s revenue is a disappointment, after the company was reported to have been on the cusp of $1 billion in revenue for years. Private companies, of course, do not normally disclose their financial results, but the company’s size falls far short of expectations, leaks and other reports.

The real shocker though in these numbers is when you head to the bottom of the company’s revenue statement. In the screenshots of the company’s financials, Palantir lists a net loss of roughly $580 million for 2019, which is almost identical to its loss in 2018. The company listed a net loss percentage of 97% for 2018, improving to a loss of 78% for last year.

The company’s $580 million loss during the period shows at once why the company has needed to raise billions to-date, and how far it has yet to go until it can self-sustain.

Gross profit for 2019 was roughly $500 million, about 16% higher than in 2018. The company’s big expense is around sales and marketing, which was roughly $450 million for both years and represented 61% of revenue in 2019.

The company’s revenue breakdown is particularly interesting because it finally answers the question about how much it relies on government contracts and if it’s trying to diversify. Palantir is widely known for its government contracting, but in recent years, the company has tried to expand its data products into the private sector.

According to the leaked screenshots shown to TechCrunch, Palantir disclosed its revenue breakdown for the first six months of 2019 and the first six months of 2020. For the first half of this year, Palantir generated $258 million in government-derived revenue (53.5%), compared to $224 million in commercial revenue (46.5%). In 2019, government revenue was $146 million (45%) and commercial revenue was $177 million (55%).

That’s actually quite out-of-sync with some of the public comments the company has made about reducing reliance on government contracts for its revenues. The company’s government revenues are higher today both in absolute totals and relatively speaking, begging the question whether its products are competitive in the enterprise space outside of its traditional bastion in government services.

While there is no firm date for the Palantir S-1 that we know of, given the financials are apparently floating around out there, expect it to come sooner rather than later.

We have reached out to a Palantir PR contact for comment, who declined to comment.

#finance, #ipo, #palantir, #s-1

0

Unicorn rodeo: 6 high-flying startups that are set to go public

This week Airbnb announced that it has privately filed to go public, putting the famous unicorn on a path to a quick IPO if it wants. The recent move matches reporting indicating that the home-sharing upstart could yet go public in 2020 despite the collapse of the travel industry.


The Exchange explores startups, markets and money. You can read it every morning on Extra Crunch, or get The Exchange newsletter every Saturday.


But Airbnb is not the only venture-backed company of note that is looking to go public at the moment, or that has privately filed to go public. Indeed, so many unicorns are looking to get out the door in the next quarter or two, I’ve started to lose track of their status.

So, this morning, let’s gather a digest of each unicorn that has filed privately, is expected to debut shortly, or may go public in the next year or two. We’re talking Airbnb, Asana, ThredUp, Qualtrics, Palantir and Ant first, and then more loosely about the huge cadre of companies that could go public before the end of 2022, like UIPath, Intercom, and, sure, Robinhood as well.

Today is Friday, which means we can afford to take a minute, center ourselves and make sure that we’re ready for the news that next week will inevitably bring. So let’s have a little fun.

Upcoming unicorn IPOs

In order to keep this digestible, we’ll proceed in bulleted-list format. Starting with the biggest news, let’s remind ourselves of Airbnb’s decline and recovery, starting with revenue numbers:

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No parties allowed at the Airbnb IPO

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast (now on Twitter!), where we unpack the numbers behind the headlines.

What happens when the entire podcast crew is a bit tired from, you know, everything, and does its very best? This episode, apparently. A big thanks to Chris Gates for helping us trim the fat and make something good for you.

Before we get into the topics of the week, don’t forget that Equity is not back on YouTube most weeks, so if you wanted to see us do the talking with some fun extra from the production team, you can do so here. More to come once I get my new external camera to work.

That done, here’s what Natasha and Danny and I got into this week:

Whew! We’re doing a lot over at TechCrunch.com, so, stay tuned and know that if we were a bit frazzled this week it’s because we’re working our backends off to bring you neat things. You will dig ’em.

Ok, chat Monday, a show that we’re already planning. Stay cool!

Equity drops every Monday at 7:00 a.m. PT and Friday at 6:00 a.m. PT, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts.

#airbnb, #apple, #asana, #carrot-fertility, #chamath-palihapitiya, #direct-listing, #equity, #ipo, #liquidity, #podcasts, #spac, #tc, #tesla, #venture-capital, #welcome

0

Duck Creek seeks $3B valuation for its software IPO

American software company Duck Creek has upped the stakes in its impending IPO, raising its price target from a range of $19 to $21 per share to $23 to $25 per share.

The bump comes as software and cloud stocks have fallen more than 10% from recent highs, putting them in technical correction territory.


The Exchange explores startups, markets and money. You can read it every morning on Extra Crunch, or get The Exchange newsletter every Saturday.


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.

#bigcommerce, #boston, #duck-creek, #extra-crunch, #finance, #fundings-exits, #initial-public-offering, #ipo, #market-analysis, #ncino, #saas, #startups, #tc, #the-exchange

0

Airbnb could file to go public this month

According to the Wall Street Journal, Airbnb could file confidentially to go public as early as this month. The same report states that Airbnb could follow that filing with an IPO before year’s end. Morgan Stanley and Goldman are helping the former startup with its IPO process, the Journal writes.

The news that Airbnb’s IPO could be back on caps a tumultuous year for the home-sharing unicorn, which promised in 2019 to go public in 2020. The company was widely tipped to be considering a direct listing before COVID-19 arrived, crashing the global travel market, and with it, Airbnb’s financial health.

Airbnb declined to comment on its IPO plans.

As travelers stayed home, the company was forced to sharply cut staff, and take on billions in capital at prices that compared to its late 2019-momentum looked rather expensive.

But since those blows, Airbnb has began to make noise about positive progress regarding its platform usage, and, implicitly, its financial performance.

In June Airbnb said that between “May 17 to June 6, 2020, there were more nights booked for travel to Airbnb listings in the US. than during the same time period in 2019” and that “globally, over the most recent weekend (June 5-7), we saw year-over-year growth in gross booking value” for “the first time since February.”

And in July, the company that said that its users had “booked more than 1 million nights’ worth of future stays at Airbnb listings” globally in a single day, the first time since March 3rd that that had happened.

Precisely how far Airbnb has financially clawed its way back is not clear. But the company’s cost basis in the wake of its layoffs could lower the revenue base it needs to recover to reach something akin to profitability, a traditional IPO benchmark though one that has lost luster in recent years.

And with local travel taking off — slowly-improving airline occupancy rates are, therefore, not indicative of Airbnb’s performance or health — the company could have retooled its business in the wake of COVID to something that can still put up attractive revenues at strong margins.

Needless to say I am hype to read the Airbnb S-1, so the sooner it drops the happier I’ll be. Getting an in-depth look at what happened to the unicorn during COVID-19 is going to be fascinating.

Airbnb joins DoorDash, Coinbase, Palantir, and others on our IPO shortlist. More as we have it.

#airbnb, #fundings-exits, #ipo, #startups

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Go public now while software valuations make no sense

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.

Let me explain.

Over the past few weeks, TechCrunch has tracked the filing, first pricing, rejiggered pricing range, and, today, the first day of trading for BigCommerce, a Texas-based e-commerce company. You can think of it as a comp with Shopify to a degree.

In the wake of the Canadian phenom’s blockbuster earnings report, BigCommerce boosted its IPO range. Yesterday the company did itself one better, pricing $1 per share above that raised range, selling 9,019,565 shares at $24 per share, of which 6,850,000 came from BigCommerce itself.

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.

#bigcommerce, #ecommerce, #extra-crunch, #fundings-exits, #initial-public-offering, #ipo, #market-analysis, #ncino, #shopify, #startups, #tc, #web-applications

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Why aren’t Rackspace and BigCommerce worth more?

This week has brought with it two tasty pieces of IPO news — Rackspace’s return to the public markets and BigCommerce’s debut will be far more interesting now that we know what a first-draft valuation for each looks like.

But amidst the numbers is a question worth answering: Why aren’t cloud-focused Rackspace and e-commerce-powering BigCommerce worth more?

Using a basic share count and the top end of their initial ranges, Rackspace is targeting a roughly $4.8 billion valuation, and BigCommerce a $1.3 billion price tag. Given that Rackspace had $652.7 million in Q1 2020 revenue and BigCommerce reaped $33.2 million in the same period, we have a puzzle on our hands.

Let me explain. At its IPO price, Rackspace is worth around 2x its current revenue run rate. For a company we associate with the cloud, that feels cheap at first glance. BigCommerce is targeting a valuation of around a little under 10x its current annual run rate, which feels light compared to its competitor Shopify’s current price/sales ratio of of 66.4x (per YCharts data).

We did some maths to hammer away at what’s going on in each case. The mystery boils down to somewhat mundane margin and growth considerations. Let’s dive into the data, figure out what’s going on and ask ourselves if these companies aren’t heading for a second, higher IPO price range before they formally price and begin trading.

Margins and growth

Let’s unpack Rackspace’s IPO pricing first and BigCommerce’s own set of numbers second.

Rackspace

While Rackspace has a public cloud component, its core business is service-driven, so it isn’t a major cloud platform that competes with Microsoft’s Azure, Google’s GCP or Amazon’s AWS.  This isn’t a diss, mind, but a point of categorization.

The company has three reporting segments:

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Go SPAC yourself

Hello everyone, it’s a busy week with TechCrunch Early Stage underway and a slew of tech earnings to parse through. But that didn’t stop the Equity crew from sitting down to chat about the recent wave of SPAC commentary

Danny and I wanted to talk about what a SPAC is — the acronym stands for special purpose acquisition company — and why everyone seems to be chatting them up.

Why do you care? Here’s some context, in simple bullet-point format:

  • Yesterday, after raising its IPO price range, Jamf priced at $26 per share, selling more shares than it had previously anticipated.
  • Today it opened trading around $48, and is currently worth $40.18 per share, far above its IPO price.
  • Recent first-day gains, like Jamf’s own, have peeved elements of the venture classes who think that the gap between an IPO price and where a company first trades is money that Wall Street bankers, and the IPO process itself, have stolen.

Enter SPACs, which could offer a way for unicorns and other venture-backed companies to go public through a different pricing mechanism. If that alternative method of pricing the company would be better is not clear, but we tried to talk it through.

Equity is back Friday morning, of course. And please bear in mind that when I referred to “Robinhood dipshits,” I was talking about all retail investors as a cohort, not merely the folks at any one particular trading platform. Thanks to the in-market prestige of Robinhood, however, I did use it as short-hand for retail investors more broadly.

Oh, and follow the show on Twitter.

Equity drops every Monday at 7:00 a.m. PT and Friday at 6:00 a.m. PT, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts.

#equity-podcast, #ipo, #robinhood, #spac, #tc

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What you need to know before selling your company’s stock

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.

#advisor, #column, #corporate-finance, #entrepreneurship, #exit, #extra-crunch, #funding, #fundings-exits, #fundraising, #growth-and-monetization, #initial-public-offering, #ipo, #startups, #u-s-securities-and-exchange-commission

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Is your net worth too closely tied to your company’s success?

Now that I’ve offered an overview to help you think through where concentrated stock sits in your overall plan, let’s take a closer look at why selling can be challenging for some.

In the following section, I reveal the facts of the concentrated stock “get rich” myths that reside in the minds of many first-time concentrated stock owners, and I show why it is prudent to consider greater diversification.

Keep reading to learn more about the benefits of diversification, discover how much company stock is likely too much to hold, and the options you have when it comes to diversifying strategically.

Dangers of concentration

There are several hard facts to keep in mind in contemplating maintaining a concentrated position:

  1. It’s stating the obvious, but not all stocks are AAPL or AMZN. Hendrik Bessembinder published research that found the best performing 4% of listed companies explained the returns for the entire U.S. stock market since 1926. The remaining 96% of stocks collectively matched the performance of U.S. Treasury bills. Since 1926, 58% of stocks have failed to beat one-month Treasury bills over their lifetimes. Forty percent of all Russell 3000 (an index of the 3000 largest publicly traded companies in the U.S.) have lost at least 70% of their value from their peak since 1980.
  2. Despite all this, broad-based equities have returned 9%+ a year, beating most other asset classes, ultimately due to the top 4% of stocks. Although there is no guarantee anyone can single out any of the top 4% going forward, diversification will guarantee you will own the top 4%.
  3. Even if the concentrated stock you own will be another AAPL/AMZN, both stocks have experienced declines of 90%+ at some point throughout their lifetimes. Most investors would not be able to have conviction and stay invested, especially if that concentrated stock was driving the majority of their portfolio returns and net worth. Sometimes catastrophic declines are a function of the industry or existential threats that have little to do with the company itself. Other times, it has everything to do with the company and nothing to do with external factors.

The odds of any new IPO being among the top 4% is just slightly better than hitting your lucky number on the roulette wheel. But is your investment portfolio success and the odds of achieving your long-term financial goals something you want to spin the wheel on?

Benefits of diversification

Excess volatility can harm returns. Note the example below that shows the comparison between a low-volatility diversified portfolio versus a high-volatility concentrated portfolio. Despite the same simple average return, the low-volatility portfolio below materially outperforms the high-volatility portfolio.

Image Credits: Peyton Carr

Beyond the math, unexpected spikes in volatility can cause significant price declines. Volatility increases the chances that an investor reacts emotionally and makes a poor investment decision. I’ll cover the behavioral finance aspect of this later. Lowering your portfolio volatility can be as simple as increasing your portfolio diversification.

The Russell 3000, an index representing the 3,000 largest U.S.-based publicly traded companies, has lower volatility when compared against 95%+ of all single stocks. So, how much return do you give up for having lower volatility?

According to Northern Trust Research, the 5.96% annualized average return of the Russell 3000 is 0.73% more than the 5.23% return of the median stock. Additionally, owning the Russell 3000, rather than a single stock, eliminates the likelihood of catastrophic loss scenarios — more than 20% of shares averaged a loss of more than 10% per year over a 20-year time frame.

If this establishes that the avoidance of overly concentrated portfolios is important, how much stock is too much? And at what price should you sell?

How much of your company’s stock is too much?

We consider any stock position or exposure greater than 10% of a portfolio to be a concentrated position. There is no hard number, but the appropriate level of concentration is dependent on several factors, such as your liquidity needs, overall portfolio value, the appetite for risk and the longer-term financial plan. However, above 10% and the returns and volatility of that single position can begin to dominate the portfolio, exposing you to high degrees of portfolio volatility.

The company “stock” in your portfolio often is only a fraction of your overall financial exposure to your company. Think about your other sources of possible exposure such as restricted stock, RSUs, options, employee stock purchase programs, 401k, other equity compensation plans, as well as your current and future salary stream tied to the company’s success. In most cases, the prudent path to achieving your financial goals involves a well-diversified portfolio.

What’s stopping you?

Facts aside, maintaining a concentrated position in your company stock is far more tempting than taking a more measured approach. Token examples like Zuckerberg and Bezos tend to outshine the dull rationale of reality, and it’s hard to argue against the possibility of becoming fabulously wealthy by betting on yourself. In other words, your emotions can get the best of you.

But your goals — not your emotions — should be driving your investment strategy and decisions regarding your stock. Your investment portfolio and the company stock(s) within it should be used as tools to achieve those goals.

So first, we’ll take a deep dive into the behavioral psychology that influences our decision-making.

Despite all the evidence, sometimes that little voice remains.

I want to hold the stock.

Why is it so hard to shake? This is a natural human tendency. I get it. We have a strong impetus to rationalize our biases and not believe we are vulnerable to being influenced by them.

Becoming attached to your company is common, since after all, that stock has made you, or has the potential of making you wealthy. More often than not, selling and diversifying is the tough, but more rational decision.

Numerous studies have furnished insights into the correlation between investing and psychology. Many unrecognized psychological barriers and behavioral biases can influence you to hold concentrated stock even when the data shows that you should not.

Understanding these biases can be helpful when deciding what to do with your stock. These behavioral biases are hard to spot and even harder to overcome. However, awareness is the first step. Here are a few more common behavioral biases, see if any apply to you:

Familiarity bias: Familiarity is likely why so many founders are willing to hold concentrated positions in their own company’s stock. It is easy to confuse the familiarity with your own company with the safety in the stock. In the stock market, familiarity and safety are not always related. A great (safe) company sometimes can have a dangerously overvalued stock price, and terrible companies sometimes have terrifically undervalued stock prices. It’s not just about the quality of the company but the relationship between the quality of a company and its stock price that dictates whether a stock is likely to perform well in the future.

Another way this manifests is when a founder has less experience with stock market investing and has only owned their company stock. They may think the market has more risk than their company when in actuality, it is usually safer than holding just their individual position.

Overconfidence: Every investor is exhibiting overconfidence when they hold an overly concentrated position in an individual stock. Founders are likely to believe in their company; after all, it already achieved enough success to IPO. This confidence can be misplaced in the stock. Founders often are reluctant to sell their stock if it has been going up since they believe it will continue to go up. If the stock has sold off, the opposite is true, and they are convinced it will recover. Often, it is challenging for founders to be objective when they are so close to the company. They commonly believe that they have unique information and know the “true” value of the stock.

Anchoring: Some investors will anchor their beliefs to something they experienced in the past. If the price of the concentrated stock is down, investors may anchor their belief that the stock is worth its recent previous higher value and be unwilling to sell. This previous value of the stock is not an indicator of its real value. The real value is the current price where buyers and sellers exchange the stock while incorporating all presently available information.

Endowment effect: Many investors tend to place a higher value on an asset they currently own than if they did not own it at all. It makes it harder to sell. An excellent way to check for the endowment effect is to ask yourself: “If I did not own these shares, would I purchase them today at this price?” If you are not willing to purchase the shares at this price today, it likely means you are only holding onto the shares because of the endowment effect.

A fun spin on this is to look into the IKEA effect study, which demonstrates that people assign more value to something that they made than it is potentially worth.

When framed this way, investors can make more intentional decisions on whether to continue holding concentrated stock or selling. At times, these biases are hard to spot, which is why having a second person, a co-pilot, or an advisor, is helpful.

Take control

Congratulations to those of you with a concentrated stock position in your company; it is hard-earned and likely represents a material wealth. Understand, there is no “right” answer when it comes to managing concentrated stock. Each situation is unique, so it is essential to speak with a professional about options specific to your situation.

It starts with having a financial plan, complete with specific investment goals that you want to achieve. Once you have a clear picture of what you want to accomplish, you can look at the facts in a new light and gain a deeper appreciation for the dangers of holding a concentrated position in company stock versus the benefits of diversification, considering all of the implications and opportunities involved in rational decision-making and investment behavior.

What are my choices if I want to diversify?

Most individuals understand they can simply and directly sell their equity, but there are a variety of other strategies. Some of these opportunities may be far better at minimizing taxes or better at achieving the desired risk or return profile. Some might wonder what the best timing is to sell. I will cover these topics in the final article of the series.

#column, #economy, #entrepreneurship, #exit, #finance, #funding, #fundings-exits, #investment, #ipo, #startups, #stock-market, #tc

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