Divining the real value of my favorite fintech sub-niche 

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Of course, we’re talking buy-now-pay-later (BNPL) companies today, a particular part of the larger fintech world that is more than interesting.

Thanks to recent mega-buys of players in the BNPL space from Square and PayPal, we’ve been getting closer to understanding just what the value of the companies in the space may really be — and for the myriad BNPL startups in the market, it’s big news.

But while I was on vacation (Michael’s fault, it turns out), Goldman Sachs decided to buy GreenSky, a public BNPL company. Which means that we can quickly run some numbers on the deal and add this latest arrow to our How To Value A BNPL Company quiver.

My friend and colleague — and former deskmate, back in the day — Ryan Lawler has an interview with Goldman that is worth reading. The transaction is worth $2.24 billion, per Goldman, driving the value of GreekSky dramatically higher in its aftermath, as investors digested the implied deal premium to the company’s previous share price.

What sort of volume was GreenSky’s home-improvement-focused BNPL doing? Here’s the company’s latest earnings report:

Transaction Volume: Second quarter transaction volume was $1.5 billion, an increase of 14% when compared to the second quarter of 2020. Approved credit lines for the quarter were the highest in Company history and are a positive leading indicator of momentum as home improvement supply chain and labor market shortages ease.

So a $6 billion run-rate at a price of $2.24 billion. That works out to about $0.37 in corporate value for each dollar in GMV that GreenSky handles. Which is the lowest number we’ve seen to date.

As a reminder, here’s what we’ve found more recently, with both of us keeping in mind that not every figure below is perfectly apples:apples; these are directional figures more than absolutes:

  • Affirm: $2.94 in value per dollar of serviced GMV
  • AfterPay: $1.84 per dollar of serviced GMV (at Square price)
  • Paidy: $1.80 per dollar of serviced GMV (at PayPal price)
  • Klarna: $0.57 per dollar of serviced GMV

GreenSky sits at the bottom of the list. Perhaps growth is the reason? A 14% GMV growth rate doesn’t give the company much leeway to grow, even if it manages a higher take rate. It’s hard to burnish a growth rate that starts with a one, especially if the leading line atop your investor relations page is “GREENSKY, INC. IS A GROWTH COMPANY.”

Akin to how we’ve seen diverging SaaS revenue multiples, striated along the axes of revenue growth and revenue quality, there’s likely something similar afoot here. Loss ratios, take rates, and GMV growth are vectors by which BNPL companies will be valued differently.

BNPL startups can find their most accurate comp in growth and loan quality terms, and then work backwards to their present-day market worth. It’s good to have data.


I was going to spend the bulk of this newsletter discussing Mammoth Biosciences, and its plan to Jurassic Park the world, but TechCrunch beat me to it. I spoke to one of its investors — Thomas Tull — about the deal, but will hold onto those notes for a bit. I suspect we’ll need them in time.

One neat funding round to close us out

Disrupt is next week, and with an IPO cycle upon us I’ve fallen behind my usual funding round cadence. (And comms, sorry!) So, here’s a makeup entry for our shared enjoyment: Postal.

The company works in the marketing tech space, operating what its website claims is the “largest” business-to-business “gifting marketplace.” More simply, it helps companies send personalized physical goods to customers. Which it claims has a very high ROI.

In a somewhat ironic twist, I actually have to do some disclosures at this juncture. It turns out the company’s leading investors are Mayfield and OMERS. Those two firms led my former employer’s Series B and C rounds, respectively. But if I didn’t write about companies to which my Crunchbase connection didn’t cause some sort of awkward frisson, I’d have to cut out too large a swath of the market. I’ll just keep bringing up the matter when we have to.

Postal works in a somewhat similar space to Sendoso, though, to my understanding, the latter company deals a bit more with employee gifting over customer-focused efforts. In time they’ll compete directly if they both keep growing. Sendoso raised $100 million earlier this week, because of course it did.

Other players in the space include Reachdesk and Alyce (which raised $30 million earlier this year), among others. The business of building tech to deliver personalized physical goods is pretty big, it turns out. (You can make an NFT joke here, if you’d like.)

PitchBook pegs Sendoso’s new valuation at $640 million (post-money) and Alyce at $135 million (post-money). Present-day valuations for Reachdesk and Postal.io were not available.

Okay that is enough for now. Have a delightful weekend, and I’ll see you at Disrupt! You may see a lot of me on the Extra Crunch stage. — Alex

#tc, #techcrunch-exchange, #the-exchange

Toast looks toward $18B valuation in upcoming IPO

As if the Boston startup market needed additional momentum, it appears restaurant software startup Toast will dramatically bolster its valuation in its upcoming IPO.

For a city perhaps best known internationally for its hard tech and biotech efforts, to see Toast not only rebound from its early-pandemic layoffs to a public debut, but to target a valuation closer to $20 billion than $10 billion, is a coup.

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In a new S-1/A filing this morning, Toast indicated an early IPO range of between $30 and $33 per share, leading to a maximum fundraise of $825 million in its IPO. The company was last valued at $4.9 billion in early 2020, when Toast raised $400 million. The company is set to dramatically supersede that valuation mark thanks to expanding revenues and an especially strong second quarter.

Let’s dig into the company’s new IPO price range, calculate simple and fully diluted results, and see what we can learn from where Toast may price. Recall that the company has a mix of recurring software (SaaS) incomes as well as fintech revenue (payments, mostly). Its revenue mix is interesting, and how Toast prices could help us better understand how to value vertical SaaS startups that are pursuing a payments-and-SaaS business approach.

Into the filing!

Toast’s IPO valuation

Toast is selling 21,739,131 Class A shares in its IPO. They get one vote. Class B shares get 10. If you were considering buying into Toast’s IPO in hopes of having a say in its future, don’t. You won’t. The company’s IPO is really a method by which public-market investors can endorse the company’s current management group — or decline to buy any ownership at all.

Regardless of how we feel about corporate governance structures designed to eliminate the influence of common shareholders, Toast will have 499,332,681 shares outstanding after its IPO, or 502,593,550 if its underwriters choose to purchase their allotted greenshoe option.

At the company’s expected IPO price range of $30 to $33 per share, Toast is worth $14.98 billion at the low end, and $16.48 billion at the top. Inclusive of shares from its underwriters’ option, Toast’s simple IPO valuation range expands from $15.08 billion at the bottom to $16.59 billion at the top.

#boston, #fundings-exits, #startups, #the-exchange, #toast

D2C specs purveyor Warby Parker files to go public

Did you miss IPOs? I sure did. They could be coming back after a summer lull.

Warby Parker, a D2C glasses company backed by over a half-billion dollars of private capital, filed to go public yesterday. For investors like General Catalyst, Tiger Global and Durable Capital Partners, it’s an important debut. Having taken on equity capital since at least 2011, investors have been waiting a long time for Warby to float.

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And there’s quite a lot to like about the company, the first parse of its IPO filing reveals. There are some less attractive elements to its business worth discussing, and we need to examine how COVID-19 impacted the company’s 2020 performance.

Warby last raised known private capital in August 2020, a $120 million Series G that valued the company at just over $3 billion on a post-money basis. D1 Capital Partners led that transaction, which included both Durable Capital and Baillie Gifford.

For D2C startups, the Warby IPO is something of a do-over. The Casper IPO from early 2020 is now a cautionary tale for companies employing the business model; the company reduced its IPO range, priced at $12 per share and today trades for just over $5.

But there’s more to Warby Parker’s IPO than just the D2C category. It’s a public benefit corporation, which it says in its filing means that it is “focused on positively impacting all stakeholders” as opposed to merely shareholders. And the company has a charitable bent to its efforts through a foundation and donation model of giving away eyewear when customers purchase their own set. Warby also has a hybrid sales model, leaning on both IRL and digital retail channels. There’s lots to dig into.

So let’s parse Warby’s growth history, its profitability progress over time and how the company is blending IRL shopping with digital channels. We’ll close by examining just how the company was priced last year, taking a guess at what it might be worth in today’s public markets.

Inside Warby Parker’s historical growth

Looking at Warby’s full-year results for 2020 is not inspiring. The company grew well from 2018 to 2019, expanding from $272.9 million in revenue to $370.5 million in revenue, or around 36%. That’s not an astounding pace of growth, but it’s more than respectable for a company of Warby’s age and size.

Then in 2020 the company only managed to eke out 6% growth to $393.7 million in top line. What happened to slow the company’s growth rate from Just Fine to Not Fine At All? COVID, it appears.

#baillie-gifford, #d1-capital-partners, #durable-capital-partners, #eyewear, #fundings-exits, #general-catalyst, #ipo, #luxottica, #retail, #startups, #tc, #the-exchange, #tiger-global, #warby-parker

Why have the markets spurned public neoinsurance startups?

We’ve spent quite a lot of time of late wondering just what the heck is up with the valuations of insurtech startups that went public in the last year. Keep in mind that we’re discussing neoinsurance providers like MetroMile and Hippo, not insurtech marketplaces like Insurify or Zebra.

There was a stream of insurtech exits in 2020 and early 2021. After Lemonade’s firecracker IPO, MetroMile and Hippo and Root also went public. Since those debuts, we’ve seen their valuations erode significantly.

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But Oscar Health got somewhat lost in our larger analysis of the space. An investor pointed out to The Exchange this weekend that we were a bit early in wondering just what investors were thinking when Oscar was going public — its IPO price range felt incredibly high, and we said so. Then, Oscar Health priced above that $32 to $34 per share interval, kicking off its life worth $39 per share.

Today’s it’s worth $13.58 per share.

We could call it another data point in our larger analysis, but it’s a bit more than that as Oscar Health expands the list of insurance types that startups tackled, scaled, took public and then saw fall out of investor favor. The companies that we are examining cover a number of industries, from auto insurance (Root, MetroMile), to home and rental insurance (Hippo, Lemonade), and, thanks to Oscar Health, health insurance as well. All are taking a whacking by the market.

Why? Happily, I think I’ve figured it out. More precisely, a CEO of a neoinsurance company in a different niche talked The Exchange through one particular hypothesis that makes rather good sense.

Show me the money metrics

Last week, I chatted with Pie Insurance co-founder CEO John Swigart. Pie sells SMB-focused insurance, with a focus on workers’ comp coverage. In Swigart’s view, small businesses have historically been overcharged and underserved for insurance. With a bit of tech, his company can offer coverage to smaller companies than many traditional insurance providers found attractive, and at better price points to boot.

Pie raised a $118 million Series C in March, with Crunchbase tallying $306 million in external capital for the company thus far. We’ll talk more about Pie at a later date.

What matters for our needs this morning is what Swigart said when I asked him what in the flying fuck was going on with public insurtech share prices. Given that he is building a related company, I was hoping that he would be both up to speed and have a take. He did.

#insurance, #john-swigart, #metromile, #oscar-health, #pie-insurance, #root-insurance, #tc, #the-exchange

Resurrecting the humble business card, why going public is good, BNPL is everywhere at once

Welcome back to The TechCrunch Exchange, a weekly startups-and-markets newsletter. It’s inspired by what the weekday Exchange column digs into, but free, and made for your weekend reading. Want it in your inbox every Saturday? Sign up here

Happy weekend, friends. I am writing to you on Friday afternoon after powering through a grilled cheese. But as I have a huge iced coffee on deck, we can dodge a food coma and get right to work. Today we’re talking about a pretty neat venture round, chatting with a founder about verticalization and riffing on Marqeta’s earnings report. So, we have fintech and SaaS and public company notes for your enjoyment. Let’s do it!

HiHello’s ambitious Series A

You may be familiar with Manu Kumar. He’s a venture capitalist at K9 Ventures. But he’s also building a startup at the same time, and it’s the latter effort that we’re interested in today.

The company, called HiHello, raised a $7.5 million Series A, it announced recently. Foundry led the investment, Lux Capital took part, and a host of angels also kicked in checks. So far, so ordinary. But the round is not the interesting bit of the HiHello story. Instead, it’s what the company is building.

A question: When did you last order business cards? I can’t recall, frankly, but somewhere between my last job and coming back to TechCrunch I forgot to get new cards. And not simply thanks to COVID or the fact that I now live far from San Francisco. I just didn’t think of it as they didn’t seem too useful.

HiHello is building something akin to the future of business cards for the internet. Per Kumar, everyone still needs a way to show their identity and introduce themselves, even in a digital world. Sure, for scheduled gatherings, he argued, you can do prep. But for meeting folks in a more unplanned manner, having a way to share your identity is useful.

So, HiHello lets you create virtual business cards of a sort for yourself. But not just one, the idea is to have several, one for each of your personas. Kumar said that I could have one for our podcast (Equity), one for TechCrunch proper and so forth. You can make them for your personal life as well.

I figured that business cards were dead. And that we didn’t need to rebuild them. Kumar doesn’t agree. He sees a future where HiHello can create what are, in effect, personal social networks around context. It’s bold and it’s counterintuitive. Good startup fodder, in other words.

HiHello is monetizing off of consumer revenue today and has a business product as well. Let’s see how quickly the startup can grow. It’s about time we got excited about a new sort of social product.

Going vertical

I’ve written about Skyflow a few times. It’s co-founder, Anshu Sharma, is someone I’ve known for ages. We met when he was at Storm Ventures. Since then he’s invested as an angel and founded a few companies, one of which is Skyflow. The software startup sells a digital vault that allows for PII and other critical information to be secured on customers’ behalf and accessed in a safe manner, allowing companies for whom information security is not their core focus to avoid breaches.

The model is working, with Skyflow raising capital at a pretty aggressive rate. And Sharma seems chuffed thus far with customer progress. (Sharma also provided notes that helped me ground an essay the other day.)

Recently Skyflow announced a particular flavor of product for the healthcare market. Given that I’ve been tracking the company since it first launched, I was curious. So I got Sharma back on the phone to explain his verticalization strategy — I was curious how he was picking markets to pursue and where he might take his company next.

Sharma said that his company’s plan is to prove its technology in complex markets, and then expand its remit over time. Hence the healthcare push and Skyflow’s work with storing financial data. By solving hard problems and selling to complicated customers he said, Skyflow will earn market permission to offer its tech to other folks.

From the CEO’s perspective, we need to “rewire” the internet from the ground up with a privacy focus. Citing a Marc Andreeseen riff about how not building payments tech into the internet from the start was an error, Sharma argued that two things were forgotten in the early days of the web: payments, yes, and privacy.

The verticalization strategy of Skyflow, then, is to tackle the hardest problems that it can — healthcare data is privy to all sorts of rules and regulations — and then broaden its focus until PII is safer for everyone. It’s a fundamentally optimistic take on where the internet could be heading. Not a Facebookian world where privacy is theoretical and adtech is persistent, but a world where your data is yours and is safe, stored and out of reach.

The competitive landscape that Skyflow plays in will harden. But so long as even some of the startups in the market that want to return privacy to individuals wins, I will be content.

Marqeta’s first earnings call

Somewhat lost amidst the wave of IPOs that we’ve seen this year was Marqeta’s debut, a fintech unicorn working in the card issuing space. It reported its earnings publicly for the first time this week, so I got on the phone with its CEO Jason Gardner to yammer about the results.

In brief, Marqeta grew quickly in the second quarter, easily besting expectations. The company lost more money than the markets anticipated however, leading to its shares shedding effectively all their post-IPO gains.

A few notes from the call. First, Gardner seems content to be past the public offering. He said that he’s had the chance to fall back in love with running the company now that his 18-month IPO market is complete. And he said that swapping yearly board-level planning for quarterly reports has been enjoyable, as having more regular disclosures brings a sense of urgency to the company’s work.

As we usually hear private company CEOs worry about distracting earnings calls and the like, it was somewhat refreshing to hear a public executive praise floating their company. It reminded us of the comments that we heard from BigCommerce CEO Brent Bellm on the same topic, even if they like being public for different reasons.

More important to our understanding of the world of startups, however, was Marqeta’s notes on the BNPL market. In the wake of Klarna’s rise, Square buying Afterpay and a zillion startup BNPL rounds, seeing Marqeta note the buy now. pay later space as a growth market for its work caught our eye. Why was BNPL helping a card issuing platform?

Well, it turns out, the virtual cards that Marqeta and others can spin up for customers are often used as part of the software sinew that makes BNPL transactions possible. The fintech world is always more interconnected than you expect. So, when we consider BNPL as a category, we’ll do well to also keep tabs on what other boats its growth may be floating. That expands the number of startups that could be riding the BNPL wave.

One tip before we go. The fastest way to get an explanation of a market dynamic that you are not familiar with is to ask a public CEO to explain it to you. The downside to this particular educational method is that if you were close to understanding the concept before but missed a single key element, you will feel pretty silly when said CEO tells you in small words what you previously failed to grok.

However, as I am, in fact, very dumb, I refuse to be red-faced about not knowing things. Alright, that’s enough for today. There’s an extra Equity episode out today, and The Exchange is back on Monday morning!

Hugs, and get vaccinated. Your friend,


#newsletters, #tc, #techcrunch-exchange, #the-exchange