Wrapping our look at how the venture capital asset class invested in 2020, today we’re taking a peek at Europe’s impressive year, and Asia’s slightly less invigorating set of results. (We’re speaking soon with folks who may have data on African VC activity in 2020; if those bear out, we’ll do a final entry in our series concerning the continent.)
After digging into the United States’ broader venture capital results from last year with an extra eye on fintech and unicorn investing, at least one trend was clear: venture capital is getting later and larger (as expected).
Record dollar amounts were being invested, but across falling deal volume. More money and fewer rounds meant larger rounds, often going to the late and super-late stage startups in the market.
Unicorns are feasting, in other words, while some younger startups struggle to raise capital.
There have been some encouraging signs of seed activity, mind, but full-year data made it clear that in America, the more mature startups had the best of it.
Let’s discuss key data points from the two reports. This will be illustrative, brief and painless. Into the data!
Compared to historical investment levels, KPMG’s European VC report describes a venture capital scene at its peak. Q4 2020 saw $14.3 billion invested into EU startups across 1,192 deals, the highest dollar amount charted and a modest besting of the previous record set in Q3 2020.
However, despite impressive investment totals, the number of deals that the money was spread over proved lackluster.
The Q4 2020 deal count was the lowest on record since the continent’s deal peak in Q1 2019. Squinting at the provided chart, it appears that deal volume in Europe has fallen from around 2,200 in that peak quarter, to Q4’s fewer than 1,200 deals.
This morning, while checking the latest price for shares of recent IPO Poshmark, I noticed that they were down from their first-day results. The company’s pricing was more than strong, and its first trading results were nearly comical.
After setting a $35 to $39 per-share IPO price range, Poshmark sold shares in its IPO at $42 apiece. Then it opened at $97.50. Such was the exuberance of the stock market regarding the the used goods marketplace’s debut.
But today it’s worth a more modest $76.30 — for this piece we’re using all Yahoo Finance data, and all current prices are those from yesterday’s close ahead of the start of today’s trading — which sparked a question: How many recent tech IPOs are also down from their opening price?
So The Exchange, ever at your service, raced around to collect the data. And what did we find? Most hot tech IPOs have held onto their gains, and many have actually run up the score in the ensuing weeks.
Lemonade is a great example. It first targeted a $23 to $26 per-share IPO price. That rose to $26 to $28 per share, then it priced at $29 per share. It opened at $50.06 per share, closing the day worth $69.41.
And today? A single Lemonade share will set you back $145.21. The company is now worth $8.22 billion, despite only posting Q3 revenues of $17.8 million, a decline from the year-ago period (for more on why that is, and why it isn’t as bad as you might initially think, read this.)
Analysts anticipate that Lemonade will post revenues of $18.91 million in Q4 2020, again via Yahoo Finance, putting the company on an annualized run rate of 109x. For a business running with net margins of -173.6% in its most recent quarter. And that’s after Lemonade announced a large share sale!
All this is to say that the fiery optimism fueling dazzling IPO debuts has the potential to keep pushing them higher. Which you can view as troubling, if you are a boring index funder like myself, enticing, if you are a founder looking to go public in the near-future, and potentially irksome if you are a VC annoyed when upside leaks to parties other than yourself.
This brings us to our data set. Below, I’ve collated a host of recent IPOs, their opens and their current prices. Only one has shed value.
And then we reexamined eight 2020 offerings that you will recall so we could run the same exercise. The results were not what I expected and indicate a stock market — let alone an IPO market — sufficiently inflated to warrant the whispered moniker of bubble.
Let’s have some fun.
The fourth quarter of 2020 was as busy as you imagined, with super late-stage startups reaching new valuation thresholds at a record pace, and total venture capital funding in the United States recording its second-best result of all time.
That’s according to data released recently by CB Insights, which complements our look back at 2020’s venture capital year in America from yesterday.
At the time, we noted that American startups raised an average of $428 million each day last year, a sum that helps illustrate how rapid the private markets moved during the odd period.
But a peek at aggregate results for the world’s largest VC market provides only part of the picture. We need to narrow our lens and peer more deeply into standout categories to understand how the U.S. venture capital market managed to post its biggest year ever in terms of dollars invested, despite seeing deal volume slip for a second consecutive year.
First, we want to how unicorns performed in Q4 2020. This column noted in late December that it felt like unicorn creation was rapid in the quarter; how did that hold up?
And then we’ll take a look dig into PitchBook data concerning the fintech sector, a huge recipient of venture capital time, attention and money.
Fintech’s 2020 is a good perspective to view both the year and its wild final quarter. So this morning, as America itself resets, let’s take a moment to understand last year just a little bit better as we get into this new one.
One of the most curious things about the unicorn era is the rising bet it represents. I’ve written about this before so I will be brief: Nearly every quarter, the number of unicorns — private companies worth $1 billion or more — goes up.
The private market is able to create more unicorns than it has been historically able to exit them.
Some of these companies exit, sometimes in group fashion. But, quarter after quarter, the number of unexited unicorns rises. This means that the bet on expected future liquidity from venture capitalists and other private investors keeps ratcheting higher.
Despite a pandemic that sparked a global recession, 2020 was still a record year for venture capital investments into American startups.
According to data shared by PitchBook and the National Venture Capital Association, investors poured $156.2 billion into domestic startups last year, or around $428 million for each day of the year. The huge sum of money, however, was itself dwarfed by the amount of liquidity that American startups generated, some $290.1 billion.
The exit-value figure was a record as well, as were the 321 rounds worth $100 million — nearly one for each day of the year.
But while the U.S. venture capital market in 2020 was hot, it was not newly so. In 2018 and 2019, VCs invested around $140 billion into domestic startups, making last year’s $156 billion result a record, but not a shocking departure from previous years.
A first read of the data indicates that the U.S. venture capital market is still getting larger in scale and later-stage in focus. But inside those well-worn trends are a host of notable movements that both underscore what we observed last year in real time, and teach us something new about today’s venture capital market.
So far, 2021’s startup financing and exit market appears to be the mirror of what we saw in late 2020. So we’d best understand the past so we can forecast what we’ll see in Q1 of 2021.
To avoid getting too lost in the data, we’ll proceed by stage, pulling out key facts for each step of the startup lifecycle. Feel free to scroll to the one that makes the most sense for where your company is, or fund invests today.
In the U.S., seed deal count was high in 2020, around 5,227 per PitchBook’s estimates. Those rounds were worth just over $10 billion, making it the third year in a row in which American seed-stage startups managed around $10 billion in capital against around 5,000 rounds.
Boring, yeah? Not really. Inside those numbers are the whole year’s ups-and-downs: the fact that the seed data is so close to 2018 and 2019 levels is almost silly.
The real surprise from seed, per PitchBook’s report, is that these valuations actually fell on a year-over-year basis in 2020. This, despite the fact that seed deal sizes rose.
Considering these two trends at once, it appears likely that, on average, VC ownership as a percentage of seed-stage companies rose in 2020.
Frankly I was just surprised to see a form of startup valuation decrease after expanding for nearly a decade.
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Ready? Let’s talk money, startups and spicy IPO rumors.
It was yet another week of startups that became unicorns going public, only to see their valuation soar. Already marked up by their IPO pricing, seeing so many unicorns achieve such rich public-market valuations made us wonder who was mispricing whom.
It’s a matter of taste, a semantic argument, a tempest in a teacup. What matters more is that precisely no one knows what anything is worth, and that’s making a lot of people rich and/or mad.
This is not a new theme. I’ve touched on it for years, but what matters for us today is that there appear to be three distinct valuation bands for companies, and the gaps between them do not appear ready to shrink. You could even argue that they have widened.
Band 1 is the private capital cohort. These are the folks who valued Affirm at $19.93 per share in its September 2020 round and Roblox at $4 billion in February of 2020. Now Affirm is worth $116.58 per share, and Roblox is worth $29.5 billion. Whoops?
Band 2 is the long-term public investing cohort. These are folks critical in the IPO pricing context. They are willing to pay more for startups than the private capital crew. Affirm was not worth under $20 per share to this group, instead it was worth $49 per share just a few months later. Whoops?
Band 3 is the retail cohort, the /r/WallStreetBets, meme-stock, fintech Twitter rabble that are both incredibly fun to watch and also the sort of person you wouldn’t loan $500 to while in Las Vegas. They are willing to pay nearly infinite money for certain stocks — like Tesla — and often far more than the more conservative public money. Demand from the retail squad can greatly amplify the value of a newly listed company by making the supply/demand curve utterly wonky. This is how you get Poshmark more than doubling a strong IPO valuation on its first day.
Most investors do well in today’s world. Though Band 1 likes to blame Band 2 for not being willing to pay Band 3 prices, it always sounds like the private capital folks are merely complaining about sharing some of the winnings with another party.
Regardless, who really knows what anything is worth? I was recently chatting with an early-stage founder who has a history of investing — narrowing it down to 17,823 people, I know — about the price of software companies both private and public and why they may or may not make sense. He said that old valuation models at banks presumed that software companies’ growth would go to zero over time, and that profits would be rare among SaaS concerns. Both concepts were wrong, so prices went up.
But I have yet to have anyone explain to me why companies that would have been valued at 10x next year’s revenues can now get, at median, 18.1x. I have a working theory of what’s going on, but none of it points to sanity, or pricing that is grokkable through a lens that isn’t hype.
(You can hit reply to this email and tell me why I am dumb if you’d like. I will buy the person with the best valuation explanation coffee when the world works again.)
On the milestone front, it was a huge week for leaving the private markets and joining the Big Kid Club. Namely for Affirm and Poshmark, which priced well and started to trade. And for Bumble, which filed to go public. They are targeting a good IPO window.
But there was lots more going on, including a milestone that caught my eye. M1 Finance, a fintech startup that brings together lots of pieces of the fintech playbook into a single service, reached $3 billion in assets under management (AUM) this week. The company had reached $2 billion in AUM last September, after reaching $1 billion in February of 2020.
Why do we care? The company previously told TechCrunch that it works to generate revenues worth around 1% of AUM. If that percentage has held past its October, 2020 Series C, the company just added around $10 million in ARR in under half a year. That’s a pace of revenue creation that made me sit up and take notice. (Shoutout Josh for never shutting up about the Midwest.)
But I really bring up the M1 Finance milestone for a different reason. Namely that I am consistently surprised at how deep certain markets are. Neobanks that are still growing; the OKR software market’s surprising depth; the ability of M1 to accrete deposits in a market with so many incumbents and well-funded startups.
Perhaps this is why prices make no sense; if you can’t see the edge limits of TAM, can anything be overpriced?
Moving on, some quick notes on things from the week that mattered:
Aziz Gilani, a managing director at Mercury Fund and an advocate of Texas (observe his Twitter handle), wrote in late regarding our query for investor notes on the Visa-Plaid breakup. You can read the rest here.
But who are we to deprive you of useful notes. And Gilani is a nice person. So, here are his $0.02:
My big take-away on the Plaid/Visa deal falling apart is about how fast everything in 2021 is moving. Arguably the biggest advantage of SPACs over direct listings and IPOs is how fast those liquidity events can get done. In a world in which valuation[s] change week to week, the delays created by the DOJ can kill a deal – even if the DOJ would eventually lose in court.
I’m philosophically super negative about the government imposing their will, but I’m also personally excited about the current wave of insurgent startups not getting gobbled up by the FAANGs of the world. For the last several years too many startups fell victim to the “quick exit” mentality personified by Mint selling so fast to Intuit. With fast/cheap capital freely available, today’s crop of startups are going big.
Worth chewing on.
What a week. I have only a few things left for you, including some early-stage rounds that I could not get thanks to waves arms around generally but wanted to flag all the same.
Here we are again. Again.
Yes, it’s another morning in which we have to discuss a venture-backed technology company going public at a price above its IPO range.
This time it’s Poshmark, which priced its IPO at $42 per share last night, comfortably ahead of its $35 to $39 range that already greatly boosted the company’s valuation. The consumer-to-consumer used fashion marketplace sold 6.6 million shares at its IPO price, raising a gross $277.2 million before other possible shares are sold.
According to Crunchbase data, that’s the biggest round Poshmark has raised in its history.
The company was able to so greatly boost its valuation in the process that the resulting dilution is minute. This is the late-2020, early-2021 IPO market in action: Pick a private company, boost its worth greatly in its public offering when comparing to its last private valuation, send it to trade, and watch its worth — usually — soar.
Then venture capitalists get to complain that Wall Street is underpricing their children while, from where I sit, it always appears that the VCs who put the last money into the company before its public offering tend to do even better than the bankers.
A useful question to ask: whom is underpricing whom?
But this morning we have some work to do. First, what are Poshmark’s final simple, and diluted valuations, what revenue multiples does it sport today, and, what do we think its final pricing means for public markets in general?
A hint: Nothing that follows is bearish.
There are a few ways to consider Poshmark’s value. One is to use its simple share count, a figure that doesn’t include vested-yet-unexercised stock options and RSUs. Another is to include those shares.
Here are the resulting valuations:
And we’re off to the races!
Last night, Affirm priced its IPO above its raised range at $49 per share, a sign that the public markets remain hungry for new listings. Provided that Affirm today trades similarly to how it priced, we could be looking at a 2021 IPO market that resembles last year’s heated results.
That’s good news for a host of companies looking to follow in the financial technology unicorn’s footsteps.
Poshmark prices tonight and trades tomorrow. And with Qualtrics in the wings along with Coinbase, Roblox set to direct list, and Bumble said to file as well, we’re heading into another busy IPO quarter. Affirm’s first-day trading results will therefore hold extra importance, even if its pricing augurs well for IPOs more generally.
What does Affirm sell? First, per its S-1 filings, it charges merchants a fee to “convert a sale and power a payment.” That sounds like software revenues, albeit not in the recurring manner of a SaaS company.
Second, Affirm earns from “interest income [from] the simple interest loans that we purchase from our originating bank partners.” And, it offers virtual cards to consumers via its app, allowing it to generate interchange revenues.
We care about all of that as it’s important to realize that Affirm is not a software company in the context that we usually think about them, namely software as a service, or SaaS.
This matters when we consider how the market values Affirm; the more richly Affirm is valued in revenue-multiple terms by its new, $39 per-share IPO price, the more bullish we can presume the IPO market is.
What are Affirm’s gross margins? A great question, and one that is surprisingly hard to answer. If you read its final S-1 filing, you’ll find that all its chatter concerning “contribution profit” has been removed. This is a shame to some degree as contribution profit — and margin — were Affirm’s closest shared cognate to gross margin.
There are a number of ways to take a private company public: You can pursue a traditional IPO, sell a chunk of shares at a set price and start trading. You can direct list, and merely start to trade. You can host a hybrid auction-offering, like what Unity did.
Hell, Google showed us back in the day that a reverse-Dutch auction is possible, after which no one else deigned to try it.
And then there’s the blank-check method: Instead of taking your company private, some rich people list a pile of hungry money instead, and then go hunting for a private company to merge with. If you consent, the money bucket and your actual company merge, renaming themselves after your operating entity. This is a SPAC-led debut.
And it’s what we’re discussing today, because there are a few upstarts going public via special purpose acquisition companies (SPACs, or blank-check companies) worth checking out.
One deals with bitcoin, and one is a huge consumer-facing fintech that has a stadium named after itself. In the case of Bakkt, the cryptocurrency-powering entity, a SPAC made some sense at first blush. SoFi, on the surface, seemed less obvious. (Bakkt is owned by Intercontinental Exchange, an exchange-focused, public company. It has raised money from Microsoft as well.)
This morning I want to dig through the two offerings’ investor presentations to see what we can learn. After viewing the Opendoor-SPAC presentation, I had a few questions heading into the new deals. The first of which was whether SPACs were going to be used again to lift potentially-promising companies that lacked obvious, near-term growth stories to the public markets? If so, perhaps SPACs would wind up helping get more total companies public, which would not be a bad thing.
We’ll start with Bakkt. You can read its release, including all the messy details of a SPAC-led combination here. The piece you need to know is that the resulting, combined company will have an enterprise value of around $2.1 billion and more than $500 million in cash after all elements of the deal are closed.
So the market should soon have a publicly-traded, cryptocurrency-focused business that is loaded with cash. Fun!
Next we want to know how healthy Bakkt is as a business, which brings us to its investor presentation, which you can read here. The presentation stresses that Bakkt is backed by major companies, a plus for public investors who might still be skittish about bitcoin. It also stresses that Bakkt will handle a host of digital tokens instead of just cryptocurrencies.
Bakkt’s point that airline miles and other non-monetary rewards are related to decentralized cryptocurrencies in that they are digital tokens is worth considering. Bakkt views the breadth of its supported asset classes as both an advantage over its competitors, and something that it is expanding; equities trading is coming soon, which will users to view even more of their digitally-held assets in one place.
Then we get to the results section of the presentation, which includes what I think is the most egregious chart of all time:
Akin to calling One America News Network “conservative,” this chart stretches the word’s definition somewhat.
Observe how competitors are denoted with actual data, while Bakkt bests them all with projections. Oof. So when it comes to what we can learn today from Bakkt about the impending Coinbase IPO I think that the answer is “not much.” Oh well.
We raise the above chart not merely to gently mock some of its embedded optimism, but also to note how nascent Bakkt’s consumer app really is. Per the company itself, it has yet to really launch:
This leads to the “results” shared being pretty heavy on speculation. Indeed, they are nearly all speculation. Check it out:
Zipmex, a digital assets exchange headquartered in Singapore, announced today it has raised $6 million in funding led by Jump Capital. The startup, which plans to become a digital assets bank, says the round exceeded its initial target of $4 million. Along with earlier funding, it brings the total Zipmex has raised so far to $10.9 million.
The exchange is regulated in Singapore, Australia and Indonesia, and licensed in Thailand. It focuses on investors new to cryptocurrency with educational features, as well as high net-worth individuals, and says it has transacted over $600 million in gross transaction volume since launching at the end of 2019.
The funding will be used on hiring and to add more product offerings. In addition to its cryptocurrency exchange, Zipmex’s services also include ZipUp, its interest-bearing accounts, and its own ERC-20 token ZMT.
Zipmex’s goal is to become the largest digital exchange in the Asia Pacific, where interest in cryptocurrency investing and blockchain technology is increasing quickly. For example, DBG Group Holdings, Southeast Asia’s largest lender, recently launched a crypto exchange, though it is currently open only to professional investors.
But Zipmex is also up against a roster of competitors, including regional exchanges like BitKub in Thailand and Swyftx in Australia, as well as players like Luno, Coinbase and Binance which are targeting growth in the Asia Pacific region.
Zipmex chief executive officer Marcus Lim said the company’s ambition to become a digital assets bank sets it apart from other exchanges. “We currently offer customers to invest and earn interest on their digital assets,” he told TechCrunch. “In the future, we are planning to roll out payments and lending and the investment into securitized tokens.”
Other cryptocurrency startups that Jump Capital, an American venture capital firm, has invested in include BitGo and TradingView. Its parent company, trading firm Jump Trading, powers Robinhood’s crypto trades.
The sharp repricing is steep in percentage terms, with the bottom end of Affirm’s range rising a little more than 24% and the top end gaining a smaller 16%.
For Affirm, the news means a larger IPO fundraising haul and a confirmation from public investors that its model, its economics, its business performance and its relationship with Peloton are incredibly valuable.
As TechCrunch wrote when Affirm first affixed a price range to its IPO, the fintech unicorn will be worth a multiple of its final private price. The company was valued at around $2.9 billion in a 2019 round and raised more capital at a higher $19.93 per-share price in September of 2020; the company’s IPO price range is now more than double what the company was worth less than half a year ago.
Let’s calculate Affirm’s new simple and diluted new valuation ranges, and contrast those with its recent revenues to get a handle regarding how close to software numbers the startup can get its revenue multiple.
Very little has changed in Affirm’s S-1 filings when it comes to share counts. Today’s new S-1/A filing does include a note concerning around 18,824 shares, but past that it appears that most things are holding steady.
Welcome back to The TechCrunch Exchange, a weekly startups-and-markets newsletter. It’s broadly based on the daily column that appears on Extra Crunch, but free, and made for your weekend reading. Click here if you want it in your inbox every Saturday morning.
Ready? Let’s talk money, startups and spicy IPO rumors.
So much for a quiet start to the year.
Any hopes of 2021 giving us respite from the turbulent waters of 2020 went splat, as the first week of the New Year was busy with venture capital deals (Divvy! Gtmhub!), IPO news (Affirm! Poshmark! Roblox!), SPAC news (SoFi! BuzzFeed!), and violence in the American capital. We’ll get to all of that in a minute, minus the political stuff as I don’t have the heart to scream again before the work week is over.
Today we’re starting with two growth stories, one from a company that is nearing IPO scale, and the other from a startup that is just getting its feet underneath it after a product launch.
We’ll start with Cloudinary, a media-focused software company that we covered in early 2020, when the bootstrapped company announced that it had reached $60 million in annual recurring revenue, or ARR. I caught up with the private upstart again this week to check in on what it was like to bootstrap through a pandemic.
Cloudinary co-founder and CEO Itai Lahan told TechCrunch that his company has reached $80 million ARR, or 33% growth during a very busy year. Not bad, right? But according to Lahan, Cloudinary had targeted a number over $90 million for the year. So what happened?
Well, Cloudinary intentionally decelerated a little bit.
Lahan walked TechCrunch through how Cloudinary dealt with the COVID-19 pandemic, which had an impact on parts of its customer base. Lahan and the rest of the company decided to slow down, he said, reducing the pace at which it was hiring, among other initiatives. The goal was to get the company through the pandemic, switch to remote work with its culture intact, he said.
The gap between the company’s $80 million ARR result and its original goal was a mix of COVID-19’s commercial impact and the company’s own choices, Lahan said.
When’s the last time I heard the CEO of a private technology company tell me that they were making conscious choices to slow their company down? I honestly don’t remember. Lahan had reasons, however, that went past not having recently raised $100 million or whatever. Instead, the company decided to exchange short-term financial growth for what the CEO described variously as long-term growth or sustainable growth.
Lahan said that if Cloudinary focuses on its customers and employees over short-term financial goals, it will grow more in the next half-decade than it will if it decided to sprint as fast as it could today. One example of the choice to go a little slower in 2020? The company has around 285 people today, under its original plan to have around 320.
Wild, right? This is all possible because Lahan and his team at once don’t have to answer to external investors with short, or medium-term time frames in mind for liquidity, and because Cloudinary makes secondary liquidity available to its workers, alleviating internal agitating for an IPO.
Not that we would mind Cloudinary going public so we could dig into its numbers more deeply. It should cross $100 million ARR this year, so it’s nearly time to start sending it regular, annoying emails.
Now on to our smaller company: OnJuno! If Cloudinary is nearly ready to go public, OnJuno is getting ready to think about a Series A. So it’s just a little bit younger.
TechCrunch first spoke with OnJuno in December, right after it launched, trying to figure out why the world needed another neobank of sorts. According to co-founder Varun Deshpande, OnJuno is targeted at affluent individuals, while other neobanks have more traditionally targeted less-wealthy customers.
OnJuno entices them with higher interest rates, and a focus on what Deshpande described as the more debit-focused Asian American community. How is it going? We checked back in with OnJuno, about three-and-a-half weeks after it launched. Per Deshpande, OnJuno expects to reach the $10 million assets under management (AUM) threshold shortly, with users bringing average deposits of $7,000 to $8,000. That’s a multiple of some other neobanks, the startup said.
The fintech upstart said that it expects to reach $100 million AUM in the next two to three quarters, adding that around 80% of its users come from traditional banks. Let’s see how fast it can reach $25 million AUM, and if its deposit averages hold up.
Now, venture rounds, IPOs news, and then — I am sorry — some SPAC news we need to discuss.
Despite it being the first minutes and hours and days of 2021, so very much happened. To pick an example, we have now seen around a half dozen new unicorns born, with another group in the provisional camp.
The pace of new unicorn creation feels exciting, but as we’re still too close to Q4 2020 for comfort, I don’t want to call this a trend yet. But as Divvy puts $165 million to work at a $1.6 billion valuation, Hinge Health blasts to a $3 billion valuation and Salesloft meets the mark and more, it’s been busy.
On the slightly-smaller-but-still-very-interesting side of the VC coin, Bangalore-based Jumbotail picked up $14.2 million this week to help it pursue what we called “the opportunity to digitize neighborhood stores in the world’s second-largest internet market.” That actually sounds cool? And important?
And in an even smaller round, Atlanta, Georgia-based Voxie raised a $6.7 million in Series A. Voxie “offers tools to help businesses automate and manage” their text message-based marketing. This shows how much space there still is in the software market for new startups. I would have bet you an espresso that we had tapped out the text messaging startup space three years ago. Nope!
Coming up, some re-digs into startup clusters. After looking at how quickly startups building corporate-cards-and-software businesses are growing, we’re dipping back into software startups building OKR software. If that’s you, get your data in or be left out.
Zooming out from our regular coverage of IPOs, here’s what you need to know: Affirm and Poshmark are pursuing traditional IPOs at huge markups to their final private valuations. That means that the 2021 IPO market is kicking off like a mirror to the late-2020 IPO market. Expect some big pops in coming months for some companies you know by name.
The other bit of news that matters is that Roblox has scrapped its IPO plans, raised an enormous brick of cash, and now intends to direct list. Why is a perfectly fine question to ask, and one that we tried to answer here.
Takeaways? The IPO market will be active, and perhaps more diverse than expected in 2021. At least to start.
While you are tired and bored of SPACs, and I am as well, they are actually doing things at last that we do care about. In brief to respect your time and sanity:
Lots of venture capital funds raised capital, which we yammered about here on the podcast. But I wanted to throw one more into the mix: Transformation Capital, which put together a $500 million fund focused on digital health.
The nice thing about thematic funds, like this and USV’s new climate fund, is that you actually know what they do. Which in the case of Transformation Capital, is investing “investing in commercial-stage digital health companies,” in its own words. Word.
This is the second such fund from the group, which now has $800 million under management. Cool.
What a week. Democracy is still standing and the nation is getting back to work, so let’s press forward, even if it does feel surreal to cover business news after witnessing a live-streamed coup attempt.
Setting aside the tectonic political moment, there’s plenty of activity inside the world of startups we need to discuss.
The pace at which new unicorns are being announced feels incredibly rapid, possibly implying that private-market investors anticipate exit valuations will remain high, and that a venture market that tilted late-stage will continue its bias in this new year.
Regular readers will recall that as 2020 wrapped up, we noted that “new unicorn formation continue[d] to impress.” That late-2020 trend is becoming a 2021 narrative.
For context, 17 unicorns were minted in the United States during Q3 2020. We don’t have Q4 numbers yet, but should inside the next week or so. There were more than 200 un-exited unicorns in the United States as the fourth quarter kicked off last year.
We’re at four new domestic unicorns in the first week of Q1 2020, along with at least one more from other shores.
Which startups reached the $1 billion threshold required to earn the unicorn tag? The list is long, but Divvy, Hinge Health, Salesloft, Starburst Data and Mambu seem to fit the bill. Lacework and iboss are possibles, along with Ikena Oncology and Senti Biosciences.
Let’s take a look at the rounds to see if we can spot any correlations amidst the data.
Divvy raised earlier this week, putting together a $165 million round that valued the Utah-based company at $1.6 billion. That was up more than twice its preceding private valuation of around $700 million.
The New York Stock Exchange announced this morning that it will be delisting three major Chinese telecom companies, a move that it first announced last week before seeming to reverse course on Monday.
This is all happening in response to the Trump administration’s broader order barring U.S. investment in companies that support the Chinese military. (Trump has been trying to ban TikTok through a separate order.)
Why the double reversal? To be fair to the NYSE, in its first reversal, the exchange had only said it would allow the telecoms to continue trading while it evaluates whether the executive order applies to them.
Now it seems that the further evaluation is complete. In today’s announcement, the NYSE said it’s making the decision after receiving “new specific guidance” confirming that yes, the executive order does apply to China Telecom, China Mobile and China Unicom.
As a result, trading of all three stocks will be suspended on the exchange as of 4 a.m. Eastern time on Monday, January 11. The move is seen as largely symbolic, as the telecoms’ trading volume via the NYSE only represents a small percentage of their total tradable shares.
The new year is off to a busy IPO start. As The Exchange reported a few weeks ago, investors anticipate a busy Q1 IPO cycle, followed by a slower Q2 and a busy Q3 and Q4.
With Affirm releasing an initial IPO price range last night and Poshmark repeating the feat this morning, private-market investor expectations are holding up thus far.
Secondhand fashion marketplace Poshmark anticipates its IPO could price between $35 and $39 per share. Using its simple share count, the former startup could be worth nearly $3 billion. So, we’ve seen two multi-unicorns set early pricing terms this week: that’s comfortably busy.
As we did with Affirm, we’ll dig into Poshmark’s new pricing interval, calculate valuations for the company using both simple and fully-diluted share counts, and figure out how they compare to its most-recent financial results and final private valuation. For the last bit, we’ll pull from PitchBook data and the S-1/A filing itself.
If you want to read our first dig into the company’s IPO filing that is more focused on performance than pricing, head here. Let’s go!
Poshmark’s $35 to $39 per-share IPO price interval could change, but even if it fails to rise, the company’s implied valuation is a dramatic step up from prior rounds.
For example, the company’s S-1 filings note that during its 2017 venture round — the last that it raised per the IPO filing and PitchBook data — Poshmark sold shares at $8.3729 per share. That’s a fraction of the price that the company now expects public-market investors to pay.
As with Affirm, let’s calculate Poshmark’s valuation using both simple and fully-diluted share counts. The latter takes into account shares that have been earned, but not yet exercised or converted.
Here’s the company’s valuation range using a simple share count, inclusive of its underwriters’ option to purchase 990,000 shares at its IPO price:
If we expand the company’s share count to include vested options and RSUs, the numbers go up. Again, the following math is inclusive of the underwriters’ option:1
So, are those good numbers? Yes.
But we can get a peek at a critical part of the VC universe early, thanks to a preview of global fintech investment results from CB Insights. The dataset deals with worldwide investments into fintech companies from the start of October through December 12th.
Given that the last two weeks of the year are not famous for productivity, the dataset we have should prove representative for this critical slice of the venture capital market. (For our look at the third-quarter fintech VC market, head here.)
To be honest, I didn’t plan on writing up this data when I first dug into it; I was prepping for later releases, hoping to ground myself ahead of the full numbers. However, the collected results aligned with several themes that cropped up during 2020, making it a representative capstone of sorts concerning the year’s venture capital market. So it was too interesting to not unpack.
What happened to fintech venture capital investment in Q4 and 2020? Some startup stages and regions did well, but amidst the good news, one of the hotter domestic segments of startup land is not set to have a good global year. Let’s get into the numbers.
A final warning: although these results are missing a few weeks’ worth of inputs, we believe these numbers will prove more than directionally accurate when all results are tallied and released by the various organs of venture data tracking.
Using numbers that include projections for the rest of 2020, it’s clear that the fintech venture capital world is not equally distributed. If you are reading this in the United States, for example, or the UK, you might be surprised to learn that CB Insights expects global fintech venture capital deal and dollar volume to fall in 2020. Surely not, with all the neobank and trading-platform deals we saw?
Yes, actually, because while fintech investment has risen in dollar terms in both North America and Europe, huge declines in Asia have overshadowed results in the other two regions. Here’s the clip of the preview chart:
Via CB Insights
Steel production accounts for roughly 8% of the emissions that contribute to global climate change. It is one of the industries that sits at the foundation of the modern economy and is one of the most resistant to decarbonization.
As nations around the world race to reduce their environmental footprint and embrace more sustainable methods of production, finding a way to remove carbon from the metals business will be one of the most important contributions to that effort.
One startup that’s developing a new technology to address the issue is Boston Metal. Previously backed by the Bill Gates-financed Breakthrough Energy Ventures fund, the new company has just raised roughly $50 million of an approximately $60 million financing round to expand its operations, according to a filing with the Securities and Exchange Commission.
The global steel industry may find approximately 14% of its potential value at risk if the business can’t reduce its environmental impact, according to studies cited by the consulting firm McKinsey & Co.
Boston Metal, which previously raised $20 million back in 2019, uses a process called molten oxide electrolysis (“MOE”) to make steel alloys — and eventually emissions-free steel. The first close of the funding actually came in December 2018 — two years before the most recent financing round, according to Tadeu Carneiro, the company’s chief executive.
Over the years since the company raised its last round, Boston Metal has grown from eight employees to a staff that now numbers close to 50. The Woburn, Massachusetts-based company has also been able to continuously operate its three pilot lines producing metal alloys for over a month at a time.
And while the steel program remains the ultimate goal, the company is quickly approaching commercialization with its alloy program, because it isn’t as reliant on traditional infrastructure and sunk costs according to Carneiro.
Boston Metal’s technology radically reimagines an industry whose technology hasn’t changed all that much since the dawn of the Iron Age in 1200 BCE, Carneiro said.
Ultimately the goal is to serve as a technology developer licensing its technology and selling components to steel manufacturers or engineering companies that will ultimately make the steel.
For Boston Metal, the next steps on the product road map are clear. The company will look to have a semi-industrial cell line operating in Woburn by the end of 2022, and by 2024 or 2025 hopes to have its first demonstration plant up and running. “At that point we will be able to commercialize the technology,” Carneiro said.
The company’s previous investors include Breakthrough Energy Ventures, Prelude Ventures and the MIT-backed “hard-tech” investment firm, The Engine. All of them came back to invest in the latest infusion of cash into the company along with Devonshire Investors, the private investment firm affiliated with FMR, the parent company of financial services giant, Fidelity, which co-led the deal alongside Piva Capital and another, undisclosed investor.
As a result of its investment, Shyam Kamadolli will take a seat on the company’s board, according to the filing with the SEC.
MOE takes metals in their raw oxide form and transforms them into molten metal products. Invented at the Massachusetts Institute of Technology and based on research from MIT Professor Donald Sadoway, Boston Metal makes molten oxides that are tailored for a specific feedstock and product. Electrons are used to melt the soup and selectively reduce the target oxide. The purified metal pools at the bottom of a cell and is tapped by drilling into the cell using a process adapted from a blast furnace. The tap hole is plugged and the process then continues.
One of the benefits of the technology, according to the company, is its scalability. As producers need to make more alloys, they can increase production capacity.
“Molten oxide electrolysis is a platform technology that can produce a wide array of metals and alloys, but our first industrial deployments will target the ferroalloys on the path to our ultimate goal of steel,” said Carneiro, the company’s chief executive, in a statement announcing the company’s $20 million financing back in 2019. “Steel is and will remain one of the staples of modern society, but the production of steel today produces over two gigatons of CO2. The same fundamental method for producing steel has been used for millennia, but Boston Metal is breaking that paradigm by replacing coal with electrons.”
No less a tech luminary than Bill Gates himself underlined the importance of the decarbonization of the metal business.
“Boston Metal is working on a way to make steel using electricity instead of coal, and to make it just as strong and cheap,” Gates wrote in his blog, GatesNotes. Although Gates did have a caveat. “Of course, electrification only helps reduce emissions if it uses clean power, which is another reason why it’s so important to get zero-carbon electricity,” he wrote.
Welcome to 2021, a year that could extend 2020’s startup market disruptions and excesses — or change patterns that previously performed well for early-stage tech companies and their investors.
As we turn the page, I have a number of questions worth raising as we muck into 2021.
Each relates to a 2020 change that is expected to persist, by either the general market or those bullish on startups. I want to know what would need to change to shake up what became the new normal last year. After all, it’s precisely when it feels like nothing could shake up a downturn (or a boom) that things often do.
Today, let’s discuss seed deals, venture investing cadence, the resulting valuation pressures from rapid-fire bets, current IPO expectations and what happens to software sales when remote work begins to fade.
As 2020 came to a close, Natasha Mascarenhas and I reported on seed investing’s strong year and its especially strong second half. How long can that pace keep up?
Nearly all our questions today deal with the endurance of certain conditions, namely: how long the market can keep parts of startup land red-hot.
When it comes to seed deal-making, Q1 and Q2 2020 saw similar levels of investment in the United States. But Q3 proved explosive, with money invested into domestic seed deals rising from around $1.5 to $1.6 billion during the first two quarters to $2.2 billion in the July-September period.
Q4 numbers are yet to fully come in, but it’s clear that private investors were incredibly bullish on early-stage startups in the second half of 2020. How long can that keep up? I think the answer is for a while yet, as investors have shown scant enthusiasm for slowing down their dealmaking cadence.
While cadence remains hot generally, seed deals should stay heated as the number of investors who are willing to invest early has increased.
Which brings us to our second question:
A theme that cropped up in the second half of 2020 was the pace at which investors were conducting venture capital deals. This was for a few reasons. To start, venture capitalists have raised larger funds in recent years, meaning that they need larger returns to make the math work out. This led to many investors putting money to work in younger and younger companies, hoping to get in early on a big win. That setup led to more deal competition and faster deal-making.
How? Two things. Investors who were already on a startup’s cap table — already part-owners, in other words — led preemptive rounds, in part to get ahead of other investors who might want to poach the succeeding deal. Other investors, knowing this, seemed to do the same math and move even faster, and earlier, to get around the defense.
So how long can the trend keep up? Given that many big VC firms raised in 2020, many startups picked up some tailwinds from the COVID-19 economy and exits have been strong, forever? Until something stops things? Think of it as Newton’s First Law of startup investing.
What could be the sudden impact to shake up the current set of conditions boosting the pace at which seed and later deals occur? An asteroid strike is probably too extreme, but inertia is one hell of a drug and markets love to stay happy.
Moving along, all the competition to get money to work in hot startups now has had another effect than the mere speed of deal-making; it has also pushed prices higher.
The value of one of the world’s most valuable cryptocurrencies is crashing and a recently filed SEC complaint is at the root of the free fall. According to CoinMarketCap, the XRP token’s value has declined more than 42% in the past 24 hours and is down more than 63% from its 30-day high of $0.76. It now sits at just $0.27.
XRP’s price volatility has rivaled the most capricious of cryptocurrencies. Since reaching an all-time-high of $3.84 back in January of 2018, the coin has spent much of the past two years drifting closer and closer to pennies. In the past month, on the back of major rallies from other cryptocurrencies, XRP has seen its biggest rally in years, but those gains were all erased this week by the Ripple CEO Brad Garlinghouse’s admission that the SEC was planning to file a sweeping lawsuit against the company during the current administration’s final days.
The SEC’s fundamental argument is that XRP has always been a security and that it should have been registered with the commission from the beginning more than seven years ago. The SEC claims that the defendants in the case — namely the company Ripple, CEO Bran Garlinghouse and executive chairman Chris Larsen — generated more than $1.38 billion from sales of the XRP token.
Ripple was recently valued at $10 billion following a $200 million funding round. Ripple and the XRP token are technically separate, but Ripple maintains a significant total of the currency’s market cap and at one point the XRP token itself was referred to as “ripple” and shared a logo with the company.
The company’s line has been that XRP is not a security but is, in fact, a tool for financial institutions, though the coin’s volatility has discouraged banks from actually adopting the token. Meanwhile, XRP is present on a number of cryptocurrency exchanges, a fact which could expand the scope of this legal complaint and affect more players in the space.
In a blog post published yesterday that went live shortly after the SEC’s suit was filed, Garlinghouse wrote that the SEC’s claims were “completely wrong on the facts and law'” and that the company was “confident” they would “ultimately prevail before a neutral fact-finder.”
The U.S. government is failing us with regard to fintech and blockchain regulation.
Devoid of any regulatory framework in the past four years we’ve been operating in limbo when it comes to the development and advancement of crypto products. Innovators in the fintech and blockchain industries have the ability and vision to build products that solve real problems for everyone from individuals to large banks to governments, but without a clear path forward, these products are unable to grow and scale to their full potential.
Regulation shouldn’t be a guessing game. Since 2019, when the Securities and Exchange Commission declared that neither Bitcoin (BTC) nor Ethereum (ETH) are securities, the industry’s been at a standstill. Without clarity, blockchain innovation will be limited to just two coins — the industry is much larger than this. A lack of regulation stifles the immense potential that crypto and blockchain provide.
If we know the rules of the game we’re playing, we can keep doing what we do best: innovating.
A new administration presents a new opportunity for elected officials across the political spectrum to develop clear policies and regulations enabling banks, fintechs and corporations to custody and use crypto to improve efficiencies and to provide a better customer experience.
We can learn a lesson from recent history here. In 1991, we saw the passage of the High Performance Computing and Communications Act (HPCCA), a bipartisan effort led by Senator Al Gore and signed into law by President George H.W. Bush.
This legislation paved the way for companies like Amazon, eBay, Yahoo, Google and others to boom and made the U.S. an early internet leader. By 1993 we saw the introduction of web browsers, and shortly after, the start of the dot-com era in 1994 that cemented the U.S. as a symbol of innovation.
The browser changed everything. It’s created new jobs, new economic opportunities and new categories in technology that we couldn’t have predicted 30 years ago. In looking at the top 100 Fortune 500 companies in 1991, technology was barely a blip on the radar with IBM standing as the lone tech company. By 2020, it’s a drastically different picture, with the list completely dominated by technology giants like Microsoft, Apple, Alphabet, Facebook and Salesforce.
Technology companies in the top 100 have contributed close to three million jobs, with many leading in market value. Despite an unconventional year, we’ve continued to see successful technology IPOs like DoorDash, Snowflake, Asana and Palantir.
Products and services that we take for granted now like Google, the iPhone, Uber, Salesforce, Spotify, Postmates and more were made possible by the HPCCA. We now have another chance to create a bipartisan effort focused on crypto innovation, one with public and private sector support to ensure clear regulatory frameworks. Regulation will make it easier for innovators to create new products that keep the United States competitive with other countries and attract more investment.
There’s no disputing that the adoption of crypto and blockchain is on the rise. Major companies including PayPal, Square and Robinhood are leaning in to crypto and pushing it to the mainstream. With the validation from these brands, interest in the utility of cryptocurrencies and the ability of crypto to better serve businesses and their customers, continues to grow.
Leading crypto companies such as Ripple, Coinbase, Gemini, DCG and Chainalysis are currently based in the United States. However, unclear regulation will keep new entrepreneurs from innovating in the United States. While other countries move forward with defined regulatory frameworks, it’s possible that we will see new entrepreneurs and companies forgo setting up shop in the U.S. in favor of jurisdictions where the rules are clear.
If we know the rules of the game we’re playing, we can keep doing what we do best: innovating. We are only at the beginning — developers can build on open-source technologies, entrepreneurs can launch new companies and develop new products, and investors can invest in those companies.
We want the most innovative crypto and blockchain companies to be built and to grow here in the U.S., where they can create value and opportunities for U.S. citizens. Similar to the early days of the internet, we don’t know what the industry will look like in 5-10 years, but with flexible frameworks the opportunity is massive.
There’s a big opportunity for the Biden administration to influence new policies and new legislation and provide clear guidance that will accelerate innovation in fintech and crypto for many generations to come. The administration can:
Regardless of how policymakers and regulators decide to approach the issues that our industry faces, we need to continue to work alongside the government to ensure that the rapidly growing number of people who use fintech and blockchain products continue to get the best-in-class solutions with appropriate consumer and market protections in place.
It’s clear that this technology is here to stay, and I hope that elected leaders will recognize the power that it has to effect massive financial industry progress. Similar to the HPCAA, smart regulation can both protect our consumers and markets while allowing proud U.S. companies to create life-changing innovations.
The last twelve months have provided us with shocking lows and surprising highs. In startup land, great expectations in January and February were followed by dashed hopes in March.
Those woes were followed by April despair, surprised optimism from May through June, and, finally, a straight shot all the way to the moon through December.
It’s been a lot. But it’s all behind us. We don’t need to spend more time thinking about 2020 for now. We need to look ahead.
This morning, I’ve compiled notes on what’s coming. We have notes from GGV’s Hans Tung on the 2021 IPO market, Sapphires’s Beezer Clarkson on what fundraising will look like for VCs next year, and a prediction from the PitchBook analyst crew that caught my eye.
This is the last Exchange column for 2020. Thanks for reading so I could keep having fun every day at my job. Now, to work!
We’ll start with the 2021 IPO market, only because so many of you cared so very much about it this year.
Hans Tung, an investor at GGV and recent Extra Crunch Live guest, is an investor with an international perspective and a good read on global startup liquidity. So, when I got on the phone with him last week to catch up, I wanted to know his read on the 2021 IPO market.
Given that we’ve seen a number of blockbuster IPOs this year, I was expecting him to forecast an active start to the year. Correct.
But Tung added that while Q1 could be very busy, Q2 could present a lull. Why? Tung expects IPOs that failed to finish the job in Q4 2020 to slip into the first quarter of next year. That explains why the first quarter is busy. But why the slowdown in the following three months?