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In its 4th revision to the SEC, Palantir tries to explain what the hell is going on

By Danny Crichton

For a company vaunted for its clandestine government work and strong engineering culture, you can’t help but wonder if the government’s bureaucratic norms and paperwork pushing are starting to flood into the Shire.

When most companies go public, they file a Form S-1 with the SEC, wait a few weeks through the investor road show, then submit an amended filing with the final details of the offering before trading commences. Simple, easy, effective. No one wants to mess with the SEC, and so top securities law firms work diligently to ensure that everything is in order when that initial form is filed.

Palantir has done nothing of the sort. It filed a confidential draft registration statement back in July. It filed an amendment. It filed another amendment. It filed its official S-1. Then an amendment, and an amendment, and an amendment, and an amendment. And it’s still not trading, so another amendment is in the offing.

Palantir is not a complicated business. It’s a software business (mostly) today with 125 customers, making real revenues, and with a decent story to tell investors. And yet, you can’t help but look agog at the level of complication and paperwork the company has created for itself by just trying to be a little bit different from everyone else.

One part of that complication was its invention of a direct listing with a lockup. When a company directly lists on a stock exchange, recent tradition holds that insiders are not locked up, which means that they will be allowed to start buying and selling their shares as soon as the company hits the market. For reasons that are known only to Palantir, the company decided to mostly block employee trading, limiting the float that can be expected when it begins trading.

So in today’s 4th amendment to its S-1, we have some updated figures of what the lockup will look like. Palantir will lock up about 80% of shares in the company, allowing about 380 million shares to trade on opening day. Eight million more shares will come on the market in November when certain restricted stock units vest for company employees, and other vested RSUs will also not be beholden to the lockup agreement as they come next year.

In addition to those figures, the company noted that it is pushing back its target opening day from September 23rd to September 29th. So about a week delay, although nothing particularly notable (such changes are often made in these processes).

The direct listing with lockup was complication number one. Complication number two is the absolute byzantine ownership structure that Palantir has selected for itself. In a note added this morning in its filing, the company admits that “This is a novel capital structure that differs significantly from those of other companies that have dual or multiple class capital structures.” That’s quite an understatement.

In Palantir’s governance structure, it will have three classes of shares. Class A shares have 1 vote, Class B shares have 10 votes, and Class F shares (for “Founder”) have a variable number of votes that will ensure that Palantir’s founders Alex Karp, Stephen Cohen and Peter Thiel maintain 49.999999% control of the company essentially in perpetuity (or at least, until they want to give it up by selling).

Today, the company provided a handy table on exactly what that all means, since it’s not simple at all. Let’s take a look at a cleaned-up version of their voting table, based on which founders are employed at Palantir at a specific time:

The key here is that so long as the three founders are all actively working at Palantir, their ownership is meant to be capped at 49.999999% of the company. In other words, any other shares they own of the Class A and Class B varietals are included within that ownership number. This is something I have gotten wrong, so mea culpa, although frankly, if you need to file a half dozen amendments to the SEC to explain what you are doing, I feel like I am in good company.

Where it gets bizarre is if one of the three founders leaves. In those scenarios, the three of them collectively will have even more power than if they all actually work at the company simultaneously. For instance, if Thiel leaves the company (which in his case means resigning from the board), the three founders actually increase their voting power collectively from 49.999999% to 64.999999%, assuming Thiel doesn’t sell any of his own shares.What do those calculations ultimately mean? Well, Palantir was graceful enough to put an explanation in its fourth amendment on exactly what it all boils down to:

While the Board retains the power to hire and remove members of our management, which currently includes two of our Founders, the Founders would continue to beneficially own shares of Class F common stock and Class B common stock and be able to exercise control over matters submitted to a vote of our stockholders so long as our Founders who are then party to the Founder Voting Agreement and certain of their affiliates collectively meet the Ownership Threshold on the applicable record date, even if one or more of our Founders resigns from the Company or is terminated. (Emphasis mine)

In other words, if you strike them down, they shall become more powerful than you can possibly imagine, Shareholder.

Palantir in this filing also made clear that there is at least some floor by which the three founders have to collectively own the company. With all three of them onboard, they have to maintain ownership over 100 million shares of the company, or slightly less than 5%. So they can’t, say, own 0.0001% of the company and control 49.999999% of the vote. What a relief!

Look, founder control is a mainstay of modern Silicon Valley tech IPOs. But we’ve never seen such an extensive, interlocking set of systems designed to make a company absolutely impregnable to any form of external governance. I can understand the concerns with Palantir, given its work, its controversies, and the extreme media attention it receives. It probably needs some form of governance that provides it stability amidst the maelstrom. But all of this sets such a bad precedent for the rest of Silicon Valley that I hope it’s recognized in their share price.

Updated September 18 to add Palantir’s delay of its opening day to September 29.

3 VCs discuss the state of SaaS investing in 2020

By Alex Wilhelm

Yesterday during Disrupt 2020 I sat down with three investors who know the SaaS startup market very well, hoping to get my head around how hot things are today. Coming on the heels of the epic Snowflake IPO (more to come on that in this weekend’s newsletter), it was a great time for a chat.


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


I’ve boiled our 40-minute discussion down to my favorite parts, getting you the goods in quick fashion.

What follows are notes on:

  • how fast the SaaS investing market is today
  • why Snowflake priced where it did and what that tells us about today’s market
  • how SaaS companies are seeing different growth results based on their sales motion
  • why some private-market SaaS multiples can get so high
  • which software sectors are accelerating
  • and what I learned about international SaaS.

There are more things to pull out later, like the investors’ thoughts regarding diversity in their part of the venture world and SaaS startups, but I want to give that topic its own space.

So, into today’s SaaS market with an eye on the future, guided by commentary from Canaan’s Maha Ibrahim, Andreessen Horowitz’s David Ulevitch and Bessemer’s Mary D’Onofrio.

Inside SaaS

To help us get through a good bit of the written word without slowing down, I’ll introduce an idea, share a quote and provide a little commentary. This should be good fun.

Which 5 cloud startup categories are the hottest?

By Alex Wilhelm

Hello from the midst of Disrupt 2020: after this short piece for you I am wrapping my prep for a panel with investors from Bessemer, a16z, and Canaan about the future of SaaS. Luckily, The Exchange this morning is on a very similar topic.


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


Today we’re parsing some data that Bessemer and Forbes shared regarding their yearly Cloud 100 list. It’s a grouping of private cloud and SaaS companies, giving us a good look into valuation trends over time and also where the most valuable startups are focusing their efforts.

The data show a changing focus from the biggest and most impressive private SaaS and cloud companies. And the valuation trends show how growing private valuations could limit future returns, given historical results.

Of course, modern cloud valuations make it hard to be bearish on SaaS revenue multiples, but all the same, how much higher can they go? Every startup looks cheap when money is cheap. Let’s get into the numbers.

A changing sector focus

The Cloud 100 cycles companies in and out as time passes. As the list is focused on private companies, cloud and SaaS firms that sell to another company, or go public leave the cohort. And new companies join, keeping the total group at precisely 100 companies.

And here are the top five sectors those 100 companies are focused on, in order of popularity:

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

By Alex Wilhelm

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.

What’s ahead in IPO land for JFrog, Snowflake, Sumo Logic and Unity

By Alex Wilhelm

Welcome to Tuesday of TechCrunch Disrupt week. In a few hours, I’m hosting a panel about how startups can reach $100 million in annual recurring revenue (ARR) with the CEOs of Egnyte, GitLab and the President of Kaltura. It’s going to be a jam. Bring your questions!

Right now, however, let’s talk about some bigger companies, namely all the unicorns that are going public this week. We can set aside Corsair Gaming, Palantir and Asana, as they debut next week. This morning let’s get settled on what’s ahead for JFrog, Snowflake, Sumo Logic and Unity.


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


We explored the most recent pricing ranges for Snowflake and JFrog yesterday, helping set the stage. With both companies setting new, richer price targets for their debuts, the technology market looks hot. That’s good news for Sumo Logic and Unity, which should also begin trading this week.

Read on for your cheat sheet on all things upcoming from the realm of IPOs, and, in response to Twitter kerfuffle, notes on why Snowflake is seeing such investor demand despite a history of losses. It’s a good day to remind ourselves why some losses are very bad and others are pretty OK, given a certain set of circumstances.

Big-ass IPO week

After trading today we expect to see JFrog and Snowflake price their IPOs. As a quick reminder, this is what the two companies are expecting, starting with developer-focused service provider JFrog:

  • Price target: $39 to $41 per share
  • Implied valuation range: $3.46 billion to $3.64 billion, discounting underwriters’ shares
  • Final private valuation: $1.0 billion

SEC to investigate short-seller’s claims against Nikola, report says

By Kirsten Korosec

The U.S. Securities and Exchange Commission is reportedly looking into claims that Nikola Corp. is involved in an alleged “intricate fraud,” the latest development in a controversy that erupted last week just days after GM took an 11% stake in the newly public company.

Bloomberg reported Monday that the U.S. agency was examining the company to assess the merits of accusations made by short-seller Hindenburg Research. The Bloomberg report, which was based on unnamed sources, sent Nikola shares down more than 9% in after-hours trading.

Nikola’s statement, which was sent to TechCrunch, doesn’t answer the question of whether the SEC is in fact investigating the matter. The company said that on September 11, Nikola’s legal counsel “proactively contacted and briefed” the SEC regarding its “concerns pertaining to the Hindenburg report.”

“Nikola welcomes the SEC’s involvement in this matter,” the company added in the statement. TechCrunch has reached out to the SEC for confirmation that the agency is investigating the matter.

While this saga between Hindenburg Research and Nikola began last week, questions have swirled in recent months over some of the electric automaker’s past claims. The Hindenburg report, which was released September 10, caused Nikola shares to fall and its founder to take to Twitter in an effort to allay concerns. Hindenburg Research’s report raised questions about the validity of Nikola’s claims over the years, as well as accusations of nepotism.

Nikola issued Monday a carefully worded, point-by-point rebuttal that attempts to disprove Hindenburg Research’s report. Following each of the points that Nikola denies or explains, the company placed this statement: “These allegations by the short seller are false and misleading, and designed to manipulate the market to profit from a manufactured decline in Nikola’s stock price.”

“Nikola believes that the Hindenburg report, and the opportunistic timing of its publication shortly after announcement of Nikola’s partnership with General Motors Co. and the resulting positive share price reaction, was designed to provide a false impression to investors and to negatively manipulate the market in order to financially benefit short sellers, including Hindenburg itself,” Nikola said in its rebuttal issued Monday.

Despite Nikola’s lengthy report — and in some cases because of it — criticisms have arisen over the company’s previous promotional tactics, specifically surrounding its first hydrogen electric semi truck prototype, the Nikola One.

As low-code startups continue to attract VC interest, what’s driving customer demand?

By Alex Wilhelm

Investor interest in no-code, low-code apps and services advanced another step this morning with Airtable raising an outsized round. The $185 million investment into the popular database-and-spreadsheet service comes as it adds “new low-code and automation features,” per our own reporting.

The round comes after we’ve seen several VCs describe no- and low-code startups as part of their core investing theses, and observed how the same investors appear to be accelerating their investing pace into upstart companies that follow the ethos.


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


Undergirding much of the hype around apps that allow users to connect services, mix data sources and commit visual programming is the expectation that businesses will require more customized software than today’s developers will be able to supply. Low-code solutions could limit required developer inputs, while no-code services could obviate some need for developer time altogether. Both no- and low-code solutions could help alleviate the global developer shortage.

But underneath the view that there is a market mismatch between developer supply and demand is the anticipation that businesses will need more apps today than before, and even more in the future. This rising need for more business applications is key to today’s growing divergence between the availability and demand for software engineers.

The issue is something we explored talking with Appian, a public company that provides a low-code service that helps companies build apps.

Today we’re digging a little deeper into the topic, chatting with Mendix CEO Derek Roos. Mendix has reached nine-figure revenues with its low-code platform that helps other companies build apps, meaning that it has good perspective into what the market is actually demanding of itself and its low-code competition.

We want to learn a bit more about why business need so many apps, how COVID-19 has changed the low-code market and if Mendix is accelerating in 2020. If we can get all of that in hand, we’ll be better equipped to understand the growing no- and low-code startup realm.

A growing market

Mendix, based in Boston, raised around $38 million in known venture capital across a few rounds, including a $25 million Series B back in 2014. In 2018, Mendix partnered up with IBM to bring its service to their cloud, and later sold to Siemens for around $700 million the same year.

Is the vaunted cloud acceleration falling flat?

By Alex Wilhelm

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. 

Ready? Let’s talk money, startups and spicy IPO rumors.

Is the vaunted cloud acceleration falling flat?

This week we’re taking a look at the bad side of the cloud software market. In case you were avoiding the news over the last week, tech and software stocks are struggling. Not much compared to their 2020 gains, mind, but after months of only going up their recent declines have been notable. (As I write to you, the tech-heavy Nasdaq is headed for its worst week since March.)

The pullback makes some sense. Having watched SaaS and cloud valuations get stretched to historical highs, Slack’s earnings were an endcap on a good, but not-quite-as-good-as-expected set of results from public cloud and SaaS companies. 

As we’ve noted, most public software companies are not seeing their revenue growth accelerate. Some public software companies may be seeing their growth deceleration slow, but the number of public software companies actually accelerating in 2020 is tiny. The actually-accelerating group is Zoom, and maybe one or two other companies. 

Why is that, given all that we’ve heard about the presumably accelerating digital transformation? Slack earnings are a good explainer. The enterprise communications company’s recent filings explain that its COVID-bump has somewhat dissipated, while a number of COVID-related problems are persisting. 

Seeing recently risen valuations slip in the face of a lack of materially accelerated growth and some churn issues is reasonable. 

Does this matter for startups? Some. Public software valuations are still elevated compared to historical norms, which helps software startups defend their valuations and raise well. And there are plenty of startup hotspots as we’ve noted, including API-delivered startups enjoying time in the sun, as well as edtech startups that caught a COVID-related tailwind.

I am chatting with investors from a16z, Bessemer, and Canaan next week at Disrupt about the future of SaaS, collecting notes on the private-market side of this particular issue. So, more to come. But for now, I think we’ve seen the top of the peak and are now dealing more with reality than hype. Or, as public investors might say, the COVID trade has run its course and earnings will set the tone moving forward.

Market Notes

Moving on to market notes, a fintech stat, and some other bits of data for your consumption and edification:

A brief interlude: Disrupt is next week, you should come. You can enjoy it from the comfort of your couch. 

Various and Sundry

SaaS and cloud earnings continue to trickle in, which means I spent a good portion of my week talking to more execs at public companies. Short notes from Smartsheet, nCino and BigCommerce to follow, along with some final thoughts for your weekend.

  • On the valuations front, Smartsheet CEO Mark Mader told TechCrunch that “investors are thinking about how to balance historically high multiples with historically high potential returns in the space that’s still very young.” 
  • He added that no one doubts that cloud “is going to be the answer” to a lot of stuff, or that “people are [going to] change how they work,” but did note that cloud companies are not impervious to macro headwinds, because “cloud companies serve non-cloud companies,” and not merely companies in sectors that are excelling.
  • This fits neatly into our notes on Slack above. More on Smartsheet’s earnings here.
  • nCino had a good quarter, beating expectations and guiding well during its first public earnings report. However, like many other SaaS and cloud companies, it has lost some valuation altitude in recent weeks. It’s still miles above its IPO price, however.
  • I was curious about how the post-IPO period has been for the company’s CEO, Pierre Naudé, and his response was fun. Like all new public company CEOs, he made sure to note how quickly his team got back to work after the debut, but he also told The Exchange that he does now spend time that he used to invest in customers and “innovation” talking to analysts and investors. 
  • Being a public company, therefore, has time and focus costs that are worth considering, as we see so many tech shops approach the public markets.
  • And then there was BigCommerce, which went public quite recently. I got back on the horn with CEO Brent Bellm, wanting to learn a bit more about the current state of the e-commerce market. 
  • Here’s what the CEO had to say, lightly edited and condensed for clarity:

“I think it’s staying pretty hot. The surprising thing in the post-pandemic weeks was just how rapidly growth accelerated, and consumer and business adoption grew. We all kept saying ‘well at some point stores will reopen, and the growth rates will come back down.’ But the growth rates for actual sales running through stores continued to be very strong. You know, whether you look at our customer set, or [at] credit card data from Bank of America or others […] you can see quite clearly that e-commerce remains very, very hot. It’s a permanent change in behavior. Consumers have found a lot more places where they now like to buy online and reasons to like to buy online, and companies have found new and more effective ways to sell.”

  • This is probably a good reminder to turn our attention back to e-commerce when we get a chance post-Disrupt. 
  • And, finally, read Natasha on why rolling funds are blowing up, something that we talked about on the podcast this week.

That’s all the room we have. Hugs, fist bumps, and good luck.

Alex

VCs pour funding into edtech startups as COVID-19 shakes up the market

By Natasha Mascarenhas

A few weeks back, The Exchange looked into the pace of edtech exits, noting that over time, the sector has delivered rising exit volume. All startup verticals want to demonstrate a history of liquidity, so you might imagine that even before the COVID-19 pandemic, edtech fundraising was rising due to its improving exit profile.


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


And dollars invested into edtech startups did increase, with 2018 and 2019 recording historically-elevated results concerning edtech venture capital deals and venture capital dollars invested.

However, with COVID-19 pushing more students to learn from home and forcing schools to invest in new tooling and other digital capabilities that support remote-learning, a strengthening exit market and a market shift towards edtech services has led to an explosion in venture capital investment in the sector.

According to CBInsight’s data concerning the state of edtech venture capital activity, startups in the sector have already surpassed their 2019 venture capital dollar tally and are on-track to set a new record in 2020, besting even 2018’s elevated result. Whether more total edtech deals will be closed in 2020 is less clear, but if current pace holds, 2020 should come somewhat close to 2018’s edtech deal count.

What’s driving the huge boom in edtech’s venture capital results? Let’s dig into just that.

What’s driving API-powered startups forward in 2020?

By Alex Wilhelm

Startups that deliver products via an API are seeing momentum in 2020, as their method of serving customers becomes increasingly mainstream. And investors are taking note.

It’s not hard to find a startup with an API-based delivery model that is doing well this year. This column noted a grip of recently funded API-focused startups in May, for example, underscoring how attractive they are to venture capitalists today.

Yesterday, I caught up with Alpaca, a startup whose API allows other companies to add equities-trading capabilities to their own services. The company’s business is skyrocketing this year. According to data it provided to TechCrunch, Alpaca’s trading volume, processed for its developer users and customers, has grown from $388.1 million in January to nearly $1.6 billion in both June and July. Volume fell some in August, but according to CEO Yoshi Yokokawa, September’s trading volume could see Alpaca surpass its summer records.

Alpaca announced a $6 million round from Spark Capital last November that TechCrunch covered, with Social Leverage, Portag3, Fathom Capital and Zillionize helping boost its total capital raised to nearly $12 million. We confirmed with Yokokawa that his startup’s revenue scales with volume, meaning that the company’s top line has exploded this year, with trading volumes up 10x from July 2019 to July 2020.

Alpaca is a good example of what to think of when we consider an API-powered company versus something more more traditional, like Robinhood, which provides services to end users. Alpaca considers developers as its users, and those developers bring Alpaca to market in their own fashion.

The developer-first model can lead to efficiencies. As Twilio CEO Jeff Lawson told TechCrunch regarding new software products: “I don’t want to go through a sales process,” he said, adding that he also doesn’t want to wait “a week to get a call back” but would rather “start exploring now.” With many API companies offering a free tier or low-cost options for tinkering, lowering sales and marketing costs in certain instances when developers sell themselves on an API-delivered service.

So what?

What’s driving the API-delivered model forward in 2020? Or, more simply, why do I keep hearing from API-powered startups that are either raising money, or are seeing rapid growth?

Alpaca’s Yokokawa has a theory. According to the startup exec, two macro trends are coming together to push API startups forward. The first is a simple evolution of the tech industry towards a new software delivery model. Yokokawa drew a timeline for TechCrunch, from legacy IT systems to on-prem software, through SaaS to API-delivered services today, the last in the bunch offering what he views as the most flexibility. That trend has combined with more folks becoming developers, in his view, through traditional education, coding schools, and even no-code’s growth.

An industry shift towards software and services in an increasingly on-demand model (SaaS is more on-demand than on-prem software, and API-delivered tools are even more on-demand than SaaS) and more developers to help plug APIs into other apps could make for a nice tailwind for companies employing the business model.

To get a bit more on the where we stand today, The Exchange chatted with Shasta’s Isaac Roth and collected notes from two Mayfield investors, Patrick Salyer and Rajeev Batra. There’s a general air of bullishness around startups selling APIs. Let’s learn how it is impacting venture interest.

The investor perspective

Slack’s earnings detail how COVID-19 is both a help and a hindrance to cloud growth

By Alex Wilhelm

Slack’s shares are set to fall sharply this morning, down around 16% in pre-market trading. As the company beat analyst expectations last quarter and guided within range, the selloff might feel a little surprising.

Perhaps it shouldn’t.

I spoke with a VC last week about what the new benchmark results are for private SaaS companies, and to my surprise, he said software startups don’t have to grow at 100% to be fundable in today’s market. Given what I’d heard from other venture capitalists about how so much of their portfolios had found a COVID-19 growth bump, the perspectives felt incongruous.


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


Startups wanted to grow at a pace of more than 100% pre-pandemic, and some have accelerated since. So how could a startup growing less than three figures yearly be attractive? Throw in Zoom’s impressive earnings results and some warning signs from earlier this earnings cycle that cloud growth hasn’t wound up being quite as fast as expected felt diminished.

Slack’s earnings help sort out what’s going on.

Reading the company’s SEC filing related to earnings this morning, it’s hard to miss Slack’s notes about COVID-19. The enterprise communications company describes early benefits from the pandemic, along with lingering pain associated with its economic impacts. In short, the software-related COVID-bump could wind up leaving a hangover in the short- to medium-term.

This helps us understand why a software startup could be VC-attractive in 2020 without a 100% growth rate. Perhaps more SaaS and cloud startups than have been generally told are struggling, which means slower revenue expansion is palatable provided that other indicators are flashing green.

To understand what could be happening to your favorite startup, let’s tease apart Slack’s COVID-19-related business notes, starting with the good news, before turning to what I’ve penciled in as the bad news — and the even badder tidings.

JFrog’s IPO strong initial price range values it ahead of the larger Sumo Logic

By Alex Wilhelm

Despite the public markets posting a few days of losses, the IPO wave continues to crest as a number of well-known technology companies line up to float their equity on American exchanges. Most recently we saw e-commerce giant Wish file (albeit privately) and news that dating service Bumble could look to go public next year.

Those bits of news came on the heels of Airbnb filing, again privately, and the public release of IPO filings from Unity, Asana, Snowflake and, key for our work today, Sumo Logic and JFrog.


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


There are too many venture capital firms associated with the above companies to name here, but the mid-to-late-2020 IPO cohort is a fulcrum upon which a number of venture funds rest, their return profile waiting to see which way the scales tip.

Which made new IPO filings from Sumo Logic and JFrog this morning all the more exciting. The documents provide a bit of homework for us to handle, namely calculating the company’s valuation ranges. But when we do have those figures in place, we’ll be able to see what sort of revenue multiples each company may be able to earn during their public offerings and what sort of delta the former startups can build against their final, private valuations.

If you are just catching up to these IPOs, we have notes on Sumo Logic and JFrog’s earlier SEC filings ready for you. Let’s go!

JFrog and Sumo Logic set IPO price ranges

We’ll proceed in alphabetical order, kicking off with JFrog .

You can read JFrog’s new IPO filing here, which has all the notes you could want on its new price and past performance. Today, however, in honor of saving time, I’ll walk you through the key numbers quickly:

How one VC firm wound up with no-code startups as part of its investing thesis

By Alex Wilhelm

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. 

Ready? Let’s talk money, startups and spicy IPO rumors.

How one VC firm wound up with no-code startups as part of its investing thesis

Throughout all the chaos of 2020’s economic upheaval in the startup world, I’ve worked to pay more attention to low-code and no-code services. The short gist of chats I’ve had with investors and founders and public company execs in the past few weeks is that market awareness of no-code/low-code terminology is starting to spread more broadly.

Why? Again, summarizing aggressively, it seems that the gap between what different business units need (marketing, say) and what in-house or external engineering teams are capable of providing is widening. This means there is more total pain in the market, hunting for a solution, often with a tooling budget in hand.

Enter no-code and low-code startups, and even big-company services alike that can help non-developers do more without having to beg for engineering inputs.

I spoke with Arun Mathew this week. He’s a partner at Accel, a venture firm that has invested in all sorts of companies that you’ve heard of — including Webflow, which raised a $72 million Series A last August that Mathew led for his firm. (More on the round here, and notes from TechCrunch on Webflow’s early days here, and here, if you are curious.)

More interesting than that single round is how Accel wound up building a thesis around no-code startups. According to Mathew, Accel had made large investments into companies like Qualtrics, for example, when they were already pretty big and had found product-market fit. That same general approach led to the Webflow deal last year.

At the time, Webflow “wasn’t really defining what they were doing as n- code, they just said ‘we have a very simple drag and drop UI, to build websites, and soon full web applications, very simply,’ ” he told TechCrunch. But, according to Mathew, what Webflow was doing “lined up really well” with the “rising movement of no-code.”

From there, Accel “made a couple [more no-code] investments in Europe where [it has] an early-stage team and a growth team,” along with a few more in India. In the investor’s view, some of the investing activity was “thesis driven because we think [no-code is] a really interesting theme,” but some of the deals “happened opportunistically” where Accel had found “really talented founders in the space that we thought was interesting, executing on a vision that we found appealing.”

In the “span of a year, year-and-a-half,” Accel totted up “seven or eight companies in this no-code space,” which over the last five or six quarters became “a real thesis” for the firm, Mathew said. Accel now has “a global team” of around a dozen people “spending a lot of our time in and around no-code” he added.

Apologies for the length there, but what Mathew said makes me feel a bit less behind. After dipping a toe into learning more about no-code services and tooling (and, yes, low-code as well) it felt somewhat like I was playing catch-up. But as I covered that Webflow round and have since started paying more attention to no-code as well, perhaps you and I are right on time.

(We also recently ran an investor survey on the no-code topic, so hit it up if you want more VC scribbles on the topic.)

Market Notes

For Market Notes this week, we have four things. First, riffs from chats with two public company execs about the software market, some public market stuff and then some neat Airbnb spend data by which I am confounded:

  • I spoke with Apple MDM company Jamf’s CFO Jill Putman this week, after her company reported its first set of earnings as a public company. I wanted to know a bit more about the education market — a hot topic here at TechCrunch, given outsized rounds and huge market demand — and the medical world.
  • Regarding the software market for education, Putman noted that schools are buying lots of hardware, and that software sales should follow. Our read from that is that the boom in education software is not going to slow for some time as schools work on reopening.
  • Ditto the medical market, where Jamf has found uptake as hospitals roll out hardware to patients and families thereof to facilitate all sorts of demand that COVID has engendered. (Hardware needs software, enter Jamf!)
  • Chatting with the CFO our key takeaway was that there are still sectors that could generate a continued COVID tailwind, even if not all Jamf customers fit that bill. For startups that did catch a wave, this is probably good news.
  • And then there was Yext, a company that helps other companies’ customers find accurate information about them around the Web, and has recently gotten into the search game. Yext launched at a TechCrunch conference back in 2009, which is a neat bit of history. Anyway, Yext is public company now and we wanted to chat about which industries are driving growth for the former startup, and how the general climate for software is for the company, so we got on Zoom with its CEO, Howard Lerman.
  • So, which sectors are accelerating from Yext’s perspective? Government, education (again), insurance and financial services. Let that guide your take on the health of various startups.
  • Turning to the business climate, Lerman had some notes: “I will tell you in Q2,” he said, “things came back a bit from Q1.” In what sense? Retention rates, for one, according to the CEO. A return to form is welcome, but Lerman did caution that some companies were slower to “pull the trigger on big deals.”
  • Lerman also said that his perspective on the macro-climate has bounced back as well from a local-minima set around 30 days ago.

Public company execs are pretty guarded in how they talk because they have to be. But what Putman and Lerman seemed to intimate is that economic damage — provided you are selling to business, and not individuals — seems more contained on a per-sector basis than I would have anticipated. And that there are some good things ahead, at least in a handful of hot sectors.

Opening our aperture a bit, some SaaS companies struggled this week to meet investor expectations, even as more companies added themselves to the IPO queue. It’s going to be very busy for a few quarters. (Speaking of which, you can find the good and bad from the new Sumo IPO filing here.)

The economy is still garbage for many, but at least for companies it’s improving. And on that note, some data regarding Airbnb. According to the folks over at Edison Trends, things are going better for the home-booking site than I would have guessed. Per the group:

  • Airbnb’s bookings recovery outstripped its traditional rivals, growing “32% week-over-week” from late April into early June.
  • And, most critically: “Airbnb spending in July was up 22% over the previous July, and spending the week of August 17 was 75% higher than the equivalent week in 2019.”

Wild, right? Perhaps that’s why Airbnb has filed to go public.

Various and Sundry

We’re a tiny bit short on space, so I’ll keep our V&S dose short this week to respect your time. Here’s what I couldn’t not share:

And with that, we are out of room. Hugs, fist bumps and good vibes, and thank you so much for reading this little newsletter on the weekends. It’s a treat to write, and I hope you like it.

Hit me up with notes at alex.wilhelm@techcrunch.com. (I don’t know if you reply to this email if I will get the response. But try it so that we can find out?)

Alex

Palantir’s concentrated governance is great for execs, but what about shareholders?

By Alex Wilhelm

A few days ago I wrote down a few notes making a bullish case for Palantir, searching to find good news amidst the company’s huge historical deficits.

Heading into the next phase of Palantir’s march to the public markets, I was very curious to see how the company would hone its S-1 filing to give itself the best possible shot during its impending debut.


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


And we finally did get a new S-1/A filing, a document that our own Danny Crichton quickly parsed and covered. What he found was a set of amendments that seem to increase the chance that three Palantir insiders will control more than 50% of the company’s voting power forever, possibly making it a controlled company which would loose the firm from select regulatory requirements.

Danny dryly noted that “given the diminished voting power of employee and investor shares, it is possible that these voting provisions will negatively impact the final price of those shares.” That’s being polite.

Mulling this over this morning, I kept thinking about Snap, which sold stock in its IPO that gave new shareholders no votes at all, and Facebook, which is controlled by Mark Zuckerberg as his personal fiefdom. The two are not alone in this matter. There are a number of other public tech companies that provide certain groups of pre-IPO shareholders more votes than others on a per-share basis, though perhaps to a smaller degree than what Facebook has managed.

It feels like many startups (and former startups) have decided over time that having material shareholder input is a bad idea. That, in effect, they must run companies as not merely monarchies, but unquestioned ones to boot.

I am not entirely convinced that this is the best way to create long-term shareholder wealth.

If you are on the other side of this particular fence, I understand. After all, Facebook is a global juggernaut and Snap has finally managed to eke out stock-market gains to bring its value it back where it was around when it went public. (A three-year journey.)

But those arguments are only so good. You could easily argue that the two companies could have done much more with less self-sabotage (Facebook) and a bit more spend discipline (Snap).

What happens when public SaaS companies don’t meet heightened investor expectations?

By Alex Wilhelm

Late last week we discussed how, this deep into the earnings cycle, it appeared that public SaaS and cloud companies had largely made it through the Q2 gauntlet unscathed. Sure, through last week there was a report or two that wasn’t stellar, but by and large the results had been good and SaaS valuations were happily near all-time highs.


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That’s still the case today, albeit with some caveats. Yesterday, a few public SaaS and cloud companies were dinged sharply by investors after reporting their earnings and I want to talk about why.

My hunch: many SaaS companies that investors expected to accelerate during this period of more-rapid-than-anticipated digital transformation are not, or at least not enough to match market hopes. And that means that their results were not quite what investors expected. And, thus, down went their share prices.

The analogy for startups is pretty clear here, just slower. Public valuations are updated far more often than private valuations, so the stuff we’re seeing today in SaaS stocks won’t show up in SaaS startup valuations for a bit. But I wonder if the same expectation/reality gap that we can discern in a number of recent SaaS results could hit startups as well, with boards that were expecting more than will be delivered in time.

Overall, SaaS and cloud valuations are still strong. Zoom crushed the period. Salesforce did well, too. And with valuations high, revenue multiples remain historically stretched. So, I don’t think that today’s news changes the general market dynamic towards public SaaS companies, and thus SaaS startups. But yesterday’s results are a bit of a warning sign all the same.

Let’s explore.

Whoops

Friend of the column Jamin Ball compiled a list of the SaaS companies reporting yesterday, including MongoDB, Guidewire, SmartSheet, CrowdStrike, PagerDuty and Zuora. Those are the companies whose results we are exploring today.

To keep this post from becoming interminably long, we’ll be brief and direct. So, in bullet points and with terse language:

  • MongoDB: Shares up 2.2% in pre-market trading. MongoDB beat on revenue ($138.3 million vs. $126.8 million expected), and per-share profit. It also guided higher for current-quarter revenue than expectations ($137 million to $139 million vs. $130.6 million). So, MongoDB managed to crush earnings, smashed expectations, and was rewarded with a tiny 2.2% gain this morning. That result is not a counter-example to our thesis. It’s early confirmation.

The IPO parade continues as Wish files, Bumble targets an eventual debut

By Alex Wilhelm

Last Monday will go down in the books as a historic day for unicorn liquidity, as company after company dropped their IPO filings onto the internet for the world to read. It was great.

But this week is still managing a good grip of IPO news, with Wish announcing yesterday that it has filed privately to go public, and Bumble talking to bankers about a possible 2021 debut at a valuation of $6 to $8 billion, according to Bloomberg.


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


If you are tired of IPO news, it’s going to be a tough few quarters — I doubt that we are done seeing tech and otherwise venture-backed companies file and go public in the United States. We’re going to be busy.

This morning I want to chat a bit about the Wish IPO and possible Bumble debut. We’ll collect a little of what we know on each and see how possible market comps are performing. It will be fun!

Wish, Bumble

Let’s start with Wish as it is closer to getting out the door by a few quarters.

Wish is a well-funded e-commerce company that has raised around $1.4 billion, according to Crunchbase data. It most recently raised $300 million in a Series H that valued it at around $11.2 billion last August.

Those are big numbers. Behind them, it appears, has been a history of quick revenue growth. According to Forbes, Wish generated $1.9 billion in 2019, double what it brought in the year before. Wish, the same article notes, takes a cut of purchases, so the number we’re discussing is not gross merchandise value, but net revenue.

Given the global shift towards e-commerce in 2020, Wish could be enjoying another year of growth, easily pushing its annual revenue run rate into the $2 billion range. eBay has a price/sales ratio of around 4x, but with Wish growing much more quickly, it can likely surpass that figure. So, you can eyeball the math and see that Wish will likely be able to defend its final private valuation, provided that its losses aren’t too steep.

Frugal startups should pay attention to how JFrog’s IPO prices

By Alex Wilhelm

In last week’s IPO wave, one company fell a bit by the wayside amongst filings from better-known companies like Asana and Palantir. JFrog, a company that TechCrunch reported helps allows developers and companies deliver application updates “in the background without disturbing the user experience” when it raised $165 million in 2018, is positioned for an exciting debut.

Why? The unicorn — the same 2018 round valued JFrog at around $1.2 billion according to PitchBook data — has a unique blend of growth, margins and profitability that should make its pricing cycle incredibly interesting.


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JFrog will give us an insight into how Wall Street will value a fast-growing, managed software company that also doesn’t lose money. It’s not something we see often, and other market hopefuls like the aforementioned Asana and Palantir are far from similar levels of profitability.

Let’s take a quick look at what JFrog would be worth if it were a more normal — read: less profitable — SaaS company, and then ask what it might be worth as a cash-generating, recently profitable concern. The numbers are pretty surprising.

JFrog

If you want more on the basics of JFrog’s business and why developers and companies care about the company, head here. We’re only doing numbers today.

Back to the basics as a refresher from early last week, here’s what you need to know about JFrog’s business:

  • Revenue grew from $63.5 million in 2018 to $104.7 million in 2019 and from $46.1 million to $69.2 million from the first half of 2019 to the first half of 2020. Those gains of 65% and 60.1%, respectively, put JFrog on a comfortable growth pace for a company doing nine-figure revenues.
  • JFrog has lost less money as it has grown. From $1.00 per share in 2018 to $0.20 per share in 2019, and from $0.08 per-share in the first half of 2019 to just $0.02 per share in the first half of 2020.
  • JFrog’s gross margins have been 81% or better in every mutliquarter period we have record of.
  • JFrog’s operating cash flow has improved over time as well, rising from +$8.6 million in 2018 to $10 million in 2019, and from +$0.415 million in the first half of 2019 to +$5.9 million in the first half of 2020.
  • And, after some quarters of extremely limited losses, JFrog posted its first known (since Q1 2018) GAAP profitable quarter in Q2 2020, generating $1.7 million in net income off of revenues of $36.4 million in the same period.

Now ask yourself, what is that company worth?

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

By Alex Wilhelm

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.

 


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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 the world stays home, edtech’s Q2 venture totals rose sharply

By Alex Wilhelm

My friend and colleague Natasha Mascarenhas has been reporting on the edtech beat quite a lot in 2020. So far reading her coverage, I’ve discovered that not only is edtech less dull than I anticipated, it’s actually somewhat interesting on a regular basis.

This week, for example, India’s Byju bought WhiteHat Jr., another Indian edtech company, for $300 million. So what, you’re thinking, that’s just another startup deal? Yes, but it was an all-cash transaction, and White Hat Jr. was only 18 months old.

That’s enough to tell you that edtech is hot at the moment. Which makes sense: much of the world is sheltering at home with school and offices shuttered.


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

 

The COVID-19 era has provided an enormous boon to many software startups, though some more than others. Luckily for its boosters, edtech, after being neglected by VCs due to an expectation of small exits and long sales cycles thanks to red tape, is one of the sectors enjoying renewed interest from private investors and customers alike.

According to a Silicon Valley Bank (SVB) markets-focused report, edtech venture funding reached a local-maxima in Q2 2020, jumping more than 60% from the first quarter of this year to the second. On a year-over-year basis, Q2’s VC edtech results were even more impressive.

But, there’s some nuance to the data that should temper declamations that private edtech funding is forever changed.

This morning let’s peel apart the SVB data and parse through edtech funding rounds themselves from the second quarter to see what we can learn. COVID-19 is remaking the global economy as we speak, so it’s up to us to understand its evolving form.

An edtech boom?

From the top-line numbers, you’d be forgiven for thinking that edtech’s Q2 venture capital results were across-the-board impressive.

Before we dig into the results themselves, here’s the chart you need:

Robinhood’s Q2 soars

By Alex Wilhelm

Robinhood’s huge, two-part Series F round came partially in Q2 and partially in Q3. The app-based trading platform announced the first $280 million  in early May, valuing the company at around $8.3 billion, up from a prior price tag of around $7.6 billion.

Then in July, Robinhood tacked on $320 million more at the same price, raising its valuation to around $8.6 billion.

While it has long been known that savings and investing apps and services are seeing a boom in 2020, precisely what caused investors to pour $600 million more into this already-wealthy company was less immediately evident. Recent data released by Robinhood concerning one of its revenue sources may help explain the rapid-fire capital events.


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


Filings from Robinhood covering the April through June period, Q2 2020, indicate that the company’s revenue from payment for order flow, a method by which a broker is paid to route customer orders through a particular group, or party rose during the period. As TechCrunch has covered, Robinhood generates a sizable portion of its revenue from such activities.

The company is hardly alone in doing so. As a new report from The Block, shared with The Exchange ahead of publication notes, Robinhood’s Q2 payment for order flow haul was impressive, but not singularly so; trading houses like E*Trade and Charles Schwab also grew their incomes from order flow routing in the period.

But Robinhood’s gains come in the wake of the firm’s promise to shake up its options trading setup after a customer took their own life. As we’ve written, there is a tension between Robinhood’s desire to limit who can access options trading, its need to grow and the incomes options-related order flow can drive for the budding fintech giant.

This morning, however, we are focusing on revenue growth over other issues (more to come on those later). Let’s dig into Robinhood’s Q2 order flow revenue numbers and see what we can learn about its run rate and current valuation.

A big Q2

According to The Block’s own calculations, Robinhood saw saw its total payment for order flow revenue roughly double, rising from $90.9 million in Q1 2020 to $183.3 million in Q2 2020, a 102% increase.

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