Snowflake, Unity, JFrog move towards IPOs despite public market turmoil
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Warren Buffet is eager to invest in a money-burning SaaS unicorn that is about to IPO. Despite recent tech stock declines and growing fears of US election turbulence, this is one reason that Snowflake is on track to be one of the biggest offerings of the year. And it is not the only company defying the pandemic and newer problems in order to get out of the gate soon.
First, here’s Alex Wilhelm with more Snowflake filing details:
The $75 to $85 per-share IPO price target values the firm at between $20.9 billion and $23.7 billion, huge sums for the private company. Its IPO could raise more than $2.7 billion for the startup. Snowflake was last valued at around $12.5 billion when it raised a Series G worth $479 million earlier this year.
Built into those valuation projections are two private placements of stock in Snowflake, $250 million apiece from both Salesforce, the well-known CRM player, and Berkshire Hathaway, better known for its investment returns in the 80s and 90s, Cherry Coke and Charlie Munger’s humor. Jokes aside, the inclusion of Salesforce in the IPO is notable, but not a shock, but Berkshire taking part in the public market debut of Snowflake, a company with historic losses that are nigh-tyrannical, is.
Today, “epic growth, improving gross margins and dramatically curtailed losses” are factors that lure investors like Buffett, Alex concludes.
In other pre-IPO analysis this week, Eric Peckham takes a deeper look at Unity this week, updating a massive analysis he had done last year. Basically, the game engine creator could be more central to our online future than many seem to realize today:
Much of the press about Unity’s S-1 filing mischaracterizes the business. Unity is easily misunderstood because most people who aren’t (game) developers don’t know what a game engine actually does, because Unity has numerous revenue streams, and because Unity and the competitor it is most compared to — Epic Games — only partially overlap in their businesses….
For those in the gaming industry who are familiar with Unity, the S-1 might surprise you in a few regards. The Asset Store is a much smaller business that you might think, Unity is more of an enterprise software company than a self-service platform for indie devs and advertising solutions appear to make up the largest segment of Unity’s revenue.
In an accompanying analysis for Extra Crunch, he digs into the filing and maps out the bear and bull cases for the company. Some of the biggest issues he notes are that it is still fairly reliant on advertising (even though it wants a SaaS multiple) and it is continuing to lose lots of money on ambitious expansions. So this is probably not Warren Buffett’s type of frozen dessert, if you will. Risk-seekers and futurists, however, will want to try this free sample of the bull case:
Game engines are eating the world… A vast swath of entertainment and work activities already center on interactive content. Unity has demonstrated value and early adoption across numerous industries for a long list of use cases; it is on the precipice of entering the daily workload of millions of professionals, from engineers to industrial designers to film producers to marketers. Its Create Solutions division is on a path to becoming something of a next generation Adobe ($11 billion in 2019 revenue): A creative suite used by design, engineering, marketing and sales teams across industries.
As AR and VR technology expands into mainstream use over the decade ahead, Unity’s adoption will only expand further. The majority of AR and VR content is already made with Unity’s engine and Unity’s R&D is improving the ease of creating such content by less technical professionals (and students). This positions Unity to expand into key functions higher up in the tech/content stack of mixed reality by providing identity, app distribution, payment and other solutions across content experiences.
Elsewhere in our IPO coverage, Danny Crichton got the details about Palantir insiders accelerating their stock sales for Extra Crunch, and Alex dug into the fresh Sumo Logic and JFrog filings S-1 filings.
Two considerations of SPACs
Special purpose acquisition companies are a thing now for tech startups that want to go public, but are they the best thing? Here’s top seed-VC investor Josh Kopelman’s take, via an interview from this week with Connie Loizos.
On the one hand, just for fun, I made sure that we owned Lastround.com in case we ever wanted to launch our SPAC. [Laughs.] But it’s hard to know the true benefit of a SPAC. And I think that now that we’ve begun to see a market shift toward allowing direct listings with a fundraising component, you might see that as a far more viable and frequent fundraising or a liquidity device.
A fresh startup trend he’s more positive about is rolling funds (short-window raises for small very early investments, like the new offering from AngelList).
But back to SPACs. George Arison, cofounder and co-CEO of car-buying unicorn Shift, wrote a guest post for Extra Crunch this week about how he has approached taking his own company through a SPAC. Among other things, he says, private investments in public equity are not only good but essential:
There are some in Silicon Valley who think that raising a PIPE is a bad idea — quite frankly, this is patently false. A core reason why SPACs work today, and why they differ from the first generation of SPACs that often did not work, is because of the PIPE process. The PIPE period allows companies to raise more capital, to validate valuations, and it also creates a pathway to transition “special situations” investors to fundamental investors that you want as long-term shareholders.
A pause for Belarus, and PandaDoc employees
After Belarus-born PandaDoc CEO Mikita Mikado publicly supported opposition to his country’s dictatorship, state police raided the company’s large operation in the country and imprisoned four of its employees on spurious charges. As they fight for justice for their colleagues, and for the country’s political process, they’re planning to close operations in the country, and are joining with other startups to highlight the damage to the local tech scene. More about the movement in the subtitled video below:
Investor surveys: proptech’s future, Warsaw and more
We’ve been trying to understand what is really going on with real estate and proptech, given the various impacts the traditionally glacial sector has experienced lately (pandemic, remote work, retail issues etc.). On Tuesday we ran the second part of our most recent survey, focused on present and future opportunities. Here’s Clelia Warburg Peters, venture partner at Bain Capital Ventures, about making peace with real estate agents and focusing on financial and processing aspect that have not been disrupted in a very long time
Up until recently, the innovation in the residential space was all focused on disintermediating the real estate broker, and I think the most sophisticated entrepreneurs are increasingly understanding that service is a core component of a home sale… [T]he bigger opportunity is finding a way to leverage the position of the real estate agent (in whatever form) to sell affiliated products, including title, mortgage and home insurance or to innovate in those products themselves.
Across the week
The whole crew was back, with Natasha Mascarenhas and Danny Crichton and myself chattering, and Chris Gates behind the scenes tweaking the dials as always. This week was a real team effort as we are heading into the maw of Disrupt — more here, see you there — but there was a lot of news all the same.
So, here’s what we got to:
- AngelList is doubling down on rolling funds, driving that SaaS revenue into the firm that is also investing in the rolling funds. So that’s neat. (Really!)
- Edtech stayed hot this week with Byju’s raising $500 million from Silver Lake. Founded back in 2011, Byju’s is the highest-valued edtech company that we can think of, now worth $10.8 billion.
- And speaking of Silver Lake, the group just poured $1 billion into a part of the Reliance empire, this time Reliance Retail. And we talked about JioMart, which is taking on both Flipkart and Amazon in the country.
- Next there were two companies with names that start with “S” that raised $100 million in the last week, namely Snyk — more here — and Sprinklr — more here.
- Sticking to our “S” theme, Slack’s earnings were incredibly interesting. The company’s quarter didn’t get plaudits from investors, and it did note some negative COVID impacts that could impact startups as well.
- And, one more S-company to get through: Snowflake. We were all a-twitter about the company’s new valuation range and the fact that fucking Berkshire Hathaway is going to invest in it. That’s wild! What a thing!
- Finally on the IPO front, we did a quick Palantir update. Danny has all the latest here.