A Week of IPOs with $ billions raised.

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That Was The Week, #37


It is a popular sport, especially outside of Silicon Valley, to poke fun at the valuations investors attribute to both private and public companies. This week gave the critics a wonderful opportunity to double down on the humor.

But before we get into that I want to strongly suggest you read the piece by Tomasz Tunguz of Redpoint Capital about how the market determines the multiple of revenue to attribute to a company's stock price. He very cleverly - after no doubt countless hours with data - reduces the variables down to a formula.

Forward Multiple = 6.3 + 38 x Revenue_Growth + 2 x Sales Efficiency

You will have to read his contribution to understand why. If you do, you will understand why Snowflake is valued by the market at 112 x forward looking 12 month revenue. Approximately $550m of revenue leads to a market cap of $62 billion. Or why Sumo Logic - valued at $2.33 billion, on revenues of $200m or so - is valued at only 10 times revenues.

The easy answer is that not all revenue is equal. Rate of Growth of revenue and efficiency of growing it translate into different sized opportunities over differing time periods.

With that said, the sight of many IPOs listing amidst the burning fires on the west coast and the global fire that is Covid seems incongruous. But it isn't. These valuations are genuine efforts by the market to quantify the opportunity to own each company's stock.

The Snowflake IPO is important for another reason. It gave the enemies of the IPO process an opportunity to fire a broadside at the Banks, like Morgan Stanley, who run the IPO sales process for many companies. The IPO priced, prior to trading, at $120 but opened at $245 and went as high as $319 before dropping back to around $225. At $120 a share the company raised $3.36 billion. Had it priced at $245 the amount raised would have been $6.86 billion. Critics like Bill Gurley will say that the underpricing denied the company over $3 billion in proceeds that instead went to IPO buyers who sold on the open. This, plain and simple, is pricing for friends and stealing from the company say the critics.

This narrative leads directly to the rise of SPACs. This week Chamath Palihapitiya announced that he has 3 more SPACs set up and ready to go. These SPACs are vehicles to enable a company to go public, and get cash, without an IPO. Instead of gifting cash to the friends of Morgan Stanley this method gifts cash to Chamath and his friends. Typically 20% of the SPAC is owned by the founders with the rest split between the investors and the company going public via merging with the SPAC. Direct Listings, also popular with Gurley and others, gifts stock to the pre-listing investors who get in early and see upside after the listing goes live. In all cases there is no free lunch. As the Snowflake CEO said after his company IPO'd:

Snowflake CEO Frank Slootman insisted the process had gone as planned. No. 1 on this year’s Cloud 100 list, Snowflake had prepared for a year, meeting with institutional investors and putting its ducks in a row for public scrutiny for months, including during its previous private funding round earlier in 2020, when the company underwent an intense pricing study as some early investors cashed out. Slootman’s third IPO after taking Data Domain and ServiceNow public, with many of the same key executives as in those processes, the roadshow had gone smoothly over Zoom, Slootman said.
“This is a very heavily vetted company,” Slootman told Forbes an interview on Wednesday afternoon. “The only problem today was that nobody wanted to be a seller because the conviction was so high.”

So all's well that ends well? Not quite. Bill Gurley continues to attack the IPO process. Andreessen continues to support it and others are busy building SPACS.

The truth is, in every variation of going public somebody buys shares prior to a stock trading. And in all cases they buy low. Sometimes, in the case of SPACs, for nothing. Here is a graphic that shows who benefits depending on the approach.

Keith Teare 2020

The only debate is which group gets to make money quickly. Investors ,who the Bankers sell to, SPAC organizers and their investors, or VCs. Clearly once this is understood it is easy to see why each group  prefers a specific approach. From the Company point of view all three are quite similar. But VCs like direct listings, Banks like IPOs and Chamath likes SPACs. I predict more and more SPACs and more VCs forming them.

Silicon Valley continues to build impressive growth companies that deliver fabulous investor returns. Covid has not changed that and seemingly nothing can. Where that wealth goes is one of the subjects of this years US election. Please go and vote.

Best Keith.

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That Was The Week Video, #37

Topic of the Week: The IPO Boom

Reads of the Week

Startup of the Week

Raise of the Week

Politics and Technology



Podcasts of the Week

Tweet of the Week

--Topic of the Week: The IPO Boom

From The Editor’s Desk: Snowflake Sets Stage for IPO Boom

Crunchbase News

  • JFrog , Sumo Logic , Unity Technologies and Amwell also went public, though didn’t have quite the staggering Wall Street debuts that Snowflake enjoyed as it became the largest-ever U.S. software IPO.
  • Last week, Snowflake set the momentum with its chart-topping IPO, which valued the data warehousing company at around $67 billion.

Chamath launches SPAC, SPAC and SPAC as he SPACs the world with SPACs


SPACs are going to rule the world, or at least, Chamath’s future portfolio.

Chamath Palihapitiya, the founder of Social Capital, has already tripled down on SPACs, the so-called “blank check” vehicle that takes private companies and flips them onto the public markets. His first SPAC bought Virgin Galactic last year, and his second SPAC bought Opendoor this week in a blockbuster deal valuing the instant home sale platform at $4.8 billion, less cash. His third SPAC officially fundraised in April, and has yet to announce a deal.

Now, it looks like he’s going to double down on his triple down. After the bell rung on Wall Street this Friday, the venture capitalist filed three new SPAC vehicles with the SEC. Social Capital Hedosophia Holdings Corp. IV has a headline value of $350 million, Social Capital Hedosophia Holdings Corp. V has a headline value of $650 million and Social Capital Hedosophia Holdings Corp. VI has a headline value of $1 billion.

Silicon Valley's most prominent VC firm had a banner week: $9 billion in IPO shares while helping TikTok negotiations


  • "Their wins with Unity, Snowflake, Sumo Logic serve as more evidence of them being exceptional investors." Sequoia invests at all stages with different funds, sometimes getting in on the ground floor and other times pouring in growth capital ahead of an IPO.
  • Sequoia has an 8.4% stake in Snowflake , which had the biggest software IPO ever, and is the largest owner of gaming company Unity .

--Reads of the Week

Power in the Valley

Substack, MDA Gabriele

  • Venture capital is not a field associated with charisma, with the referent power of Rasputin.
  • While investors could once rely on the reward power of all gate-keepers, increased competition in the asset class has forced VCs to try and draw from other power sources.

A review of the first eleven Techstars Unicorns

Hi, I'm David G. Cohen

  • Founders Co-op, Menlo Ventures, Floodgate, Mayfield, Trinity Ventures, and many others funded the company after the Techstars accelerator program.
  • Techstars Ventures 2009 invested in Twilio’s ( NYSE: TWLO ) initial angel round after founder and CEO Jeff Lawson visited Colorado to mentor at the Techstars Boulder Accelerator in 2009.

Trump’s TikTok Circus Will Have Lasting Consequences

Feed: All Latest

  • It’s been one hell of a week for TikTok. The company is scrambling to get the White House to approve a deal it struck with Oracle, designed to alleviate national security concerns the US government raised about TikTok’s Chinese ownership.
  • The US government says that TikTok’s data collection practices, combined with Chinese laws that require companies to cooperate with state intelligence services, are “creating unacceptable risks to our national security.”

--Startup of the Week

Spotify CEO Daniel Ek pledges $1Bn of his wealth to back Deeptech startups from Europe


  • At an online event today, Daniel Ek, the founder of Spotify, said he would invest 1 billion euros ($1.2 billion) of his personal fortune in deeptech “moonshot projects”, spread across the next 10 years.
  • “I get really frustrated when I see European entrepreneurs giving up on their amazing visions selling early on to non-European companies, or when some of the most promising tech talent in Europe leaves because they don’t feel valued here,” Ek said.

--Raise of the Week

GIC Leads $500 Million Funding into Consumer Credit Unicorn Affirm

Chief Investment Officer

  • A Singapore sovereign wealth fund has led a $500 million funding round into Affirm, the San Francisco fintech startup begun by PayPal co-founder Max Levchin that aims to cut out credit cards from online shopping.
  • GIC, formerly known as the Government of Singapore Investment Corp., and Durable Capital Partners are returning investors into the Bay Area consumer credit unicorn, the sovereign fund said last week

--Politics and Technology

A Silicon Valley billionaire is routing hundreds of millions to oust Trump. So why do some Democrats hate him?


  • But Hoffman is also the hub of a new Silicon Valley big-money network: His aides privately boast that he has raised hundreds of millions more to oust Trump by guiding the donations of a class of newly politicized donors who are now bankrolling the left.
  • Instead, Hoffman has emerged as a polarizing figure in the party — as popular in San Francisco as he is despised in parts of Washington — according to four dozen interviews with friends, Democratic donors, operatives, and officials who have worked or spoken with him and his team.

How Former AOL CEO Steve Case Aims To Address The Funding Gap To Black Founders

Crunchbase News

  • Revolution ’s Rise of the Rest has partnered with Atlanta-based Opportunity Hub (OHUB), a venture ecosystem platform which addresses coworking, education and investing inequities for Black founders.
  • Steve Case , the billionaire former CEO of AOL turned venture investor, has spent years working to make entrepreneurship more inclusive with his Rise of the Rest Seed Fund , which invests in startups away from the coastal tech hubs.

Facebook leaks show Mark Zuckerberg defending his decisions to angry employees

The Verge

  • Meanwhile, a growing number of employees was questioning the influence of its most prominent conservative executives over how the company developed and enforced policies in cases like these.
  • the community we serve tends to be, on average, ideologically a little bit more conservative than our employee base,” Zuckerberg said.


Investing in B2B Marketplaces: Charles Hudson (Precursor Ventures)

Bowery Capital

  • In addition to transaction volume, another thing I look for is how well does the founder understand the ways supply and demand are solving this problem today.
  • Charles Hudson is the Managing Partner and Founder of Precursor Ventures, an early­ stage venture capital firm focused on investing in the first institutional round of investment for the most promising software and hardware companies.

How to Predict the Forward Multiple of a Software Company

Tomasz Tunguz

High growth software companies are valued based on forward revenue multiples. In other words, to calculate the enterprise value of a business, you multiply the revenue by the forward multiple. But, how does the market set the multiple? What predicts the forward multiple, or correlates with it?

I pulled together the data for the basket of the roughly 60 publicly traded SaaS companies and ran a linear regression to understand the predictive power of the many key metrics reported by public companies.

The answer: revenue growth and sales efficiency dominate the model. Cash flow margins, net income margins (profitability), gross margins, and many other metrics are largely irrelevant.

Point Nine launches a new €99999999 seed fund for B2B SaaS and B2B marketplace startups


  • Along with the new fund, Point Nine announces the addition of two new Partners, Louis Coppey and Ricardo Sequerra Amram to its equal Partnership.
  • Today Point Nine , the Pan-European early stage venture capital firm focused on SaaS and digital marketplaces, launches its fifth fund called ‘P9 V’, a €99,999,999 seed fund.

London venture capital firm Kindred Capital closes second £81m fund.

City A.M.

  • London venture capital firm Kindred Capital has closed its second fund for seed-stage startups at £81m.
  • “This is the right size for a seed fund in Europe, it will enable us to invest in great companies, and keep the majority of capital in reserve to follow on.


5 Things that can Kill Your Startup


WeWork sells majority stake in Chinese entity, seeks localization

Fundings & Exits – TechCrunch

  • WeWork’s Chinese unit has secured a $200 million investment led by Shanghai-based equity firm Trustbridge Partners , which first backed WeWork China in its Series B round in 2018, the American co-working giant announced .
  • Following the investment, Trustbridge Partners will launch an extensive localization makeover for WeWork China, from “decision-making and management, product and business, through to operations and productivity,” said the WeWork China representative.

TransferWise reports accelerating revenue growth to 70% in its March, 2020 fiscal year

Fundings & Exits – TechCrunch

  • The pace at which business customers sign up for TransferWise appeared to include slower growth, moving from 10,000 per month in the March 2019 year to “over 10,000” in its most recent release.
  • The company first started generating profit “since 2017” per its own release, which we presume means the year ending March 2017.

Why Burnout Should be a Topic at Your Next Board Meeting, and What to Do About It

Tomasz Tunguz

  • Working longer hours while managing these stressors may compound the exhaustion.
  • One of the critical topics in many boardrooms today is managing employee burnout.

--Podcasts of the Week

Announcing the a16z Podcast Network: New Shows, More

Andreessen Horowitz

  • We could cover all this given our unique vantage point; a16z had already become a must-stop in Silicon Valley visits for every major organization seeking to understand the future… what if our podcast could extend such conversations, insights, and our networks out into the world, freely, to everyone?
  • The a16z Podcast main show will continue, but more focused than ever; other new shows will come (and go) — but no matter what, we remain committed to being your go-to place for understanding tech and the future.

--Tweet of the Week