Big revenues, huge valuations and major losses: charting the era of the unicorn IPO

We can make charts galore about the tech IPO market. Yet none of them diminish the profound sense that we are in uncharted territory.

Never before have so many companies with such high revenues gone public at such lofty valuations, all while sustaining such massive losses. If you’re a “growth matters most” investor, these are exciting times in IPO-land. If you’re the old-fashioned value type who prefers profits, it may be best to sit out this cycle.

Believers in putting market dominance before profits got their biggest IPO opportunity perhaps ever last week, with Uber’s much-awaited dud of a market debut. With a market cap hovering around $64 billion, Uber is far below the $120 billion it was initially rumored to target. Nonetheless, one could convincingly argue it’s still a rich valuation for a company that just posted a Q1 loss of around $1 billion on $3 billion in revenue.

So how do Uber’s revenues, losses and valuation stack up amidst the recent crop of unicorn IPOs? To put things in context, we assembled a list of 15 tech unicorns that went public over the past three quarters. We compared their valuations, along with revenues and losses for 2018 (in most cases the most recently available data), in the chart below:

 

Put these companies altogether in a pot, and they’d make one enormous, money-losing super-unicorn, with more than $25 billion in annual revenue coupled to more than $6 billion in losses. It’ll be interesting to revisit this list in a few quarters to see if that pattern changes, and profits become more commonplace.

History

It’s easy to draw comparisons to the decades-old dot-com bubble, but this time things are different. During the dot-com bubble, I remember penning this lead sentence:

“If the era of the Internet IPO had a theme song, it might be this: There’s no business like no business.”

That notion made sense for bubble-era companies, which commonly went public a few years after inception, before amassing meaningful revenues.

That tune won’t work this time around. If the era of the unicorn IPO had a theme song, it wouldn’t be nearly as catchy. Maybe something like: “There’s no business like lots of business and lots of losses too.”

I won’t be buying tickets to that musical. But when it comes to buying IPO shares, the unicorn proposition is a bit more appealing than the 2000 cycle. After all, it’s reasonably plausible for a company with dominant market share to tweak its margins over time. It’s a lot harder to grow revenues from nothing to hundreds of millions or billions, particularly if investors grow averse to funding continued losses.

Of course, the dot-com bubble and the unicorn IPO era do share a common theme: Investors are betting on an optimistic vision of future potential. If expectations don’t pan out, expect share prices to follow suit.

Startups Weekly: There’s an alternative to raising VC and it’s called revenue-based financing

Revenue-based financing is on the rise, at least according to Lighter Capital, a firm that doles out entrepreneur-friendly debt capital.

What exactly is RBF you ask? It’s a relatively new form of funding for tech companies that are posting monthly recurring revenue. Here’s how Lighter Capital, which completed 500 RBF deals in 2018, explains it: “It’s an alternative funding model that mixes some aspects of debt and equity. Most RBF is technically structured as a loan. However, RBF investors’ returns are tied directly to the startup’s performance, which is more like equity.”

Source: Lighter Capital

What’s the appeal? As I said, RBFs are essentially dressed up debt rounds. Founders who opt for RBFs as opposed to venture capital deals hold on to all their equity and they don’t get stuck on the VC hamster wheel, the process in which you are forced to continually accept VC while losing more and more equity as a means of pleasing your investors.

RBFs, however, are better than traditional debt rounds because the investors are more incentivized to help the companies they invest in because they are receiving a certain portion of that business’s monthly revenues, typically 1% to 9%. Eventually, as is explained thoroughly in Lighter Capital’s newest RBF report, monthly payments come to an end, usually 1.3 to 2.5X the amount of the original financing, a multiple referred to as the “cap.” Three to five years down the line, any unpaid amount of said cap is due back to the investor. When all is said in done, ideally, the startup has grown with the support of the capital and hasn’t lost any equity.

At this point, they could opt to raise additional revenue-based capital, they could turn to venture capital or they could tap a tech bank to help them get to the next step. The idea is RBF is easier on the founder and it allows them optionality, something that is often lost when companies turn to VCs.

IPO corner, rapid-fire edition

Slack’s direct listing will be on June 20th. Get excited.

China’s Luckin Coffee raised $650 million in upsized U.S. IPO

Crowdstrike, a cybersecurity unicorn, dropped its S-1.

Freelance marketplace Fiverr has filed to go public on the NYSE.

Plus, I had a long and comprehensive conversation with Zoom CEO Eric Yuan this week about the company’s closely watched IPO. You can read the full transcript here.

Second Chances

Silicon Valley entrepreneur Hosain Rahman, the man behind Jawbone, has managed to raise $65.4 million for his new company, according to an SEC filing. The paperwork, coincidentally or otherwise, was processed while most of the world’s attention was focused on Uber’s IPO. Jawbone, if you remember, produced wireless speakers and Bluetooth earpieces, and went kaput in 2017 after burning up $1 billion in venture funding over the course of 10 years. Ouch.

More startup capital

Funds!

On the heels of enterprise startup UiPath raising at a $7 billion valuation, the startup’s biggest investor is announcing a new fund to double down on making more investments in Europe. VC firm Accel has closed a $575 million fund — money that it plans to use to back startups in Europe and Israel, investing primarily at the Series A stage in a range of between $5 million and $15 million, reports TechCrunch’s Ingrid Lunden. Plus, take a closer look at Contrary Capital. Part accelerator, part VC fund, Contrary writes small checks to student entrepreneurs and recent college dropouts.

Extra Crunch

Our paying subscribers are in for a treat this week. Our in-house venture capital expert Danny Crichton wrote down some thoughts on Uber and Lyft’s investment bankers. Here’s a snippet: “Startup CEOs heading to the public markets have a love/hate relationship with their investment bankers. On one hand, they are helpful in introducing a company to a wide range of asset managers who will hopefully hold their company’s stock for the long term, reducing price volatility and by extension, employee churn. On the other hand, they are flagrantly expensive, costing millions of dollars in underwriting fees and related expenses…”

Read the full story here and sign up for Extra Crunch here.

#Equitypod

If you enjoy this newsletter, be sure to check out TechCrunch’s venture-focused podcast, Equity. In this week’s episode, available here, Crunchbase News editor-in-chief Alex Wilhelm and I chat about the notable venture rounds of the week, CrowdStrike’s IPO and more of this week’s headlines.

Want more TechCrunch newsletters? Sign up here.

‘Crypto exchange’ Goxtrade caught using other people’s photos on its staff page

Alleged cryptocurrency exchange Goxtrade bills itself as a “trusted platform for trading bitcoins,” but its staff page is filled with photos of people of pulled seemingly at random from the internet.

The alleged exchange, which claimed to debut in 2017 yet its website is only a little more than a week old, used photos taken from social media profiles and other company websites not associated with the company.

Bizarrely, the alleged exchange didn’t bother to change all of the names of the people whose photos it used.

Amber Baldet, co-founder of Clovyr, a prominent figure in the blockchain community, and listed in Fortune’s ’40 Under 40′, was one of the people whose name and photos appeared on the site.

“Fraud alert: I am not a developer at Goxtrade and probably their entire business is a lie,” she tweeted Friday.

Nearly all of the names are accurate but have no connection to the site. (Image: TechCrunch)

Goxtrade claims to be an exchange that lets users “receive, send and trade cryptocurrency.” After we created an account and signed in, it’s not clear if the site even works. But the online chat room has hundreds of messages of users trying to trade their cryptocurrencies. The site’s name appears to associate closely with Mt. Gox, a failed cryptocurrency exchange that collapsed after it was hacked. At its 2014 peak, the exchange handled more than 70 percent of all bitcoin transactions. More than $450 million in bitcoins were stolen in the apparent breach.

Baldet isn’t the only person wrongly associated with the suspect site.

TechCrunch has confirmed the other photos on the site belong to other people seemingly chosen at random — including a claims specialist in Illinois, a lawyer in Germany, and an operations manager in Melbourne.

Another person whose photo was used without permission is Tom Blomfield, chief executive of digital bank Monzo. In a tweet, Blomfield — who was listed on the alleged exchange as “Arnold Blomfield” — said his legal team has filed complaints with the site’s hosts.

But things get weirder than just stolen staff photos.

Hours after the site was first flagged, Cloudflare now warns users that the alleged exchange is a suspected phishing site. (Image: TechCrunch)

GoxTrade lists its registered address as Heron Tower, one of the new skyscrapers in London. We checked the listings and there’s no company listed in the building of the same name. There’s also no mention of Goxtrade in the U.K.’s registry of companies and businesses. When we checked its listed registered number per its terms and conditions page, the listing points to an entirely unrelated clothing company in Birmingham that dissolved two years ago.

Later in the day, networking giant Cloudflare, which provides its service, flagged the site as a phishing site.

We reached out to Goxtrade by email prior to publication but did not hear back. When we checked, Goxtrade’s mail records was pointing to an email address run by Yandex, a Russian internet company.

It’s not the first time a cryptocurrency startup has been called into question for using other people’s photos on their staff pages. After raising more than $830,000, Miroskii was caught listing actor Ryan Gosling as one of its graphic designers. Almost every photo later transpired to have been lifted from another source. The company later claimed it was hacked.

Cryptocurrency-related scams are not rare. Many have taken what they’ve raised and gone dark, never to be seen again. We’ve covered a fair number here on TechCrunch, including a massive $660 million scam from 2018.

A fair warning with Goxtrade: all signs seem to point to yet another scam.

Read more:

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Fastly pops in public offering showing that there’s still money for tech IPOs

Shares of Fastly, the service that’s used by websites to ensure that they can load faster, have popped in its first hours of trading.

The company, which priced its public offering at around $16 — the top of the estimated range for its public offering — have risen more than 50% since their debut on public markets to trade at $25.01.

It’s a sharp contrast to the public offering last week from Uber, which is only just now scratching back to its initial offering price after a week of trading underwater, and an indicator that there’s still some open space in the IPO window for companies to raise money on public markets, despite ongoing uncertainties stemming from the trade war with China.

Compared with other recent public offerings, Fastly’s balance sheet looks pretty okay. Its losses are narrowing (both on an absolute and per-share basis according to its public filing), but the company is paying more for its revenue.

San Francisco-based Fastly competes with companies that include Akamai, Amazon, Cisco and Verizon, providing data centers and a content-distribution service to deliver videos from companies like The New York Times, Ticketmaster, New Relic and Spotify.

Last year, the company reported revenues of $144.6 million and a net loss of $30.9 million, up from $104.9 million in revenue and $32.5 million in losses in the year ago period. Revenue was up more than 38% and losses narrowed by 5% over the course of the year.

The outcome is a nice win for Fastly investors, including August Capital, Iconiq Strategic Partners, O’Reilly AlphaTech Ventures and Amplify Partners, which backed the company with $219 million in funding over the eight years since Artur Bergman founded the business in 2011.

President Trump Has Decided Not to Impose New Tariffs on Cars and Auto Parts – for Now

(WASHINGTON) — President Donald Trump is delaying any decision to impose auto tariffs on car and auto part imports, deciding against ratcheting up trade disputes or impacting talks with European nations and Japan.

Trump announced his decision to delay for up to six months in a proclamation issued by the White House on Friday.

He was required to make a decision on Commerce Department recommendations aimed to protect the U.S. auto industry, based on national security concerns.

Trump directed his trade team to pursue negotiations and address the impact that imports are having on the U.S. auto industry and its ability to invest in new research and development that he says is critical to the nation’s security.

Trump says he’ll decide whether to take further action in 180 days.

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