I had a neat look into the world of mental health startup fundraising planned for this week, but after being slow-motion carpet-bombed by S-1s, that is now shoved off to Monday and we have to pause and talk about COVID-19.
The pandemic has been the most animating force for startups and venture capital in 2020, discounting the slow movement of global business into the digital realm. But COVID did more than that, as we all know. It crashed some companies as assuredly as it gave others a boost. For every Peloton there is probably a Toast, in other words.
Such is the case with this week’s crop of unicorn IPO candidates, though they are unsurprisingly weighted far more toward the COVID-accelerated cohort of startups instead of the group of startups that the pandemic cut off at the knees.
More simply, COVID-19 gave most of our recent IPOs a polite shove in the back, helping them jog a bit faster toward the public-offering finish line. Let’s talk about it.
Roblox, the gaming company that targets kids, has been a beneficiary during the COVID-19 pandemic, as folks stayed home and, it appears, gave their kids money to buy in-game currency so that their parents could have some peace. Great business, even if Roblox warned that growth could slow sharply next year, when compared to its epic 2020 gains.
But Roblox is hardly the only company taking advantage of COVID-19’s impacts on the market to get public while their numbers are stellar. We saw DoorDash file last week, crowing from atop a mountain of revenue growth that came in part from you and I trying to stay home since March. As it turns out you order more delivery when you can’t leave your house.
Affirm got a COVID-19 boost as well, with not only e-commerce spend growing — Affirm provides point-of-sale loans to consumers during online shopping — but also because Peloton took off, and lots of folks chose to finance their new exercise bike with the payment service. Call it a double-boost.
The IPO is well-timed. Wish falls into the same bucket, though it did hit some supply-chain and delivery issues due to the pandemic, so you could argue it either way.
Regardless, as we have seen from global numbers, COVID-19 is very much not done wreaking havoc on our health, happiness, and ability to go about normal life. So the trends that this week’s S-1s have shown us still have some room to run.
Which is irksome for Airbnb, a unicorn that was supposed to have debuted already via a direct listing, but instead had to hit pause, borrow money, lay off staff, and now jog to the startup finish line with less revenue in this Q3 than the last. In time, Airbnb will get back to full-speed, but among our new IPO candidates it’s the only company net-harmed by COVID-19. That makes it special.
There are other trends to keep tabs on, regarding the pandemic. Not every software company that you might expect to be thriving at the moment actually is; Workday shares are off 8% today as I write to you, because the company said that COVID-19 is harming its ability to land new customers. Here’s its CFO Robynne Sisco from its earnings call
Keep in mind, however, that while we have seen some recent stability in the underlying environment, headwinds due to COVID remains particularly to net new bookings. And given our subscription model, these headwinds that have impacted us all year will be more fully evident in next year’s subscription revenue weighing on our growth in the near-term.
Yeesh. So don’t look at recent IPOs and think that all things are good for all companies, or even all software companies. (To be clear, the pandemic is a human crisis, but my job is to talk about its business impacts so here we are. Hugs, and please stay as safe as you can.)
There was so much news this week that we have to be annoyingly summary.
I caught up with Brex CEO Henrique Dubugras the other day, giving The Exchange a chance to parse what happened to the company during the early COVID days when the company decided to cut staff. The short answer from the CEO is that the company went from growing 10% to 15% each month, to seeing negative growth — not a sin, Airbnb saw negative gross bookings for a few months earlier this year — and as the company had hired for a big year, it had to make cuts. Dubugras talked about how hard of a choice that was to make.
Brex’s business rebounded faster than the company expected, however, driven in part by strong new business formation — some data here — and companies rapidly moving into the digital realm and moving to finance systems like Brex’s.
Looking forward, Dubugras wants to expand the pool of companies that Brex can underwrite, which makes sense as that would open up its market size quite a lot. And the company is as remote as companies are now, with its CEO opening up during our chat about the pros and cons of the move. Happily for the business fintech unicorn, Dubugras said that some of the negatives of companies working more remotely haven’t been as tough as expected.
Next up: Growth metric. Verbit, a startup that uses AI to transcribe and caption videos, raised a $ 60 million Series C this week led by Sapphire Ventures. I couldn’t get to the round, but the company did note in its release that it has seen 400% year-over-year revenue growth, and that its “revenue run-rate [has] grown five-fold since 2019.” Nice.
Jai Das led the round for Verbit, and, in a quirk of good timing, I’m hosting an Extra Crunch Live with him in a few weeks. (Extra Crunch sub required for that, head here if you need one. The discount code ‘EQUITY’ should still be working if it helps.)
Telos, a Virginia-based cybersecurity and identity company went public this week. It fell under our radar because there is more news than we have hands to type it up. Such is the rapid-fire news cycle of late 2020. But, to catch us both up, Telos priced midrange but with an upsized offering, valuing it around $ 1 billion, according to MarketWatch.
After going public, Telos shares have performed well. Cybersecurity is having one hell of a year.
Turning back to our favorite topic in the world, SaaS, ProfitWell’s Patrick Campbell dropped a grip of data on the impact of COVID-19 on the B2B SaaS market. Mostly it’s positive. There was a hit early on, but then growth seems to have accelerated. Just keep in mind the Workday example from earlier; not everyone is in software growth paradise as 2020 comes to a close.
And, finally, after Affirm released its S-1 filing, competing service Klarna decided it was a good time to drop some performance data of its own. First of all, Klarna — thanks. We like data. Second of all, just go public. Klarna said that it grew from 10 million customers in the United States to 11 million in three weeks, and that the second statistic was up 106% compared to its year-ago tally.
Affirm, you are now required by honor to update your S-1 with even more data as an arch-nerd clapback. Sorry, I don’t make the rules.
Various and Sundry
- Robinhood is no longer going to have no CEO two CEOs, it will now have one CEO. Good, The TechCrunch Exchange approves of all things IPO-prep.
- And speaking of Robinhood, this week The Exchange tried to figure out how much it grew in Q3. The answer? Not as much as it grew in Q2.
- Lime is profitable now? Mostly. What a turnaround.
- Bird wants to take flight via a SPAC. We have our doubts.
- Thank you, Google Chrome team.
- SaaS VCs are still super bullish on software growth, as Bessemer’s Byron Deeter made clear this week.
- This is what I look like when I am asleep.
Alright, that’s enough of all that. Chat to you soon, and I hope that you are safe and well and good.
Are you tired? I am. What a week. But, if you kept your eyes off American politics and instead focused on the stock market, this was not a week of stress at all. It was a celebration.
Yes, the election appears to be influencing stocks, with investors delighted at what could be a divided government. Their bet is that with different parties in control of different bits of the government, nothing will happen, and thus taxes and regulation won’t change. You can handicap that as you wish.
Regardless, this week’s stock market boom was a multifaceted affair. Software stocks rallied as the summer-era trade appeared to come back into vogue, in which investors pour capital into SaaS and cloud companies in hopes of parking their wealth into something with growth potential. Software earnings also look pretty good thus far (we chatted with JFrog and Ping Identity and BigCommerce), improving on their early performance.
Big tech stocks rose, as well. All this is to say that after some fear in the market a week ago, things are back to being heated for tech companies. And it is, as we expected, flushing out the next wave of IPOs.
Airbnb is expected to file publicly early next week (we have four questions here that we cannot wait to get answered), and Upstart actually filed this week, which you probably missed because you were watching something else. No worries. We are here for you.
Another notable possible include DoorDash, now unshackled from its expensive California regulatory battle. How many debuts shall we see? Hopefully many.
Upstart’s IPO filing brings a fintech IPO to the fore, and overall its numbers are pretty good if you discount worries about its customer concentration. Its debut could augur well for fintech as a whole, a segment of the startup population that, when viewed through the lens of PayPal’s earnings, is having a hell of a year.
Fintech VCs are active, as well, dropping over $ 10 billion into startups focusing on financial technology products and services in Q3. Payments, insurtech, wealth management and banking startups caught our eye as sectors to watch in that niche.
It was not a perfect week for fintech, however, as the U.S. government decided that the Visa-Plaid deal should not happen. Damn. As discussed on Equity, this deal could limit M&A interest for fintech startups from large players. Does that mean that fintech IPOs, then, have to carry the liquidity bucket for the sector?
Maybe! And if so, Upstart’s impending flotation seems to take on extra importance. We’ll keep you posted.
- Moving along, the Ant Group IPO termination by the Chinese government was probably the biggest tech story of the week, though as the company is worth a few hundred billion, it’s not really a startup event. For China, it’s a bad day, as it undercuts its goal of becoming a global financial center. For Ant, it’s a huge setback. For Jack Ma, it’s a warning, if not more.
- The nine-figure neobank rounds? Not done yet.
- Pony’s epic raise this week makes the point that self-driving tech is not dead. Indeed, the great race to let computers drive continues. Just more slowly than everyone had hoped.
- Udacity underscored the edtech boom by raising $ 75 million in debt and reported “Q3 bookings up by 120% year-over-year and average run rates up 260% in H1 2020.” Our own Natasha Mascarenhas also reported on booming edtech M&A volume, again highlighting that edtech has gone from zero to hero in 2020, at least from a VC perspective.
- $ 30 million for Hustle Fund, and €66.5M for All Iron Ventures, among other VC raises this week.
- ByteDance is looking for $ 2 billion at a valuation of $ 180 billion? Also, what happened to the whole TikTok fiasco?
- And TikTok’s rival’s IPO filing really shows how hard it is to build a similar network. It’s also very expensive.
Various and Sundry
Sticking under our target word count for the first time in so long I nearly forgot what it is, here are a few iotas and crumbs for your weekend:
- The volcano method for understanding the fintech revolution
- How Fortnite plans to get back onto iOS
- VCs dropping Form D filings on Election Day did not prevent us from finding them
- Some good news and some great news
Have a good weekend. Stay safe. Fight COVID-19. And listen to this.