By one estimate, there will be “only” 875 IPOs this year — more than double the previous record set in 2000, when 406 companies went public and raised $93 billion in the process. Now, 21 years later, 500 SPACs and 375 traditional IPOs are expected to generate a whopping $250 billion in proceeds, nearly tripling the old 2000 record.
SPACs remain a popular way for growing companies to exit, as demonstrated by the multiple new entrants being registered each day with the SEC. But not all the news is SPACtacular: redemption rates are high and soaring, which could endanger the exits’ longer-term prospects and the health of the PIPE investors. Whenever we at West Coast Equity Partners opt for a PIPE investment, we carefully choose only the best companies where all the fundamentals — revenues, earnings, profit margins, and other data supporting a company’s current value — are aligned for strong and reliable future growth.
As SPACs wobble, direct listings are picking up the slack. Some have performed remarkably well in recent months, transferring gains from institutional to retail investors and pre-IPO shareholders.
It’s no surprise that the hottest business models in tech right now focus on AI, space, and fintech, but that’s easy to see simply by looking at our portfolio.
As we enter the fourth quarter of 2021, the markets for pre-IPO direct investments and secondary transactions continue to be robust. SpaceX, Stripe, DataRobot, Klarna, Arctic Wolf, Scopely, and Anduril remain the most coveted stocks. Their equity is extremely hard to come by, and only the best firms in private equity — like us — are lucky enough to hold it.
Based in Sweden, Klarna provides a range of payment and online shopping solutions. Besides the recommendations and rewards programs that virtually everyone now offers, Klarna also lets shoppers split their purchases into a few interest-free payments. Just over three months after its last funding round in March, when Klarna raised $1 billion at a $31-billion valuation, Klarna announced in June that it had raised another $639 million at a breathtaking post-money valuation of $45.6 billion in a round led by the SoftBank Vision Fund 2. We invested in Klarna when its valuation was close to what it had been back in March, and we are thrilled to see our investment gain roughly 50% in about a quarter!
SpaceX needs no introduction. It is the most recognized and most dynamic private space-flight company. And unlike virtually every other player in the space … er … space, SpaceX already has billions of dollars annual revenue, a multi-billion-dollar backlog and highly promising future growth prospects. Whether as the go-to support service for NASA and the Pentagon or providing planet-wide internet access with Starlink, SpaceX is finding ever more ways to pay for its high-tech rocket ships.
When it comes to the size of the space industry, it depends on who you ask. Morgan Stanley estimates that the global space industry could generate $500 billion in revenue in 2027 and over $1 trillion in 2040. Bank of America Merrill Lynch, on the other hand, expects the space industry to octuple over the next three decades to at least $2.7 trillion. Copious research has convinced us that SpaceX, together with its Starlink, is in a class by itself in space-tech. Its current size bodes well for a trillion-dollar valuation in the foreseeable future.
Following a series of very successful and desperately oversubscribed funding rounds, investment in SpaceX became nearly impossible. Based on its last round of financing, SpaceX was valued at over $74 billion in February 2021. That round attracted more than $6 billion in offers from various investors in just 3 days.
Since our investment in January this year the company has doubled its valuation to over $100B, and the value of even our most recent investment through a secondary transaction has already grown over 33% within just a few weeks! We are proud to have invested heavily and successfully in SpaceX twice this year, and we are planning to take advantage of further opportunities to expand our position.
How many companies have the potential to grow and thrive over the next 30, 50, or 100 years? SpaceX has a roadmap star chart extending even farther into the future and out into the cosmos.
What if retail investors could filter the best advice from reddit and use it to tweak their own trades in a mobile app? That’s eToro, where users can trade ETFs, crypto, stocks, derivatives, and commodities while giving each other tips and support.
The eToro model is no joke. Still preparing their public-market debut, eToro is currently valued at close to $10 billion. No wonder: the company has been consistently growing at a staggering rate of over 100% per year. Based on eToro’s Q2 2021 financial results, this social-media-fin-tech startup nailed the quarter with 2.6 million new registered users, total commissions in excess of $362 million, and $9.4 billion assets under administration.
DataRobot is an AI platform, providing customizable AI solutions that clients can modularly adapt to their own local needs. It’s kind of like an SAP for AI: something every business needs whether they know it or not.
We first invested in DataRobot when the company raised about $200M at a $1-billion valuation in late 2019. Just a year later we participated in a new round of financing when the company raised over $300M at a post-money valuation of about $2.8 billion. Half a year later—in mid 2021—Datarobot raised again, hitting a valuation of roughly $6.3 billion.
Unicorns that grow by 6x within only 18 months are rare, and opportunities to invest in them are even rarer. This stock is also in high demand on the secondary market. Brokers and investors are clamoring at our door begging for a piece, but we’re going to keep holding it because DataRobot’s growth prospects are simply too good.
After climate change and COVID, ransomware attacks are perhaps the most visible and frightening threats of our age. Rubrik’s solutions minimize the risk to their clients’ data, the trust involved in storing it, and the organizational hassles in managing it. This unicorn is still private and recently announced a strategic partnership with Microsoft. We invested in Rubrik last January in a round led by Lightspeed Venture Partners and Bain Capital Ventures, where the company raised about $300 million and boosted its valuation to $3.7 billion. The round also included other top-echelon firms: Greylock Partners, Late Stage Management, Khosla Ventures, Aeon Family of Funds, AllianceBernstein, IVP, Section Partners, and Evolution VC Partners. Since then, we’ve noticed high demand on the secondary market from investors willing to pay double the price of the last round. But it’s still too early to exit—Rubrik just keeps growing!
There used to be a sharp division between ecommerce and bricks-and-mortar retail, but Trax is dissolving it. Trax injects high-tech tools to manage retail environments into physical points of sale, maximizing returns on labor, land, storage and shelf space. That model recently translated into the largest-ever funding round for an Israeli company.
We invested directly in the most recent funding round led by BlackRock ($9.5 trillion AUM; $138B market cap). Shortly thereafter, SoftBank Vision Fund 2 joined the same round of financing, which raised $640M and drove the overall valuation close to $3 billion.
Other investors who have opted to back this amazing company include Boyu Capital ($9.1B AUM), GIC Private Limited ($440B AUM), and Warburg Pincus ($56B AUM).
With a combination of vibrant organic growth and clever acquisitions, Trax has been growing at light speed. In just the last few years, they have acquired six different companies. Stay tuned…
There is no longer any question about whether online communities have gone toxic; the only question is what to do about it. Openweb aims its AI tools at online discourse to improve the speed and quality of moderation. The result is better discourse, happier publishers, more engagement, and higher ad revenues. Talk about doing well by doing good.
OpenWeb addresses key needs of publishers and users. Publishers host personalized experiences around their content, while users voice their opinions in a safe and healthy environment to generate better, personalized online experiences on their favorite sites.
Over 1,000 publishers, including over 80% of all top-tier U.S. online publishers, profit from OpenWeb’s platform. Their clients are household names some of us visit daily, ranging from TechCrunch, HuffPost, MarketWatch, and PC Magazine to Newsweek, Yahoo!, Hearst, and FoxNews. One hundred million monthly active users engage with the OpenWeb platform.
Together with Scale-Up Venture Capital (our mid-stage investments VC fund), we are proud to be among the small cadre of large shareholders in this extremely fast-growing company. It’s fascinating to watch how OpenWeb’s team has built this company from an early stage startup to a galloping unicorn. Even though we’ve generated a return of 10x on paper with this company, we expect OpenWeb to grow another 10x within the next few years.
Robinhood is perhaps the only company in our portfolio whose name recognition can compete with SpaceX. After making a splash with the meme-stock craze earlier this year, Robinhood’s no-fee retail trading app has continued to grow its user base, its revenue, and—of course—its valuation.
We invested directly in Robinhood in its last two rounds of pre-IPO financing, which includes our investment in the famous $3.4 billion convertible loan that the company raised in just a handful of days.
Robinhood’s IPO was a big splash, but it was just the beginning of a steep upward trajectory.
When Google and IBM or Duke and Stanford universities want to help people learn skills and earn qualifications more efficiently, they turn to Coursera. When we want to generate some socially responsible returns on a killer IPO, we do the same thing. If you haven’t heard of Coursera yet, maybe take a course?
When we decided to invest in Coursera, we just missed its last pre-IPO round of financing, when the company raised $130 million at $2.57 billion post-money valuation in July 2020. Nevertheless, we managed to invest through a direct secondary transaction with one of the largest shareholders of Coursera. It was a substantial investment for our firm, and it quickly turned out to be a highly profitable one. Coursera’s breakthrough IPO came in March 2021.
When the oil economy really took off a century ago, the oil services companies were among the most reliable and biggest winners. Momentus is aiming to pull off the same trick with today’s burgeoning space economy by providing things like shuttle services, satellites-as-a-service, and in-orbit repair services. This business model is taking them straight into orbit. Momentus is the space-infrastructure company and the foundation on which the space economy is growing.
Momentus exited through a reverse merger with a SPAC called, yes, SRAC. Given the existing technology, future prospects, and the structure of the deal, the exit made a lot of sense, which is why we participated as one of the largest PIPE investors. As many will have heard, the SEC got involved, and the deal threatened to stall as regulators got stuck in 1980s-Cold-War thinking.
Fortunately, this story has a happy end. The SPAC IPO went off without a hitch in August, and the new Momentus, which is now worth nearly $1 billion, was slapped with fines totalling only about $8 million. Meh. The company has now shed its ballast, can grow unhindered, and has already turned a paper return of about 38% in the few weeks since we invested. For all the smoke, the only fire here is under the Momentus’s Vigoride rockets, which are “ready to blast off.”
Dataminr is a developer of an AI platform designed to discover critical information from publicly available data sets and deliver real-time alerts. The company’s platform detects, classifies, and determines the significance of high-impact events in real-time before the news, thus providing clients in various industries with the earliest updates on what matters.
Dataminr has the potential to become society’s “Spider Sense” by predicting “high-impact events and emerging risks” ? before they happen. Such a service is obviously useful for public planning, emergency services, insurers, and news outlets, all of whom see value in the AI-based service.
Dataminr is recognized as one of the world’s leading AI businesses. The company’s clients are the first to know about high-impact events and emerging risks so they can mitigate and manage crises more effectively. Dataminr solutions support hundreds of clients in over 75 countries around the clock to help them solve real-world problems. Dataminr is one of New York’s top private technology companies, with nearly 650 employees across seven global offices.
In March 2021, the company raised $475 million of series-F venture funding from Valor Equity Partners, Lurra Capital, and SchindlerAM Ventures, yielding a post-money valuation of $4.1 billion. Syren Capital Advisors, MicroVentures, Elevation Capital, Parameter Ventures, IVP, Eden Global, MSD Capital, Morgan Stanley, The Pritzker Organization, DNS Capital, Moore Capital Management, Eldridge (Greenwich), and ArrowMark Partners also participated in the round. Dataminr is using the funds to accelerate the growth of its corporate business line, which spans physical safety and security, reputation risk and crisis management, business intelligence, and cyber threat detection. We are delighted to be among the direct shareholders in this vibrant, high-growth unicorn. See also:
Star Trek, Scrabble, Wheel of Fortune, Looney Tunes, The Walking Dead, The Avengers—these are just a few of the entertainment brands Scopely has turned into mobile games. Since Scopely’s valuation went vertical in 2018, it’s been a secondary-market darling.
Scopely has raised $340 million in its latest eye-popping round of funding, which catapulted the valuation to $3.3 billion. Some of the largest institutional financing firms, like Wellington Management, TSG Consumer Partners, CPP Investments as well as funds managed by BlackRock have invested in Scopely. A few other late-stage, traditionally pre-IPO investors have since joined, including NewView Capital, Battery Ventures, Greycroft, Revolution Growth, and Highland Capital Partners.
And Scopely’s achievements know no end:
People.ai is a turbocharger for B2B sales, and its integration into Salesforce.com is equivalent to dropping that turbocharger into a classic Lambo. Their recent series D round secured them more capital and solidified their startling growth. The company raised $100 million through a combination of series D and D-1 venture funding in a deal led by Akkadian Ventures and Mubadala Capital-Ventures in August 2021. As a result, the company’s pre-money valuation hit $1 billion. Lightspeed Venture Partners, ICONIQ Capital, and West Coast Equity Partners (that’s us!) also participated in the round.
Here’s some more good news about People.ai:
Crunchbase Unicorn Board Leaps To Just Under 1,000 Companies, Reaches $3.4T In Value
Sources: Company public filings; Capital IQ; Publiccomps.com
Love him or hate him, it is wise to admire and study him: Peter Thiel. Author Max Chafkin is an experienced business journalist for Bloomberg who uses his experience and connections to deliver a singular view into the world and mind of one of Silicon Valley’s most notorious iconoclasts.
Cal Newport takes aim at the technologies that allow us to disturb and distract each other with constant communication about our projects and how that rapid, atomistic chatter degrades the work that is the ostensible point of the whole exercise (I’m looking at you, Slack). It’s hard to disagree, but it’s also hard not to view a world without email as science fiction.
Addiction by Design: Machine Gambling in Las Vegas We invest in tech, and the most important interface in tech is between the hardware and the wetware. That’s exactly what this book by anthropologist Natasha Dow Schüll examines. Published in 2014, Addiction by Design anticipates much of what has since become a popular topic in documentaries like The Social Dilemma, but the insights are perhaps clearer because they are derived from a more unadulterated, single-minded context.
It’s impossible to invest without thinking about the future, and that’s the focus of Futurized. Trond Arne Undheim, former director of the MIT Startup Exchange and serial entrepreneur himself, talks about sources of coming disruptions with several big-brained guests.
Finance is where past decisions meet future prospects, and that’s what this podcast is about. They not only deal with everyday topics like private equity and banking, but also with big topics like the fourth Industrial Revolution and death.
A consistently excellent podcast by a consistently excellent newspaper about money and things that affect it.
Private Equity Technology Podcast Technology is as inescapable in PE investing as it is anywhere else, but it’s important to be aware of what’s happening with tech and how that tech influences investment decisions, practices, and markets. The Private Equity Technology Podcast builds that awareness.
West Coast Equity Partners a Silicon Valley based PE firm investing in US Tech Unicorns and pre-IPO companies Web: www.westcoast.partners I Email: info@westcoast.partners
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