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No one knows what anything is worth

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Ready? Let’s talk money, startups and spicy IPO rumors.


It was yet another week of startups that became unicorns going public, only to see their valuation soar. Already marked up by their IPO pricing, seeing so many unicorns achieve such rich public-market valuations made us wonder who was mispricing whom.

It’s a matter of taste, a semantic argument, a tempest in a teacup. What matters more is that precisely no one knows what anything is worth, and that’s making a lot of people rich and/or mad.

This is not a new theme. I’ve touched on it for years, but what matters for us today is that there appear to be three distinct valuation bands for companies, and the gaps between them do not appear ready to shrink. You could even argue that they have widened.

Band 1 is the private capital cohort. These are the folks who valued Affirm at $19.93 per share in its September 2020 round and Roblox at $4 billion in February of 2020. Now Affirm is worth $116.58 per share, and Roblox is worth $29.5 billion. Whoops?

Band 2 is the long-term public investing cohort. These are folks critical in the IPO pricing context. They are willing to pay more for startups than the private capital crew. Affirm was not worth under $20 per share to this group, instead it was worth $49 per share just a few months later. Whoops?

Band 3 is the retail cohort, the /r/WallStreetBets, meme-stock, fintech Twitter rabble that are both incredibly fun to watch and also the sort of person you wouldn’t loan $500 to while in Las Vegas. They are willing to pay nearly infinite money for certain stocks — like Tesla — and often far more than the more conservative public money. Demand from the retail squad can greatly amplify the value of a newly listed company by making the supply/demand curve utterly wonky. This is how you get Poshmark more than doubling a strong IPO valuation on its first day.

Most investors do well in today’s world. Though Band 1 likes to blame Band 2 for not being willing to pay Band 3 prices, it always sounds like the private capital folks are merely complaining about sharing some of the winnings with another party.

Regardless, who really knows what anything is worth? I was recently chatting with an early-stage founder who has a history of investing — narrowing it down to 17,823 people, I know — about the price of software companies both private and public and why they may or may not make sense. He said that old valuation models at banks presumed that software companies’ growth would go to zero over time, and that profits would be rare among SaaS concerns. Both concepts were wrong, so prices went up.

But I have yet to have anyone explain to me why companies that would have been valued at 10x next year’s revenues can now get, at median, 18.1x. I have a working theory of what’s going on, but none of it points to sanity, or pricing that is grokkable through a lens that isn’t hype.

(You can hit reply to this email and tell me why I am dumb if you’d like. I will buy the person with the best valuation explanation coffee when the world works again.)

Milestones and megarounds

On the milestone front, it was a huge week for leaving the private markets and joining the Big Kid Club. Namely for Affirm and Poshmark, which priced well and started to trade. And for Bumble, which filed to go public. They are targeting a good IPO window.

But there was lots more going on, including a milestone that caught my eye. M1 Finance, a fintech startup that brings together lots of pieces of the fintech playbook into a single service, reached $3 billion in assets under management (AUM) this week. The company had reached $2 billion in AUM last September, after reaching $1 billion in February of 2020.

Why do we care? The company previously told TechCrunch that it works to generate revenues worth around 1% of AUM. If that percentage has held past its October, 2020 Series C, the company just added around $10 million in ARR in under half a year. That’s a pace of revenue creation that made me sit up and take notice. (Shoutout Josh for never shutting up about the Midwest.)

But I really bring up the M1 Finance milestone for a different reason. Namely that I am consistently surprised at how deep certain markets are. Neobanks that are still growing; the OKR software market’s surprising depth; the ability of M1 to accrete deposits in a market with so many incumbents and well-funded startups.

Perhaps this is why prices make no sense; if you can’t see the edge limits of TAM, can anything be overpriced?

Moving on, some quick notes on things from the week that mattered:

  • GitLab is now worth $6 billion and hit $150 million in annual recurring revenue last year. It grew 75%, we presume year-over-year in its most recent quarter.
  • Fintech upstart LendingPoint raised $125 million at an undisclosed valuation.
  • NYC-based Paige raised $100 million. It uses computers to help make diagnoses.

One more VC Visa-Plaid take

Aziz Gilani, a managing director at Mercury Fund and an advocate of Texas (observe his Twitter handle), wrote in late regarding our query for investor notes on the Visa-Plaid breakup. You can read the rest here.

But who are we to deprive you of useful notes. And Gilani is a nice person. So, here are his $0.02:

My big take-away on the Plaid/Visa deal falling apart is about how fast everything in 2021 is moving. Arguably the biggest advantage of SPACs over direct listings and IPOs is how fast those liquidity events can get done. In a world in which valuation[s] change week to week, the delays created by the DOJ can kill a deal – even if the DOJ would eventually lose in court.

I’m philosophically super negative about the government imposing their will, but I’m also personally excited about the current wave of insurgent startups not getting gobbled up by the FAANGs of the world. For the last several years too many startups fell victim to the “quick exit” mentality personified by Mint selling so fast to Intuit. With fast/cheap capital freely available, today’s crop of startups are going big.

Worth chewing on.

Odds/Ends

What a week. I have only a few things left for you, including some early-stage rounds that I could not get thanks to waves arms around generally but wanted to flag all the same.

  • Goldman Sachs chose Marqeta for Marcus. If you know what those words mean, they matter. If you don’t, congrats on having a life.
  • Nayya raised $11 million for what VentureBeat calls “an insurance benefits management platform,” including money from Felicis.
  • Minna raised €15.5 million for what Tech.eu called a “subscription management app.”
  • Muniq closed a  $8.2M Series A to sell a shake-sort-of-thing that could help with blood sugar control.
  • And from TechCrunch two more highlights, this neat Crossbeam round and more money for Moss.

Hugs,

Alex

Checkout wants to be Rapyd and Fast

Hello and welcome back to Equity, TechCrunch’s venture-capital-focused podcast, where we unpack the numbers behind the headlines. We’re back on this lovely Saturday with a bonus episode!

Again!

There is enough going on that to avoid failing to bring you stuff that we think matters, we are back yet again for more. This time around we are not talking Roblox, we’re talking about ecommerce, and a number of rounds — big and small — that have been raised in the space. Honest question: do y’all plan to release news on the same week? Are trends a social construct?

From Natasha, Grace, Danny, and your humble servant, here’s your run-down:

  • Webflow raised $140 million in a round that it says it did not need. This is not a new thing. Some startups are doing well, and don’t burn much. So investors offer them more at a nice price. In this case $2.1 billion. (Webflow does no-code
  • Checkout.com raised $450 million. The rich really do get richer. In this case the founders of Checkout.com, whose company is now worth around $15 billion Checkout.com does, you guessed, online checkout work. Which as Danny explains is complicated and critical.
  • We also talked about this Bolt round, for context.
  • And sticking to the ecommerce theme, Rapyd raised $300 million at around a $2.5 billion valuation. There is infinte money available for late-stage fintech.
  • Early stage as well, it turns out, with Tradeswell raising $15.5 million to help businesses improve their net margins.
  • Finally, ending with a chat on infrastructure, Nacelle closed an $18 million Series A. 

And now we’re going back to bed.

Equity drops every Monday at 7:00 a.m. PST and Thursday afternoon as fast as we can get it out, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts.

Group Nine’s SPAC goes public

Group Nine Media revealed last month that it was forming a SPAC (short for special purpose acquisition corporation) in order to raise money for acquitions.

The company has now moved forward with those plans, announcing last night that it had priced the SPAC’s IPO $10 at per unit, to raise a total of $200 million. It’s now trading on NASDAQ under the ticker symbol GNACU; as of 2:53pm Eastern shares were up 6.55%. (Eventually, the Class A common stock will be listed as GNAC and warrants will be listed separately as GNACW.) The offering is expected to close on January 20.

The acquisition corporation, like Group Nine itself, is led by CEO Ben Lerer (pictured above). Imagination Capital Partner Richard D. Parsons and Reddit Chief Operating Officer Jen Wong are also on the board of directors.

Group Nine was formed in 2016 with backing from Discovery, merging Thrillist, NowThis, The Dodo and Seeker. It subsequently acquired PopSugar, with co-founder Brian Sugar becoming president of both Group Nine and now Group Nine Acquisition Corp.

SPACs, also known as blank check corporations, have become an increasingly popular way for companies to raise money from the public markets. In its initial filing, Group Nine said it would use the funding “for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination.”