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VMware acquires ML acceleration startup Bitfusion
VMware today announced that it has acquired Bitfusion, a former participant in our Startup Battlefield competition. Bitfusion was one of the earliest companies to help businesses accelerate their complex computing workloads on GPUs, FPGAs and ASICs. In its earliest iteration, over four years ago, the company’s focus was less on AI and machine learning and more on other areas of high-performance computing, but, unsurprisingly, that shifted as the interested in AI and ML increased in recent years.
VMware will use Bitfusion’s technology, which is vendor- and hardware-agnostic, to bring similar capabilities to its customers. Specifically, it plans to integrate Bitfusion into its vSphere platform.
“Once closed, the acquisition of Bitfusion will bolster VMware’s strategy of supporting AI- and ML-based workloads by virtualizing hardware accelerators,” writes Krish Prasad, senior vice president and general manager of VMware’s Cloud Platform Business Unit. “Multi-vendor hardware accelerators and the ecosystem around them are key components for delivering modern applications. These accelerators can be used regardless of location in the environment – on-premises and/or in the cloud.”
Prasad also notes that to get the most out of hardware accelerators like GPUs, most enterprises deploy them on bare metal. VMware, however, argues that this leads to poor utilization and poor efficiencies (as it would, of course, given that it is in the business of virtualization). “This provides a perfect opportunity to virtualize them—providing increased sharing of resources and lowering costs,” writes Prasad.
The two companies did not disclose the price of the acquisition. Bitfusion had raised $5 million in 2017 and a smaller, strategic investment from Samsung Ventures in 2018.
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India’s budget hotel startup Oyo enters co-working business with $30 million Innov8 acquisition
India’s Oyo has expanded its hotel chain business to more than 80 countries and entered the co-living spaces segment in recent years. The firm, which has raised about $1 billion since last September from several big names, including Airbnb, has now identified a new business to target: co-working spaces.
The Gurgaon-headquartered firm on Tuesday announced Oyo Workspaces, which is already operational across 10 cities in India with more than 20 centres. It currently has the capacity to serve more than 15,000 people. More than 6,000 employees from firms such as Swiggy, Paytm, Pepsi, Nykaa, OLX and Lenskart have already signed up for the service.
At a press conference in New Delhi, Rohit Kapoor, CEO of New Real Estate Businesses, said Oyo plans to have 50 Oyo Workspaces centres by the end of the year and aims to make it the largest co-working business in Asia by the end of next year.
As part of the announcement, Oyo confirmed that it has acquired Innov8, a co-working startup with more than 200 employees and 16 operational centres. The four-year-old startup was acquired for about $30 million, two sources familiar with the matter told TechCrunch.
Innov8 is one of the three in-house brands that is part of Oyo Workspaces. The other two brands — Workflo and Powerstation — are aimed at people who are looking for economical offering. A user could access one of these co-working spaces for as low as Rs 6,999 ($102) a month. Innov8 has been positioned as a premium option.
India’s co-working space, still a relatively new business category locally, is worth $390 million — a fraction of the $30 billion office and commercial real estate business. Kapoor said Oyo believes it can not only become a market leader in the nation but also expand the size of the market itself. Oyo Workspaces will compete with a range of companies, including 91Springboard, GoHive, Awfis, GoWork and the global giant WeWork.
Oyo Workspaces will offer a range of services across all of its centres, such as a Wi-Fi connection, in-house kitchen, housekeeping, storage and parking spaces. It is also offering users monthly and quarterly passes — currently being offered at heavily discounted rates — to further lower the price points of its co-working spaces.
Oyo, which serves more than half a million users each day across more than 850,000 rooms it operates, is aggressively expanding its business through partnerships with local players as it emerges as the third-largest hotel chain in the world. The six-year-old startup was valued at more than $5 billion at its last funding round, TechCrunch reported earlier.
Oyo, which serves as both listings and reservations platforms, makes most of its money from fee-paying franchises and bookings. Kapoor said the company will use part of the $200 million Oyo has committed to invest in its India and Southeast Asia businesses this year.
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With so much late-stage money available, why are tech companies going public now?
Ajay Chopra
Contributor
Contributor
Ajay Chopra co-founded Pinnacle Systems in his living room and grew it to a multi-billion dollar public company before becoming a venture capitalist with Trinity Ventures.
Ringing the Nasdaq market bell was the thrill of a lifetime — both when I did it as a founder and also vicariously as a VC via my incredible founders who have taken their companies public. There’s nothing like seeing the baby you nurtured mature into a multibillion-dollar public entity.
But times have changed. The dramatic influx of late-stage venture capital is enabling companies to slow walk their public offerings. In addition, the accumulation of mountains of cash by strategic buyers and the rise of private equity buy-out firms are making other forms of exits viable options.
Case in point: The number of publicly listed companies has dropped 52%, but entrepreneurship momentum hasn’t slowed; it has actually accelerated. Many of the companies that are finally going public this year are doing so several years after they could have — and would have — in years past. When Uber went public this year, its valuation was so large that it would have registered as 280 on this year’s Fortune 500 list. TransferWise prolonged any move to the public markets through a secondary sale that allowed them to stay private while more than doubling their valuation.
IPOs aren’t for everyone or every company — or indeed for most companies. According to PitchBook, only 3% of venture-backed companies in the last decade eventually went public. Most startups that don’t go public never had the option to do so. However, some founders who could IPO are actively choosing to delay IPOs due to the many challenges of managing a public company.
What’s best for one company isn’t necessarily what’s best for another.
For starters, employee moods shift with the stock price. I once had an employee mad at me for not telling him to sell when I knew we were going to have a weak quarter. That would have been illegal! Also, IPOs come with a burden of public scrutiny; the administrative hassles take up precious time, and 90-day reporting cycles often conflict with long-term strategic planning. In addition, many public investors are only interested in short-term moves; plus, there’s the related risk of activist investors upending the company’s long-term strategy in pursuit of their own short-term goals.
Despite the challenges, going public is still important for many high-growth companies. Here’s why:
- IPOs make it easier to compete for talent. Public stock offers clearly valued, tangible cash value to candidates and employees who are either weighing competitive offers or who need to be retained. While private companies can provide one-off private liquidity events via secondary sales, public companies have a far greater ability to engage and retain valued team members though the continuous, orderly disbursement of stock-based compensation.
- IPOs can facilitate a company’s ability to make acquisitions, as well as facilitate strategic partnerships. After going public, my company used its public equity to make 16 acquisitions, which in part helped to fuel our growth from a few hundred million to a multibillion-dollar valuation. Even though private companies can make acquisitions with stock, it’s far easier to do a deal with tradable public currency. It’s also easier to enter into important strategic partnerships because prospective partners have easily accessible information about the company’s business and financial position.
- IPOs are a big milestone and mark of achievement for the entire team. IPOs boost employee morale and job satisfaction. Employees who help shepherd their company from its early stages through IPO feel accomplishment and camaraderie, and achieving this milestone contributes measurably to corporate culture. They are not bad for employees’ and founders’ pocketbooks, either!
- Operating under the watchful eye of Wall Street is cumbersome but makes a company resilient. As complicated as it is to manage a public company, public scrutiny often makes companies more disciplined on execution, which helps them build more predictable businesses. This discipline and transparency can drive long-term success — which in turn accrues to the benefit of its customers, partners, stockholders and employees.
- The tech IPO window is open right now. Stock markets track the boom and bust cycles of the economy. The so-called “IPO window” for tech stocks can close as surely as it’s open right now. Many companies are planning to “get out” while this window is open. IPO windows can sometimes close for several years, so floating your stock when the window is open is an important consideration. In addition, due to the decline in number of publicly listed companies over the last decade, there is a pent-up demand for fast-growing tech IPOs, as demonstrated by the positive reception that Beyond Meat, CrowdStrike and Zoom received from public investors.
For those founders with their eye on the IPO ball, here’s my advice:
- Raise plenty of money. Right now, VC dollars are plentiful, and the cost of capital is cheap. However, if you have access to plentiful capital, so do your worthy competitors; you don’t want be disadvantaged relative to them. Use this capital wisely and keep some in reserve just in case the markets turn. My company had to abort its IPO just days before we embarked on our IPO “road show” when the markets turned. We had to survive on the cash we had in the bank for a full two years before we successfully went public.
- Consider vertical integration. A lot of the businesses going public today or on track to do so in the next few years have adopted business models that encompass every element of the user experience and allow companies to capture a large share of the value stack. We’re especially seeing this in capital-intensive verticals like Katerra in construction and Opendoor in housing (each valued at about $4 billion). We Company (WeWork), expected to IPO this year at a rumored $47 billion valuation, has vertically integrated every element of physical workspaces. Extraordinarily capital intensive, this type of vertical integration creates tremendous value and deep competitive moats. Importantly, these businesses only can be built in environments such as now, where plenty of capital is available with reasonable dilution.
- Consider broadening your product capabilities. With plenty of cash on hand and your company sitting at a nice revenue multiple, it may be wise to consider broadening your offering while you are still private; both via investment in internal development resources and by acquiring companies with complementary products but less significant market traction. This is particularly relevant for enterprise companies where the cost of customer acquisition is high. With a broader product offering, you can sell more to existing customers, amortizing your acquisition costs and hopefully improving retention with a more complete product offering.
- Scale as quickly as possible. Because capital is available so cheaply, the IPO-bound companies that win have become the companies that grow quickly, leveraging capital to capture market share faster than their competitors. Uber and WeWork are examples of companies that have used access to capital to scale so quickly that they’ve been able to capture market share from their numerous less-endowed competitors.
- Review the capabilities of your team and your board for public market scrutiny. Unlike some people who believe that the company needs to bring in an “IPO team” to go public, my experience is that most founders and senior managers are perfectly capable of growing into the public market executive role. They just need to be aware of the rules and regulations, and they need to be advised to use proper judgement. Even so, you may find that you need to “beef up” your team in a few areas such as finance and bring in seasoned executives in other areas such as investor relations. The right board structure for a public company is equally important. Adding board talent with public company experience — particularly in audit oversight and governance areas — is highly recommended.
Every company charts its own path to success, so what’s best for one company isn’t necessarily what’s best for another. I personally wouldn’t trade my experience of going public for the world, and I believe that the talented founders taking their companies public this year feel the same way. What’s great about today’s market environment is that going public — or not — is a choice that lies squarely where it should: in the hands of founders.
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A 23-year-old B2B company has shown how keen India is for tech IPOs
Away from the limelight of the press and the frenzy of fundraising, a tech startup in India has achieved a feat that few of its peers have managed: going public.
IndiaMART, the country’s largest online platform for selling products directly to businesses, raised nearly $70 million in a rare tech IPO for India this week.
The milestone for the 23-year-old firm is so uncommon for India’s otherwise burgeoning startup ecosystem that, beyond being over-subscribed 36 times, pent up demand for IndiaMART’s stock saw its share price pop 40% on its first day of trading on National Stock Exchange on Thursday — a momentum that it sustained on Friday.
The stock ended Friday at Rs 1326 ($19.3), compared to its issue price of Rs 973 ($14.2).
IndiaMART is the first business-to-business e-commerce firm to go public in India. Its IPO also marks the first listing for a firm following the May reelection of Narendra Modi as the nation’s Prime Minister and the months-long drought that led to it.
Accounting firm EY said it expects more companies from India to follow suit and file for IPO in the coming months.
“Now that national elections are over and favorable results secured, IPO activity is expected to gain momentum in H2 2019 (second half of the year). Companies that had filed their offer documents with the Indian stock markets regulator during H2 2018 and Q1 2019 may finally come to market in the months ahead,” it said in a statement (PDF).
IndiaMART’s origin
The fireworks of the IPO are just as impressive as IndiaMART’s journey.
The startup was founded in 1996 and for the first 13 years, it focused on exports to customers abroad, but it has since modernized its business following the wave of the internet.
“The thesis was, in 1996, there were no computers or internet in India. The information about India’s market to the West was very limited,” Dinesh Agarwal, co-founder and CEO of IndiaMART, told TechCrunch in an interview.
Until 2008, IndiaMART was fully bootstrapped and profitable with $10 million in revenue, Agarwal said. But things started to dramatically change in that year.
“The Indian rupee became very strong against the dollar, which dwindled the exports business. This is also when the stock market was collapsing in the West, which further hurt the exports demand,” he explained.
Dinesh Agarwal, founder and CEO of IndiaMart.com, poses for a profile shot on July 29, 2015 in Noida, India.
By this time, millions of people in India were on the internet and, with tens of millions of people owning a feature phone, the conditions of the market had begun to shift towards digital.
“This is when we decided to pursue a completely different path. We started to focus on the domestic market,” Agarwal said.
Over the last 10 years, IndiaMART has become the largest e-commerce platform for businesses with about 60% market share, according to research firm KPMG. It handles 97,000 product categories — ranging from machine parts, medical equipment and textile products to cranes — and has amassed 83 million buyers and 5.5 million suppliers from thousands of towns and cities of India.
According to the most recent data published by the Indian government, there are about 50 to 60 million small and medium-sized businesses in India, but only around 10 million of them have any presence on the web. Some 97% of the top 50 companies listed on National Stock Exchange use IndiaMART’s services, Agarwal said.
That’s not to say that the transition to the current day was a straightforward process for the company. IndiaMART tried to capitalize on its early mover advantage with a stream of new services which ultimately didn’t reap the desired rewards.
In 2002, it launched a travel portal for businesses. A year later, it launched a business verification service. It also unveiled a payments platform called ABCPayments. None of these services worked and the firm quickly moved on.
Part of IndiaMART’s success story is its firm leadership and how cautiously it has raised and spent its money, Rajesh Sawhney, a serial angel investor who sits on IndiaMART’s board, told TechCrunch in an interview.
IndiaMART, which employs about 4,000 people, is operationally profitable as of the financial year that ended in March this year. It clocked some $82 million in revenue in the year. It has raised about $32 million to date from Intel Capital, Amadeus Capital Partners and Quona Capital. (Notably, Agarwal said that he rejected offers from VCs for a very long time.)
The firm makes most of its revenue from subscriptions it sells to sellers. A subscription gives a seller a range of benefits including getting featured on storefronts.
4/4. So many Indian small businesses have so much to thank @DineshAgarwal for. And after the iconic IPO, so many Indian entreprenuers will have so much to thank him for – forever unlocking the Indian public markets to current & future generation of Indian internet companies
— Kunal Bahl (@1kunalbahl) July 4, 2019
Where the industry stands
There are only a handful of internet companies in India that have gone public in the last decade. Online travel service MakeMyTrip went public in 2010. Software firm Intellect Design Arena and e-commerce store Koovs listed in 2014, then travel portal Yatra and e-commerce firm Infibeam followed two years later.
India has consistently attracted billions of dollars in funding in recent years and produced many unicorns. Those include Flipkart, which was acquired by Walmart last year for $16 billion, Paytm, which has raised more than $2 billion to date, Swiggy, which has bagged $1.5 billion to date, Zomato, which has raised $750 million, and relatively new entrant Byju’s — but few of them are nearing profitability and most likely do not see an IPO in their immediate future.
In that context, IndiaMART may set a benchmark for others to follow.
“The fact that we have a homegrown digital commerce business, serving both the urban and smaller cities, and having struggled and been around for so long building a very difficult business and finally going public in the local exchange is a phenomenal story,” Ganesh Rengaswamy, a partner at Quona Capital, told TechCrunch in an interview. “It keeps the story of India tech, to the Western world, going.”
Congratulations @DineshAgarwal for an iconic IPO! @IndiaMART has set an example and hope for all Indian Internet companies looking to go public. Cheers! https://t.co/yJumFjfitS
— Vani Kola (@VaniKola) July 4, 2019
Generally, it is agreed that there are too few IPOs in India and the industry can benefit from momentum and encouragement of high profile and successful public listings.
“There is a firm consensus that in India, markets will prefer only the IPOs of companies that are profitable. And investors in India might not value those companies. Both of these issues are being addressed by IndiaMART,” said Sawhney.
“We need 30 to 40 more IPOs. This will also mean that the stock market here has matured and understands the tech stocks and how it is different from other consumer stocks they usually handle. More tech companies going public would also pave the way for many to explore stock exchanges outside of India.
“Indian market is ready for more tech stocks. We just need to get more companies to go out there,” Sawhney added, although he did predict that it will take a few years before the vast majority of leading startups are ready for the public market.
The Indian government, for its part, this week announced a number of incentives to uplift the “entrepreneurial spirit” in the nation.
Finance minister Nirmala Sitharaman said the government would ease foreign direct investment rules for certain sectors — including e-commerce, food delivery, grocery — and improve the digital payments ecosystem. Sitharaman, who is the first woman to hold this position in India, said the government would also launch a TV program to help startups connect with venture capitalists.
The path ahead for IndiaMART
IndiaMART has managed to build a sticky business that compels more than 55% of its customers to come back to the platform and make another transaction within 90 days, Agarwal — its CEO — said. With some 3,500 of its 4,000 employees classified as sales executives, the company is aggressive in its pursuit of new customers. Moving forward, that will remain one of its biggest focuses, according to Agarwal.
“Most of our time still goes into educating MSMEs on how to use the internet. That was a challenge 20 years ago and it remains a challenge today,” he told TechCrunch.
In recent years, IndiaMART has begun to expand its suite of offerings to its business customers in a bid to increase the value they get from its platform and thus increase their reliance on its service.
IndiaMART has built a customer relationship management (CRM) tool so that customers need not rely on spreadsheets or other third-party services.
“We will continue to explore more SaaS offerings and look into solving problems in accounting, invoice management and other areas,” said Agarwal.
The firm also recently started to offer payment facilitation between buyers and sellers through a PayPal -like escrow system.
“This will bridge the trust gap between the entities and improve an MSME’s ability to accept all kinds of payment options including the new age offerings.”
There’s an elephant in the room, however.
A bigger challenge that looms for IndiaMART is the growing interest of Amazon and Walmart in the business-to-business space. Several startups including Udaan — which has raised north of $280 million from DST Global and Lightspeed Venture Partners — have risen up in recent years and are increasingly expanding their operations. Agarwal did not seem much worried, however, telling TechCrunch that he believes that his prime competition is more focused on B2C and serving niche audiences. Besides he has $100 million in the bank himself.
Indeed, as Quona Capital’s Rengaswamy astutely noted, competition is not new for IndiaMART — the company has survived and thrived more than two decades of it.
“Alibaba came and gave up,” he noted.
An important — and unanswered question — that follows the successful IPO is how IndiaMART’s stock will fare over the coming months. A glance to the U.S. — where hyped companies like Uber, Lyft and others have seen prices taper off — shows clearly that early demand and sustained stock performance are not one and the same.
Nobody knows at this point, and the added complexity at play is that the concept of a tech IPO is so uncommon in India that there is no definitive answer to it… yet. But IndiaMART’s biggest achievement may be that it sets the pathway that many others will follow.
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KKR has acquired Corel (including its recent acquisition Parallels), reportedly for $1B+
Only six months after snapping up virtualization specialist Parallels, Canadian software company Corel is itself getting acquired. TechCrunch has learned and confirmed with multiple sources that private equity giant KKR has closed a deal to buy the company from Vector Capital, which has owned some or all of Corel since 2003.
KKR’s interest in Corel was first rumored in May, when PE Hub reported the two were in talks for a sale valued at over $1 billion. At the time, representatives of Corel declined to comment, although our sources inside the company indicated that the reports were not inaccurate.
Fast-forward to today, and both KKR and and a spokesperson for Parallels/Corel declined to comment. But, we now have a copy of the memo provided by an internal source that has been sent out to staff announcing that the deal has indeed closed, and that Corel is now officially part of the KKR family of companies.
According to the memo, KKR is very optimistic about Corel’s prospects. It plans to give Corel an “infusion of capital” to accelerate its growth, which will go into two areas. First will be expanding operations for the existing business: Corel is the company behind a number of longstanding software brands including WordPerfect, Corel Draw, WinZip, PaintShop Pro. Second will be making acquisitions (and the sheer proliferation of promising startups in the last decade dedicated to all variety of apps and other software that may have found it a challenge to scale means Corel could have rich pickings).
There are no layoffs planned as part of the deal, and the official announcement had been planned to go out next week, but now looks like it may be moved up to tomorrow (Wednesday).
Vector and Corel itself have never publicly disclosed much on user numbers or financials, but Vector has described the company as “highly profitable,” with dividends of more than $300 million to date. The memo we’ve seen notes that Corel (including Parallels) has millions of customers across its various software platforms and apps.
The acquisition of Corel by KKR marks another chapter in the company’s long corporate history.
Founded in the 1980s — when personal computers were just starting to enter the mainstream but well before we had anything like the internet (not to mention the world of cloud-based apps) that we know today — Corel once positioned itself as a potential competitor to Microsoft in the software wars.
When Corel purchased WordPerfect from Novel in 1996, Corel founder Michael Cowpland viewed the software package as an integral part of that rivalry, describing it as the Pepsi to Microsoft’s Coke — that is, Word.
Microsoft proved the mightier of the two, and it even eventually signed a partnership with Corel that saw it investing in the company: a sell out, as one disappointed Canadian journalist described it at the time. The two have also sparred over patents.
Corel, which went public early in its life, got battered in the first dot-com bust (which was not helped by an insider trading scandal that led to Cowpland’s departure). Vector stepped in and took it private in 2003.
After restructuring the company, Vector listed Corel again in 2006. But, amid another recession that again hit Corel hard, it once more took it private in 2010. In the intervening years, Corel has been focused on modernising its offerings, bringing in e-commerce, direct downloads, subscriptions and acquisitions to bring the company’s products and wider business closer to how consumers and workers use computers today.
Parallels was a part of that strategy: its products help people work seamlessly across multiple platforms, letting employees (and IT managers) run a unified workflow regardless of the device or operating system, with Parallels providing support for Windows, Mac, iOS, Android, Chromebook, Linux, Raspberry Pi and cloud — a timely offering in the current, fragmented IT market.
If the $1 billion+ figure is accurate, that strategy seems to have worked: across the two times that Vector took Corel private, it never paid more than $124 million for the company (the second time, as its stock was tanking, it paid just $30 million).
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Slack and Zoom are flying high; they’re also being chased already by upstarts
Two of the highest-flying now-public enterprise companies of the year — Slack and Zoom — are different in many ways, besides the fact that one is focused on workplace messaging while the other is centered around video conferencing.
Slack began life as a very different startup, while Zoom founder Eric Yuan knew from the outset that he wanted to take on his former employer, WebEx. Slack raised a lot of money from many sources before hitting the public market — roughly $1.4 billion over 10 rounds. Zoom raised just $160 million across five rounds, including a $100 million Series D round funded entirely by Sequoia. The two also approached their public offerings differently. Slack chose a direct listing that didn’t raise new money for the company; Zoom chose a traditional IPO, raising half a billion dollars in funding for its coffers just ahead of its first day of trading.
Still, the two companies also have much in common. Both took on incumbents (WebEx and email, respectively). Both are rooted in workplace collaboration and, as such, have some of the same competitors, including Microsoft Teams. Another shared quality, notes Zoom investor Gordon Ritter of Emergence Capital Partners: both are “powered by viral end-user adoption, which is not the case for every SaaS company.” (Slack largely grows within a company, starting with one team; Zoom grows internally and externally, given the nature of video conferencing across companies.)
What the two may also have in common: potentially fewer days at the top of the heap than some of their predecessors. The reason, as says longtime VC Greg Gretsch, who co-founded Jackson Square Ventures in 2011, is the “intensity of new competition is on a completely different level today from what it was 15 or 20 years ago.”
Ritter, who co-founded Emergence in 2002 and has backed Box, Yammer and Veeva Systems, where he remains board chair, echoes the sentiment. The “cycle time of incumbents having their day in the sun is getting shorter and shorter,” he notes.
It’s happening broadly to Fortune 500 companies, whose average lifespan is now less than 20 years, compared with 60 years in the 1950s. But now, even still fast-growing companies like Zoom and Slack, which “have amazing futures,” says Ritter, will likely have startups nipping at their heels very soon.
Craig Hanson, a general partner and co-founder of NextWorld Capital in San Francisco, explains it this way: “In the current environment, with all the entrepreneurs and capital looking for the next great idea, each startup success story immediately blooms an entire field of new startups chasing after them.”
It’s almost possible to time it, says Hanson. “Once a startup raises a big growth round or has an impressive exit, in two to three quarters, you’ll see rounds of funding for similar new companies. This happens in both consumer and enterprise tech. VCs may regret missing out on the first company that just raised big and hope that there’s room for another one, or some great IPO or acquisition may spark a newfound passion for a space they overlooked before or that they thought was too hard until someone proved them wrong.”
Consider the many failed video conferencing startups to precede Zoom, including long-forgotten outfits like TeamSlide, LiveMeeting and Vyew. Indeed, Eric Yuan’s startup was anything but a sure thing, But once a space has been validated by the kind of success that Zoom enjoys, it makes it easier for other founders to raise money. This might partly explain why, in April, a nearly five-year-old, Boston-based startup named Owl Labs landed $15 million in Series B funding for its video conference camera with 360-degree capabilities. Another web conferencing startup, Highfive, based in Redwood City, Calif., drummed up $32 million last year, including from Lightspeed Venture Partners and Andreessen Horowitz.
“It’s easier to explain what they want to do [if they can say] ‘We’re like Twilio for ____,’” says Hanson, adding that as recently as 2016, “you’d have maybe two to three startups going after a space and chasing the incumbents. Now there will be 10 startups, and the incumbents were themselves startups just a handful of years earlier.”
The trend isn’t limited to recently public companies, says Gretsch. In his view, “success for many companies and sectors is declared long before the first IPO, and with that perceived success comes a wave of me-too competitors.”
It goes “hand in hand with the explosion of seed rounds over the last 10 years, which itself has been largely driven by how little it really costs for a company to get a finished product into customers hands,” he says.
In fact, Gretsch isn’t so sure the trend is a new one. Nevertheless, because the sheer number of startups that receive funding is now “off the charts,” it’s changing the game for consumer and enterprise companies alike.
“Any company that’s enjoying success has to remain paranoid and not ever settle for resting on their laurels,” says Gretsch. Today, it just happens to be “more true than it was 23 years ago, when [famed Intel CEO] Andy Grove used it for the title of his book.”
That famous best-seller? “Only the Paranoid Survive.”
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Slack opens at $38.50, a pop of 48% on its first day of trading on NYSE as WORK
Slack, the workplace messaging platform that has helped define a key category of enterprise IT, made its debut as a public company today with a pop. Trading as “WORK” on the New York Stock Exchange, it opened at $38.50 after setting a reference price last night of $26, valuing it at $15.7 billion, and then setting a bid/asking price of $37 this morning.
The trading climbed up quickly in its opening minutes and went as high as $42 and is now down to $38.95. We’ll continue to update this as the day goes on. These prices are pushing the market cap to around $20 billion.
Note: There was no “money raised” with this IPO ahead of today because Slack’s move into being a publicly traded company is coming by way of a direct listing — meaning the shares went directly on the market with no pre-sale. This is a less-conventional route that doesn’t involve bankers underwriting the listing (nor all the costs that come along with the roadshow and the rest). It also means Slack does not raise a large sum ahead of public trading. But it does let existing shareholders trade shares without dilution and is an efficient way of going public if you’re not in need of an immediate, large cash injection. It’s a route that Spotify also took when it went public last year, and, from the front-page article on NYSE.com, it seems that there might be growing interest in this process — or at least, that the NYSE would like to promote it as an option.
Slack’s decision to go slightly off-script is in keeping with some of the ethos that it has cultivated over the last several years as one of the undisputed juggernauts of the tech world. Its rocket ship has been a product that has touched on not one but three different hot growth areas: enterprise software-as-a-service, messaging apps and platform plays that, by way of APIs, can become the touchstone and nerve center for a seemingly limitless number of other services.
What’s interesting about Slack is that — contrary to how some might think of tech — the journey here didn’t start as rocket science.
Slack was nearly an accidental creation, a byproduct that came out of how a previous business, Tiny Speck, was able to keep its geographically spread-out team communicating while building its product, the game Glitch. Glitch and Tiny Speck failed to gain traction, so after they got shut down, the ever-resourceful co-founder Stewart Butterfield did what many founders who still have some money in the bank and fire in their bellies do: a pivot. He took the basic channel they were using and built it (with some help) into the earliest public version of what came to be known as Slack.
But from that unlikely start something almost surprising happened: the right mix of ease of use, efficient responsiveness and functionality — in aid of those already important areas of workplace communication, messaging and app integration — made Slack into a huge hit. Quickly, Slack became the fastest-growing piece of enterprise software ever in terms of adding users, with a rapid succession of funding rounds (raising over $1.2 billion in total), valuation hikes and multiple product improvements along the way to help it grow.
Today, like many a software-as-a-service business that is less than 10 years old and investing returns to keep up with its fast-growing business, Slack is not profitable.
In the fiscal year that ended January 31, 2019, it reported revenues in its S-1 of $400.6 million, but with a net loss of $138.9 million. That was a slight improvement on its net loss from the previous fiscal year of $140.1 million, with a big jump on revenue, which was $220.5 million.
But its growth and the buzz it has amassed has given it a big push. As of January 31, it clocked up over 10 million daily active users across 600,000 organizations, with 88,000 of them on paid plans and 550,000 using the free version of the app. It will be interesting to see how and if that goodwill and excitement outweighs some of those financial bum notes.
Or, in some cases, possibly other bum notes. The company has made “Work” not just its ticker but its mantra. Its slogan is “Where work happens” and it focuses on how its platform helps make people more productive. But as you might expect, not everyone feels that way about it, with the endless streams of notifications, the slightly clumsy way of handling threaded conversations and certain other distracting features raising the ire of some people. (Google “Slack is a distraction” and you can see some examples of those dissenting opinions.)
Slack has had its suitors over the years, unsurprisingly, and at least one of them has in the interim made a product to compete with it. Teams, from Microsoft, is one of the many rival platforms on the market looking to capitalise on the surge of interest for chat and collaboration platforms that Slack has helped usher in. Other competitors include Workplace from Facebook, Mattermost and Flock, along with Threads and more.
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Slack prices IPO at $26 per share
Slack’s public debut is happening Thursday on the NYSE and the company has set a reference price of $26 per share for its direct listing, according to WSJ, which would value the company at around $15.7 billion.
The company’s stock is expected to pop at open, according to the WSJ’s sources. Slack is pursuing a direct listing, eschewing the typical IPO process in favor of putting its current stock on to the NYSE without doing an additional raise or bringing on underwriter banking partners.
This isn’t a first for the technology industry, as Spotify did the same thing about this time last year, but it is still an outlier in terms of common practice for startups looking to the public markets for their liquidity event.
Slack, launched in 2013 by Flickr co-founder Stewart Butterfield, was initially built as a side project to support team communication for Butterfield’s game company Tiny Speck. In the intervening years, it has risen to become one of the most recognized enterprise communication tools currently available.
Update: Slack’s pricing and symbol, ‘WORK’ are now officially confirmed.
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People familiar with Slack’s upcoming public offering share what to expect
Slack, the popular workplace messaging company, is expected to list on the New York Stock Exchange on Thursday in the second major direct listing in the U.S. after Spotify introduced the concept to investors in April of last year.
At this point, plenty of industry observers think it makes sound sense for Slack to embrace the direct listing approach, wherein a company places its stock on a public exchange without raising any money or using underwriters. Though the company warned last week that its operating losses are widening as it chases new customers, it has $800 million on its balance sheet, meaning it doesn’t need to raise more right now.
Slack also doesn’t need underwriters who typically discount a company’s shares in order to ensure that they appreciate in value when they begin trading. It’s a known brand in the tech world, and that universe is broadening by the day. Put another way, Slack doesn’t need to be “sold” for investors to want to snap up its shares.
Still, we wondered about some of the thinking that has gone into preparing Slack for its move into the world of publicly traded companies, so we talked with a couple of people who are familiar with what’s happening behind the scenes to find out more. They asked not to be named, but here’s what we learned:
1) Unlike with the popular streaming music platform Spotify, which has more than 100 million premium subscribers and roughly twice as many active monthly users, Slack wasn’t as well-known to Wall Street as Silicon Valley might imagine. In fact, we’re told the bankers that were selected to advise Slack on its offering — Morgan Stanley, Goldman Sachs and Allen & Co., which are the same three that advised Spotify — had to provide more education to analysts and institutional investors this time around.
2) There will (hopefully) be enough shares to go around, while also not a glut of them. The big concern in a direct offering — which does not feature a lock-up period — is that too many people will dump their shares on the market, crushing the company’s share price, or else that too few will part with their holdings, turning the buying and selling of the company’s shares into a financial game of chicken. We’ll see what happens here, but we’re told the banks have spent the last six months trying to ensure that many — but not all — of the company’s institutional shareholders will be selling some of their stakes at the offering, Also worth noting is that unlike with Spotify, some Slack employees have restricted stock units that will vest upon its public listing and so be part of the supply of shares on its first day.
3) In establishing guidance around how Spotify’s shares should be valued, the banks advising the company looked almost entirely to its private market trades, of which there were many. There has been less secondary activity with Slack’s shares, so the banks are likely to rely on these sales but also to use other inputs. We’ll learn soon enough what they settle on, but based on the latest prices at which its shares have traded in the private market, Slack’s presumed valued right now is at $16.7 billion, or 36 times trailing 12-month sales.
4) You might imagine that banks hate direct listings because of the rich underwriting fees they aren’t collecting, and they probably do. Still, even with a direct listing, they get paid pretty well, thanks to both advisory fees and also because investors often trade through the banks named as advisers in the prospectus. There are also fewer mouths to feed on a deal with a direct listing. In Slack’s case — as happened with Spotify — Morgan Stanley, Goldman Sachs and Allen & Co. will reportedly reap almost all of the spoils — or a reported 90% of the $22 million in fees earmarked for all the advisers involved in the deal. In a traditional IPO, a longer number of banks that promise research coverage are given shares to sell, which eats into lead underwriters’ allotment.
5) One risk that Slack shouldn’t necessarily run into but that may have adversely impacted Uber’s IPO is its investor base. According to Slack’s S-1, its biggest outside shareholders include Accel (it owns 24% sailing into the offering), Andreessen Horowitz (13.3%), Social Capital (10.2%) and SoftBank (7.3 %). Why it matters: Slack doesn’t have to worry about less traditional private company backers like mutual funds not wanting to buy up its shares because they’re too busy trying to offload some.
6) Direct listings may well become a more popular product for consumer companies because companies can avoid further dilution, and there’s no lock-up on their shares, creating a shorter path to liquidity for the company and its employees and its investors. Still, Slack is probably anomalous as an enterprise company with a high enough profile to pull one off. The listings are really for companies that don’t need money any time soon and whose shares are already of interest to investors, who don’t need inducements to pay attention.
7) This is the second direct listing of a highly valued privately held company and, for the second time, it’s happening on the NYSE, with the same market maker, Citadel Securities, charged with ensuring orderly trading; the same bank, Morgan Stanley, selected to advise Citadel; and even the same law firms that worked on Spotify’s direct listing pulled back into service.
It’s nice if you’re part of this particular club, and no one can blame Slack for not wanting to reinvent the wheel. But one wonders how nervous it makes Nasdaq, as well as other banks and law firms, to be shut out of this process a second time.
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Maker Faire halts operations and lays off all staff
Financial troubles have forced Maker Media, the company behind crafting publication MAKE: magazine as well as the science and art festival Maker Faire, to lay off its entire staff of 22 and pause all operations. TechCrunch was tipped off to Maker Media’s unfortunate situation which was then confirmed by the company’s founder and CEO Dale Dougherty.
For 15 years, MAKE: guided adults and children through step-by-step do-it-yourself crafting and science projects, and it was central to the maker movement. Since 2006, Maker Faire’s 200 owned and licensed events per year in over 40 countries let attendees wander amidst giant, inspiring art and engineering installations.
“Maker Media Inc ceased operations this week and let go of all of its employees — about 22 employees” Dougherty tells TechCrunch. “I started this 15 years ago and it’s always been a struggle as a business to make this work. Print publishing is not a great business for anybody, but it works…barely. Events are hard . . . there was a drop off in corporate sponsorship.” Microsoft and Autodesk failed to sponsor this year’s flagship Bay Area Maker Faire.
But Dougherty is still desperately trying to resuscitate the company in some capacity, if only to keep MAKE:’s online archive running and continue allowing third-party organizers to license the Maker Faire name to throw affiliated events. Rather than bankruptcy, Maker Media is working through an alternative Assignment for Benefit of Creditors process.
“We’re trying to keep the servers running” Dougherty tells me. “I hope to be able to get control of the assets of the company and restart it. We’re not necessarily going to do everything we did in the past but I’m committed to keeping the print magazine going and the Maker Faire licensing program.” The fate of those hopes will depend on negotiations with banks and financiers over the next few weeks. For now the sites remain online.
The CEO says staffers understood the challenges facing the company following layoffs in 2016, and then at least 8 more employees being let go in March according to the SF Chronicle. They’ve been paid their owed wages and PTO, but did not receive any severance or two-week notice.
“It started as a venture-backed company but we realized it wasn’t a venture-backed opportunity” Dougherty admits, as his company had raised $10 million from Obvious Ventures, Raine Ventures, and Floodgate. “The company wasn’t that interesting to its investors anymore. It was failing as a business but not as a mission. Should it be a non-profit or something like that? Some of our best successes for instance are in education.”
The situation is especially sad because the public was still enthusiastic about Maker Media’s products Dougherty said that despite rain, Maker Faire’s big Bay Area event last week met its ticket sales target. 1.45 million people attended its events in 2016. MAKE: magazine had 125,000 paid subscribers and the company had racked up over one million YouTube subscribers. But high production costs in expensive cities and a proliferation of free DIY project content online had strained Maker Media.
“It works for people but it doesn’t necessarily work as a business today, at least under my oversight” Dougherty concluded. For now the company is stuck in limbo.
Regardless of the outcome of revival efforts, Maker Media has helped inspire a generation of engineers and artists, brought families together around crafting, and given shape to a culture of tinkerers. The memory of its events and weekends spent building will live on as inspiration for tomorrow’s inventors.
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