TPG Growth
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Expanse, which lets its customers know when their digital assets aren’t safe, has raised $70 million in new funding
Expanse, a six-year-old, San Francisco-based company that helps its clients understand and monitor what it calls their “global internet attack surface,” has received a $70 million vote of confidence from its earlier backers, as well as some notable individual investors.
Previous investor TPG Growth led the Series C round, with participation from other earlier investors that include NEA, IVP and Founders Fund. But the company also drew checks directly from Founders Fund co-founder Peter Thiel, Michael Dell, former IBM CEO Sam Palmisano, media entrepreneur Arianna Huffington and Turner Enterprise CEO Taylor Glover.
What do they find so interesting about Expanse, which was formerly known as Qadium? Its traction, for starters. It turns out that when you start indexing global internet protocol addresses before everyone else — meaning the numerical labels assigned to each device connected to a computer network — it’s hard for competitors to catch up.
Indeed, numerous big organizations, including CVS and PayPal, are among others that now use the company’s software-as-a-service to help manage their far-flung digital assets connected to the public internet. According to co-founder and CEO Tim Junio, Expanse has been tripling its sales year over year — and quadrupling the terms of its contracts. Toward that end, he says it now has more than 10 customers that have signed up for $1 million-plus contracts. “VCs like to look at how long it takes to go from $1 million to $10 million in [annual recurring revenue]. It took us 22 months, about as fast as [the now-public cloud-storage company] Box.”
Much of that revenue is also coming from U.S. federal agencies, including the U.S. Army, the U.S. Navy and the U.S. Air Force, as well as the State Department, the Defense Department and the Department of Energy. Collectively, they account for more than $100 million in contracts with Expanse, it says.
Asked if Thiel has played a role in making introductions — Thiel famously advised Donald Trump leading up to his election as president, and Thiel’s former chief of staff, Michael Kratsios, is now the country’s chief technology officer — Junio says that all of Expanse’s investors have helped in making customer introductions and pours water on any suggestion that Thiel has done special favors for the company.
Meanwhile, though the company is known for its work in helping customers identify security risks they don’t know about on their networks — like an IoT device that hasn’t been patched — it’s now going after adjacent problems that are bigger-spend problems, including looking at its customers’ critical suppliers to be sure that they aren’t introducing vulnerabilities, including across their commercial cloud providers and co-hosting facilities.
Eventually, it’s easy to see a day when Expanse sells some of the aggregated data it’s seeing, perhaps on a sector by sector basis, though Junio says that Expanse “isn’t going in that direction” currently. For now, he says, the biggest trend that’s driving the business today is the digital transformation of every type of company, which is resulting in plenty of insecurity. As more businesses move to the cloud, there is always the danger that employees — their own or those acquired through mergers — won’t always know or follow policies, and that they’ll move sensitive data where they should not.
That it’s a trend with no end in sight goes a long way in explaining the momentum of Expanse. Already, the company has 150 employees across offices in San Francisco, Washington, DC, New York and Atlanta. With its newest round — a sum that brings Expanse’s total funding to $135 million altogether — the plan is partly to move into new international markets beyond where it already operates. Those markets include the U.K., Canada, Australia and Japan.
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Uber’s IPO may not be as eye-popping as we expected
Uber is expected to raise $10 billion later this year in one of the largest U.S. initial public offerings in history. The float will value the ride-hailing giant somewhere between $76 billion — the valuation it garnered with its last private financing — and $120 billion — a sky-high figure assigned by Wall Street bankers that’s had even early Uber investors scratching their heads.
A new report from The Information pegs Uber’s initial market cap at $90 billion. To develop the estimate, the site analyzed undisclosed documents Uber provided creditors in 2017 “in which the company projected it would double net revenue to $14.2 billion by 2019,” ran revenue multiples and compared Uber to GrubHub, which investors say is the business’s closest comparison.
Uber declined to comment on The Information’s analysis.
How we got here
Uber confidentially filed for its long-awaited IPO last month, marking the beginning of a race to the stock markets between it and U.S. competitor Lyft, which filed just hours before, according to a source with knowledge of the situation. Founded in 2009 by Travis Kalanick, Uber has brought in about $20 billion in a combination of debt and equity funding. It counts SoftBank as its largest shareholder in a cap table that also lists Toyota, T. Rowe Price, Fidelity, TPG Growth and many more. As for the skepticism surrounding Uber’s lofty $120 billion valuation, the eye-popping figure seems unachievable considering the company isn’t profitable and has and continues to burn through cash.
An IPO that large would certainly make its investors happy. First Round Capital, for example, seeded Uber with $1.6 million in the company’s first two funding rounds in 2010 and 2011, according to The Wall Street Journal. At a $120 billion valuation, First Round’s shares would be worth some $5 billion. The venture capital firm, however, sold some of its shares to SoftBank alongside Benchmark, which itself would otherwise own shares worth about $14 billion.
Bradley Tusk, an early Uber investor who signed on to help the company surmount political and regulatory barriers in 2011, own shares said to be worth $100 million, though he too gave up 42 percent of his equity in a secondary sale to SoftBank, he recently told TechCrunch.
“I’m quite happy with the 120 number,” Tusk said. “But … I am a little surprised by [it], it does seem to be a really aggressive number.”
“Any investment in Uber is obviously a long-term bet on the future, like someone who invested in Amazon in the early days,” Tusk added. “One thing [Uber chief executive officer Dara Khosrowshahi] is doing well is really expanding Uber into a mobility company as opposed to just a ride-hailing company.”
Dara Kowsrowshahi, chief executive officer of Uber, looks on following an event in New Delhi, India, on Thursday, Feb. 22, 2018. Photographer: Anindito Mukherjee/Bloomberg via Getty Images
A long-term bet on the future
Uber has opted to go public in a year poised to see the most high-flying unicorn IPOs in history. As we’ve reported in great detail on this site, both Lyft and Uber are planning to float, as are Slack and Pinterest . Many of these companies, however, made the call to make their public markets debut before the stock market took a quick turn south. Poor performing stocks may discourage unicorns from emerging from their cozy VC-protected stalls.
Uber will garner increased scrutiny from Wall Street investors as they begin to parse out its true value. Fortunately the company, which like Amazon has long prioritized growth over profit, has “’clear levers’ it could pull in order to turn on the cash spigots if it wanted to, by reducing its marketing spending both in the U.S. and developing markets and by finding partners to help finance its self-driving car development,” according to The Information. “Pulling those levers would slow revenue growth by a third—from a 33% growth in net revenue to 22 percent growth in net revenue in 2019 [but] it would save Uber $2 billion annually.”
In its third quarter 2018 financial results, Uber posted a net loss of $939 million on a pro forma basis and an adjusted EBITDA loss of $527 million, up about 21 percent quarter-over-quarter. Revenue for Q3 was up five percent QoQ at $2.95 billion and up 38 percent year-over-year.
“We had another strong quarter for a business of our size and global scope,” Uber chief financial officer Nelson Chai said in a statement. “As we look ahead to an IPO and beyond, we are investing in future growth across our platform, including in food, freight, electric bikes and scooters, and high-potential markets in India and the Middle East where we continue to solidify our leadership position.”
We can speculate on Uber’s valuation for days but ultimately Wall Street will determine just how high Uber will go. For now, all we can do is sit and wait for the company to relinquish its S-1 to the masses.
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Last month we characterized 2017 as the year Sub-Saharan Africa’s startup scene found its stride. 2018 looks to be the year of numerous VC investments.