For all startups, going public is an ambitious and important milestone. This month, our team of engineers and investors think through the most relevant capital raising strategies for achieving this, backed by data and historical context generated through Georges.
Using PitchBook data, we assessed enterprise software companies who have IPOed since 2020 by looking at their valuation at time of IPO and the amount of capital raised. The below analysis is based on valuation at IPO time and not any subsequent trading price activity or trading price today (an increasingly volatile thing to track).
The past two years have been atypical in many respects. Economies worldwide experienced sharp downturns in the wake of the outbreak of the COVID-19 pandemic in early 2020, followed by strong market recovery. High-growth, tech-enabled IPOs soared in first-day trading. We saw retail traders wage war with hedge funds over once depressed stocks like GameStop.
Nonetheless, extrapolating from data in the enterprise software sector during this period, we believe certain market truths persist and can be helpful in providing founders with actionable insight into how to optimize their growth.
Capital raising strategies matter, but record breakers reflect great growth companies who take advantage of the market conditions at the time
A clear trend line emerges for capital raised against valuation at time of IPO (companies on the trend line)
Among enterprise software leaders who IPOed in the past two years, there is indeed a magic formula for reaching a healthy market cap: valuations commanded 3-7X multiples of the amount of capital raised.
Smashing records was normalized in many respects and raised the average. For example, when Snowflake went public in 2020, it was lauded as “the biggest software IPO ever,” and was soon followed by other unicorns such as Confluent and Samsara–all reaching valuations at roughly 6X multiples of the amount of capital raised.
The takeaway: From 2020-2022, we saw certain industry standards take hold around what valuations should be, against the amount of capital raised and business milestones achieved. Startups must be thoughtful about when and how to raise capital, and can take cues from their peer set of founders in the same vertical and market conditions.
From crisis to opportunity (companies above the trend line)
Exceptional performers in terms of valuation at time of IPO were seen to thrive in the unique market conditions of 2020, such as GitLab (open source software company)*, Toast (for whom fallen sales rebounded rapidly as eateries shifted to takeout and contactless ordering), and Asana (a web and mobile work management platform). These companies were all significant beneficiaries of Covid-19’s digital and remote work boom. In an interview, GitLab’s CEO, Sid Sijbrandij says, “We knew we were ready, the markets were ready, so why not take the step today?”
The takeaway: Be flexible and opportunistic to take advantage of changing market conditions. Our current down market may create surprising beneficiaries, just like COVID-19 did.