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Startup Daily Interview

December 6, 2021

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Ignition Lane’s Weekly Wrap: E-I-E-IPO, Pause Fest goes on permanent pause, New Zealand raises ramp up GAVIN APPEL & REBECCA EASTWOOD

OCTOBER 18, 2021

It’s raining IPOs

All-remote DevOps firm GitLab completed its IPO on Thursday. It closed the week up 49%, giving GitLab a market cap of nearly US$16.5bn. In true remote work fashion, the company was the first-ever Nasdaq listed company to livestream its entire IPO day, with about 18,000 people stopping by over the course of the broadcast.

2021 has seen a mega-surge in listings. In the US alone, over 100 tech companies have IPO’d—the highest figure since the 2000 internet bubble—raising more money than any year since 1995. And that’s before accounting for any direct listings or SPACs.

Australia’s IPO outlook is trending the same way. This quarter alone will see at least seven A$1bn+ floats on the ASX (across all industries) – the biggest quarter since Q4 2013.

On the tech side, listing whispers are abound (all $ in AUD):

  • Hotel booking software company, Siteminder, closed a $100m pre-IPO round last month and is currently drumming up interest to raise $600m in an IPO, which will imply a market cap of $1.31bn to $1.36bn.
  • Online healthcare booking service, HealthEngine, and influencer marketing platform, Tribe, are expected to undertake management roadshows and bookbuilds in the next few weeks.
  • After a unicorn-creating USD$100m raise in July, Culture Amp is said to be working towards a listing on the ASX or Nasdaq.
  • Online casino and poker game developer, Virtual Gaming Worlds, is looking to list in the US, leveraging an eye-watering pre-tax profit of $358m (a 361% increase from FY20).
  • Digital gift-card provider Prezzee is mulling a float. It generated $20.2m in FY21 and, while declaring itself a unicorn, says it is on track to achieve more than $1bn in gift card transactions in FY22.
  • Packform, an online packaging marketplace, secured $25m in a pre-IPO raise this week (reportedly oversubscribed by 2.5x) and thinks it could potentially fetch a $300m valuation at IPO.
  • RedEarth, a renewable energy tech company supplying solar batteries and systems to households, plans to list on the ASX after raising $12m in pre-IPO funding this week.

This may just be the beginning, too. Venture capital fundraising is at a record high, turbocharging private market value and unicorn proliferation (860 and counting). Most of these unicorns eventually need an exit plan, with IPO and listing presenting a magic trap door.

Magic for investors, perhaps. But being listed isn’t always a silver bullet for everyone – particularly early stage startups.

Firstly, going public is expensive, typically costing $250,000 to $1m+. Then, once you’re public, complying with listed company obligations can be a heavy burden and distraction for small teams. Being subject to constant public scrutiny and disclosure is tough, particularly if revenue growth isn’t heading in the right direction. Plus, your share price is at the mercy of small trades by ‘mum and dad’ investors, who don’t always understand the nuances of high-risk startup investing.

We’ll have to wait and see whether these IPOs will be as successful as GitLab. In the US, share price performance after the first day of trading for IPOs was negative for most of this year, i.e. on average, investors who put money into an IPO after the first day of trading lost money.

If you’re looking to invest, consider whether you’re getting a killer share price in a customer-centric company with solid defensibility in a growing market, or if you’re just buying into yet another company capitalising on the public market bullrush.

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