Even if the past week’s chatter wasn’t completely dominated by major developments around WeWork, SoftBank and unicorn IPOs, the week was still very much about WeWork, SoftBank and unicorn IPOs.
Continued fallout from WeWork’s epic IPO meltdown and the underperformance of many once-touted, now-public unicorns has led to growing rumination in the venture industry about “what’s next?”
We got the first indication of significant movement on Friday, with CNBC reporting that SoftBank CEO Masayoshi Son is considering reversing course and implementing a more cautious investment strategy with his second Vision Fund.
So, is change afoot in the venture world? Is SoftBank’s potential U-turn the first domino? However it plays out, industry-wide introspection is one of six things you need to know from the past week:
1. Is it time for VC to hit reset?
The VC industry’s recent espousing of discipline over growth should come as no surprise, at least to some extent. WeWork and SoftBank are still front of mind, IPO withdrawal or not.
For WeWork, the week started with a damning Wall Street Journal report on more head-scratching inaccuracies, ambiguities and omissions—including failure to mention the company’s $60 million Gulfstream jet—in its now-notorious IPO prospectus. It continued with details on former CEO Adam Neumann’s lavish properties across the US and news that WeWork’s private school, WeGrow, will shut down after this school year.
For SoftBank, the week started with self-effacement from a humbled Masayoshi Son (see our “Quote of the Week” below) and it continued with, well, more self-effacement (see the investment strategy considerations noted above).
But there’s been plenty of disappointment to go around, even after so-called “successful” debuts. Uber (down 49% from its IPO price), Lyft (-45%) and Peloton (-23%) have all had discouraging rookie years so far as public companies—all had massive losses, of course, upon going public. And for Uber and others, stock performance might soon get worse as lockup periods are set to expire and more shares will soon flood the market.
One unicorn that was looking to enter the fray, Postmates, either delayed its IPO this week or it’s just waiting for the best time to debut—based on your definition of the word “delay.” (For what it’s worth, Dan Primack of Axios reported that Postmates’ IPO filing was part of a dual-track process that emphasized an acquisition. In a separate context, Postmates CEO Bastian Lehmann appeared to deny on Twitter that his company was bluffing an IPO to attract a buyer.)
So, does what does all this mean for the big picture?
Erin Griffith of The New York Times wrote a great piece, as always, covering this topic and bringing up the notion of a reset. And certainly reemphasizing a path to profitability and not rewarding billion-dollar losses seems like a rational and prudent approach in returning to some sense of normalcy.
We’ve already seen a bifurcation of the market as it relates to how enterprise tech and consumer non-quite-tech may be received on Wall Street. But I’ll be honest, I struggle to wrap my head around a collective reckoning across the entire—often irrational—venture industry, especially with so much capital available and many metrics still pointing up.
In the US, VC-backed exit value this year has already reached a decade record—by far—with three months to go. VC distributions and net cash flows were way up in 2018 (the latest data available), which is hardly going to damper LP appetite for further investment into the asset class. Fundraising the past several years has already been consistently strong. There’s a lot of money to go around, from traditional and nontraditional VC backers alike.
With all this capital to be spent, are investors all going to adopt the same renewed levels of discipline and risk aversion? (Remember that they’re often able to negotiate downside protection into those riskier late-stage deals—which is how SoftBank has partially insulated itself from a WeWork valuation freefall.)
I tend to think many VC investors will view WeWork as a cautionary tale but ultimately an outlier. And fair or not, I also tend to think that many view SoftBank as the main player that needs to consider a reset—as Son has already indicated.
Because, ultimately, for the majority of venture investors, playing it safer and focusing mostly on businesses with clearer paths to profitability doesn’t seem really all that venture-y at all.
2. Big moves for PE’s tech giants
Less than a year after closing a $12.6 billion fund, Thoma Bravo is already thinking about another raise, according to Bloomberg. The tech-focused firm is considering raising $15 billion starting in 1H 2020. Elsewhere, Vista Equity Partners, which closed a $16 billion software-focused PE fund last month, is said to be looking to sell a massive stake in UK fintech company Finastra at a $10 billion valuation.
3. Oyo CEO doubles down
Just the numbers of Oyo’s latest round were big enough to garner attention, with the Indian hotel chain announcing that it’s raising $1.5 billion at a reported $10 billion valuation. The extra-interesting part is CEO Ritesh Agarwal’s continued investment in his company; he’ll be putting in $700 million, with existing backers like SoftBank providing the other $800 million. Agarwal’s actions have raised some eyebrows—certainly after the many Neumann self-dealing revelations—as he’s apparently using his existing shares as collateral to buy new shares. Certainly risky, but can’t knock the confidence if the financiers sign off.
4. Bay Area insurance boom
Roughly 15 months after raising funds at a $350 million valuation, Palo Alto’s Next Insurance has eclipsed the $1 billion threshold with a $250 million Series C from Munich Re. From digital insurtech to what I guess you could call typo insurance, San Francisco’s Grammarly has raised $90 million in a round led by General Catalyst at an estimated $2.3 billion valuation. The software developer for all your spelling and grammar needs was last valued at around $550 million in 2017.
5. Biotech IPO bust
It was a high-profile week for biotech IPOs, though BioNTech and Vir Biotechnology stumbled out of the gate. Germany’s BioNTech priced Wednesday below its expected range and closed trading Friday down about 8% for the week at a market cap of about $3.1 billion. SoftBank-backed Vir priced Friday at the bottom of its range and closed down 30% for a roughly $1.5 billion market cap. Elsewhere in healthcare, primary care provider One Medical has reportedly hired JP Morgan and Morgan Stanley to help prep for a 2020 IPO.
6. PE works on putts and chips
Topgolf, a PE-backed operator of glitzy golf centers and driving ranges, is reportedly in talks with banks about a 2020 IPO. Backed by Providence Equity Partners and others, the company was valued at roughly $2.1 billion in late 2017. And if you want a PE-backed snack to go with your PE-backed golf, healthier chips brand Popchips was acquired this week by VMG Partners.
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