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Weekend Analysis

If ServiceTitan can go public, so can you

ServiceTitan priced at $71, then popped to $101 on its first day of trading. That success, which came despite serious hurdles, could encourage other software startups to bite the bullet and go public

ServiceTitan, which develops software for tradespeople, popped 42% in its IPO debut on Thursday and is now trading at 13x trailing revenue.

It’s a remarkable price for a company that didn’t have the smoothest road to the Nasdaq floor—and it could be a bellwether for future software IPOs.

“That sound you hear is tech investment bankers everywhere canceling their holiday plans. And breathing a sigh of relief,” Will Quist, a partner at early-stage VC Slow Ventures, wrote on X on Thursday.

With a market cap of more than $10 billion, ServiceTitan is not yet profitable: The company recorded a net loss of $183 million for the year ending July 2024.

For over two years, the markets have been cautioning founders to slow down on their growth spending and focus on profitability. ServiceTitan’s debut is a golden signal for other founders. And there’s plenty of them— there were 114 VC-backed companies in the IPO backlog as of October, according to PitchBook estimates.

Can ServiceTitan sustain its price? That’s a different question entirely.

“You saw this in ’21: Everyone overhypes these IPOs, and it’s brutally hard for the company,” said Evan Skorpen, portfolio manager of Lead Edge Capital‘s public markets fund. “The animal spirits are lovely, we’re excited about it, but you want rational, even expectations, not these wild swings.”

Compounded pressure

ServiceTitan shareholders will be relieved. The company’s ‘hurdle rate'—the IPO price needed to avoid further share dilution—had reached $90 per share as a result of the compounding ratchet structure out in the terms of ServiceTitan’s Series H.

The $365 million Series H set ServiceTitan’s valuation at $7.6 billion two years ago, but came with the caveat that if the company didn’t IPO within the next 18 months, the minimum required return for investors would start compounding quarterly.

“ServiceTitan was undoubtedly on the clock, and they knew that,” said Alex Clayton, GP at Meritech Capital. The longer ServiceTitan stayed private, the higher its hurdle rate would climb.

This ‘dirty’ term sheet clause may have actually been brought in by ServiceTitan’s investors to hold the founders to their IPO timeline. Later-stage VCs are desperately in need of exits so they can send cash back to their LPs and secure new commitments to their next fund.

“It’s a contractual way of forcing an IPO,” said Tanay Jaipuria, a partner at Wing VC. “It’s the investor’s way of saying, I’m going to put it in to make sure that [an IPO] happens.”

A rocky-ish road

The road to this fabulous debut was less than rosy.

Backed by Bessemer, TPG, ICONIQ and Battery Ventures, the Glendale, Calif.-based company has grown like a rocket ship. Between 2021 and 2024, ServiceTitan saw a compound annual growth rate of 51%.

But its valuation upswings grew with it. When the market took a turn, ServiceTitan had to take a 20% valuation haircut from $9.5 billion to $7.6 billion. And the compounding ratchet came attached to it.

A compounding ratchet term is extraordinarily rare, not least because it can be extremely punishing for founders—the longer the company delays an IPO, the more founders’ shares will be diluted if it prices under the hurdle price.

But without it, ServiceTitan’s Series H likely would’ve been priced at an even lower valuation.

But despite a dirty term sheet and a down round in ServiceTitan’s recent past, public markets are bullish on the vertical software company, offering a blueprint for others to follow.

“There are lots of companies that aren’t these ideal scenarios. DataBricks and Stripe, they can do whatever they want, they’re incredible success stories,” said Boris Wertz, an investor at Version One Ventures.

“I think the question is more about the people that have raised at a very high private valuation and know that if they’re going to go out now, they’re going to face a much tougher environment,” Wertz said. “Perhaps the ServiceTitan IPO brings people from that second list.”

Featured image by Megan Woodard/PitchBook News

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  • rosie-headshot.jpg
    Rosie Bradbury is a senior reporter covering startups and venture capital for PitchBook News. Based in New York, she previously reported for the Bureau of Investigative Journalism, Business Insider and Wired. Rosie studied history and politics at the University of Cambridge.
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