For investors, the upcoming IPO of cloud data security unicorn Rubrik is a test of whether the old rules of growth-over-profitability still apply.
The Bay Area startup is increasingly unprofitable: Its losses widened from $277.7 million to $354.2 million despite generating $627.9 million in revenue in the fiscal year ended Jan. 31, 2024. This follows the well-received IPOs of Astera Labs and Reddit, which are also unprofitable, albeit with narrowing losses.
Rubrik transitioned its business model in 2019 to replace licensing with subscriptions. That change shifted how it recognizes revenue, influencing the company’s losses, but it also powered growth. In 2023, Rubrik grew its subscription annualized recurring revenue 47% from the previous year, increasing from $532.9 million to $784 million.
Cybersecurity remains one of the top verticals for expected returns for early-stage deals, according to PitchBook data. But the sector isn’t immune to greater VC trends: Information security startups brought in less than $7.5 billion in exit value in 2022 and 2023 combined, after topping $30 billion in 2021.
For investors inside and outside Rubrik, the stakes are high. Lightspeed owns 23.9% of the startup’s shares and Greylock Partners owns 12.2%. From the outside, investors are paying close attention to what the IPO could mean for their portfolio companies.
“Some of our companies are waiting to go public, delaying their IPO, saying: ‘We don’t want our losses to be as big,’” said Alberto Yépez co-founder and managing director at Forgepoint Capital, one of the most active cybersecurity investors.
Depending on how the IPO is received, some companies may decide to speed up their public listing plans. “There are so many companies waiting in silence to see how the market is going to come out, how this is going to go,” Yépez said.
As the IPO window reopens, investors are watching what Rubrik’s valuation will mean for the broader market. The startup was valued at $3.3 billion when it raised a $261 million Series E in 2019.
“It’s a question of the quality of issuer that can make it through and at what valuation,” said Alex Doll, founder and managing general partner of Ten Eleven Ventures, another active cybersecurity investor. “We just lived through a very tough period where only the most unique, highest-quality companies could get through—and even then, at a very modest valuation.”
A poor reception could scare other startups away, according to Ken Elefant, partner and co-founder of the venture practice at Sorenson Ventures.
“The bar for going public for a company that does not have proof points to get EBITDA positive is going to be pushed out further,” he said. Elefant added that investors’ expectations and tolerance for unprofitable startups have shifted and that Rubrik is a key test. “[Rubrik] has created a very good blueprint for other security companies to follow,” he said. “But the bar has certainly risen.”
The listing could set up the latter half of the year and beyond for a steadier flow of public listings, according to Brian White, co-head of technology investment banking at Piper Sandler. White said that investors are still rewarding growth over profitability and that many are ready for new opportunities.
“Investors want to see new names, see new offerings, and they want to deploy capital to build long-term positions,” he said. “There’s no shortage of appetite.”
White added that while investors’ mindsets have changed it’s all for the better.
“Investors have done their homework. They want to be cautious, but they have a better sense now of how to spot good companies,” he said. “They haven’t just sat on the sidelines.”
Featured image by Joey Schaffer/PitchBook News
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