December 4, 2020

Building Your Inovation

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Warren Buffet is eager to invest in a money-burning SaaS unicorn that is about to IPO. Despite recent tech stock declines and growing fears of US election turbulence, this is one reason that Snowflake is on track to be one of the biggest offerings of the year. And it is not the only company defying the pandemic and newer problems in order to get out of the gate soon.

First, here’s Alex Wilhelm with more Snowflake filing details:

The $75 to $85 per-share IPO price target values the firm at between $20.9 billion and $23.7 billion, huge sums for the private company. Its IPO could raise more than $2.7 billion for the startup. Snowflake  was last valued at around $12.5 billion when it raised a Series G worth $479 million earlier this year.

Built into those valuation projections are two private placements of stock in Snowflake, $250 million apiece from both Salesforce,  the well-known CRM player, and Berkshire Hathaway, better known for its investment returns in the 80s and 90s, Cherry Coke and Charlie Munger’s humor. Jokes aside, the inclusion of Salesforce in the IPO is notable, but not a shock, but Berkshire taking part in the public market debut of Snowflake, a company with historic losses that are nigh-tyrannical, is.

Today, “epic growth, improving gross margins and dramatically curtailed losses” are factors that lure investors like Buffett, Alex concludes.

In other pre-IPO analysis this week, Eric Peckham takes a deeper look at Unity this week, updating a massive analysis he had done last year. Basically, the game engine creator could be more central to our online future than many seem to realize today:

Much of the press about Unity’s S-1 filing mischaracterizes the business. Unity is easily misunderstood because most people who aren’t (game) developers don’t know what a game engine actually does, because Unity has numerous revenue streams, and because Unity and the competitor it is most compared to — Epic Games — only partially overlap in their businesses….

For those in the gaming industry who are familiar with Unity, the S-1 might surprise you in a few regards. The Asset Store is a much smaller business that you might think, Unity is more of an enterprise software company than a self-service platform for indie devs and advertising solutions appear to make up the largest segment of Unity’s revenue.

In an accompanying analysis for Extra Crunch, he digs into the filing and maps out the bear and bull cases for the company. Some of the biggest issues he notes are that it is still fairly reliant on advertising (even though it wants a SaaS multiple) and it is continuing to lose lots of money on ambitious expansions. So this is probably not Warren Buffett’s type of frozen dessert, if you will. Risk-seekers and futurists, however, will want to try this free sample of the bull case:

Game engines are eating the world… A vast swath of entertainment and work activities already center on interactive content. Unity has demonstrated value and early adoption across numerous industries for a long list of use cases; it is on the precipice of entering the daily workload of millions of professionals, from engineers to industrial designers to film producers to marketers. Its Create Solutions division is on a path to becoming something of a next generation Adobe ($11 billion in 2019 revenue): A creative suite used by design, engineering, marketing and sales teams across industries.

As AR and VR technology expands into mainstream use over the decade ahead, Unity’s adoption will only expand further. The majority of AR and VR content is already made with Unity’s engine and Unity’s R&D is improving the ease of creating such content by less technical professionals (and students). This positions Unity to expand into key functions higher up in the tech/content stack of mixed reality by providing identity, app distribution, payment and other solutions across content experiences.

Elsewhere in our IPO coverage, Danny Crichton got the details about Palantir insiders accelerating their stock sales for Extra Crunch, and Alex dug into the fresh Sumo Logic and JFrog filings S-1 filings.

Image Credits: Lawrence Anareta / Getty Images

Two considerations of SPACs

Special purpose acquisition companies are a thing now for tech startups that want to go public, but are they the best thing? Here’s top seed-VC investor Josh Kopelman’s take, via an interview from this week with Connie Loizos.

On the one hand, just for fun, I made sure that we owned Lastround.com in case we ever wanted to launch our SPAC. [Laughs.] But it’s hard to know the true benefit of a SPAC. And I think that now that we’ve begun to see a market shift toward allowing direct listings with a fundraising component, you might see that as a far more viable and frequent fundraising or a liquidity device.

A fresh startup trend he’s more positive about is rolling funds (short-window raises for small very early investments, like the new offering from AngelList).

But back to SPACs. George Arison, cofounder and co-CEO of car-buying unicorn Shift, wrote a guest post for Extra Crunch this week about how he has approached taking his own company through a SPAC. Among other things, he says, private investments in public equity are not only good but essential:

There are some in Silicon Valley who think that raising a PIPE is a bad idea — quite frankly, this is patently false. A core reason why SPACs work today, and why they differ from the first generation of SPACs that often did not work, is because of the PIPE process. The PIPE period allows companies to raise more capital, to validate valuations, and it also creates a pathway to transition “special situations” investors to fundamental investors that you want as long-term shareholders.

A pause for Belarus, and PandaDoc employees

After Belarus-born PandaDoc CEO Mikita Mikado publicly supported opposition to his country’s dictatorship, state police raided the company’s large operation in the country and imprisoned four of its employees on spurious charges. As they fight for justice for their colleagues, and for the country’s political process, they’re planning to close operations in the country, and are joining with other startups to highlight the damage to the local tech scene. More about the movement in the subtitled video below:

Investor surveys: proptech’s future, Warsaw and more

We’ve been trying to understand what is really going on with real estate and proptech, given the various impacts the traditionally glacial sector has experienced lately (pandemic, remote work, retail issues etc.). On Tuesday we ran the second part of our most recent survey, focused on present and future opportunities. Here’s Clelia Warburg Peters, venture partner at Bain Capital Ventures, about making peace with real estate agents and focusing on financial and processing aspect that have not been disrupted in a very long time

Up until recently, the innovation in the residential space was all focused on disintermediating the real estate broker, and I think the most sophisticated entrepreneurs are increasingly understanding that service is a core component of a home sale… [T]he bigger opportunity is finding a way to leverage the position of the real estate agent (in whatever form) to sell affiliated products, including title, mortgage and home insurance or to innovate in those products themselves.

Elsewhere in survey work this past week, Mike Butcher checked in with investors focused on Warsaw and Poland, and is also looking for folks to talk to about the Vienna tech scene.

Around TechCrunch

Announcing the Startup Battlefield companies at TechCrunch Disrupt 2020

Meet the final round judges who will decide the winner of this year’s Disrupt Battlefield Competition

FaZe Clan’s Lee Trink, Troy Carter and Nick ‘Nickmercs’ Kolcheff are coming to Disrupt 2020

Drew Houston will talk about building a startup and digital transformation during COVID at TechCrunch Disrupt

Women exhibitors in Digital Startup Alley: Meet female-focused accelerators

Meet the TC Top Picks for Disrupt 2020

All the ways to meet someone and make connections at Disrupt 2020

Across the week

TechCrunch

How one VC firm wound up with no-code startups as part of its investing thesis

It’s time to better identify the cost of cybersecurity risks in M&A deals

Why established venture firms should court emerging managers

Apple lays out its messy vision for how xCloud and Stadia will work with its App Store rules

Viral article puts the brakes on China’s food delivery frenzy

Extra Crunch

How to respond to a data breach

Use ‘productive paranoia’ to build cybersecurity culture at your startup

What’s driving API-powered startups forward in 2020?

Slack’s earnings detail how COVID-19 is both a help and a hindrance to cloud growth

VCs pour funding into edtech startups as COVID-19 shakes up the market

#EquityPod

From Alex:

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast (now on Twitter!), where we unpack the numbers behind the headlines.

The whole crew was back, with Natasha Mascarenhas and Danny Crichton and myself chattering, and Chris Gates behind the scenes tweaking the dials as always. This week was a real team effort as we are heading into the maw of Disrupt — more here, see you there — but there was a lot of news all the same.

So, here’s what we got to:

We wrapped with whatever this is, which was at least good for a laugh. We are back next week at Disrupt, so see you all there!

Equity drops every Monday at 7:00 a.m. PT and Thursday afternoon as fast as we can get it out, so subscribe to us on Apple PodcastsOvercastSpotify and all the casts.

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