Yesterday's news that Klarna was waiting for market conditions to be more favorable before going public seemed a bit strange. Today, it feels strange that Klarna is hesitant to go public. New pricing information from Indian tech unicorn Freshworks and U.S tech unicorn Toast indicates that the IPO market has more to offer than just welcoming.
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Toast increased its IPO range, and was priced higher than that interval. Freshworks raised its IPO price expectations, and was then priced above the set of price targets.
This is the perfect example of when it's a good time for a company to go public. Although both companies are yet to trade, flat debuts could be a strong fundraising tool and a strong upward mobility in terms of valuation.
We will be running the final numbers this morning to calculate the company's worth and the impact of those numbers on startup prices, particularly in the payments sector. Then, we will close with one the most humorous answers I've ever received from a startup executive. Sound good? Let's talk about money.
Price of Freshworks, Toast well
Toast initially aimed for an IPO range between $30 and $33 per shares. The company looked at a $34-$36 per share IPO price. The company sold 21,739131 shares at $40 each. Underwriters had the option of purchasing additional 3,260,869 shares at the IPO price if desired. Its IPO fundraise could have a value of up to $1.0 billion.
Freshworks set its IPO price range at $28 to $32 per share. The customer support software company raised its IPO price range to $32 and $34 per shares, but it didn't last. Freshworks was priced at $36 per share and sold 28,500,000 shares. There was also an option to sell 2,850,000 shares through an underwriter. The company's IPO fundraise may be worth up to $1.1 billion.
Renaissance Capital valued Toast for $17.9 Billion at $31.50 per Share (the midpoint in its first IPO range) and Freshworks for $9.6 Billion at $30 per Share (again the midpoint in its first IPO pricing interval), both using fully diluted share count. Simply using fully diluted shares counts, you can see that Toast is valued at $22.7 billion and Freshworks at $11.5 million.
There will be lower numbers, probably calculated with a more conservative share count. These numbers are valid as well.
The final IPO prices of Freshworks and Toasts are positive news in revenue multiple terms. Toast's Q2 revenue of $424.7million is 13.4x its annual run-rate. Freshworks' own run rate is 32.5x. We see the difference in the business models of the two companies as the key to the differential. Toast is a majority payment/fintech company while Freshworks is more pure-play SaaS. SaaS is more profitable than payments revenues, and it's also more stable (i.e., recurring), than transaction incomes. It is therefore worth a higher multiple.
