Greetings and welcome once again to The TechCrunch Exchange, your weekly source for insights into the startup world and financial markets. This newsletter draws inspiration from the daily feature found on Extra Crunch, but is available to all and designed for your weekend enjoyment. Would you like to receive it directly in your inbox each Saturday? Sign up here. 

Prepared? Let’s delve into discussions about funding, emerging companies, and intriguing possibilities surrounding initial public offerings.

Initial public offerings and the holiday season share a surprising connection, offering a festive outlook for investors.

The end of the year often witnesses a surge in initial public offerings (IPOs), mirroring the celebratory spirit of the Christmas season. This phenomenon isn’t merely coincidental; several factors contribute to this trend.

One key reason is the desire of companies to capitalize on positive market sentiment before the year concludes. Investors, often buoyed by holiday cheer, may be more inclined to participate in new offerings.

Furthermore, companies aim to complete their IPOs before the financial reporting cycle resets, allowing them to present a full year of performance data to potential investors. This timing can enhance the attractiveness of the offering.

The period following Thanksgiving and leading up to Christmas typically sees increased trading volumes, providing a liquid market for newly listed stocks. This liquidity is crucial for a successful IPO.

Additionally, investment banks and companies often prefer to avoid the quieter periods of the summer or major holidays like Labor Day, making the late fall and early winter an ideal window for launching IPOs.

While the market can be unpredictable, the historical pattern suggests a correlation between the holiday season and a heightened level of IPO activity, presenting both opportunities and considerations for investors.

Despite feeling fatigued, there remains a significant amount of current information to discuss, and I apologize for any delay.

Could sneakers be offered through an IPO? Plus, a year-end Exchange summary

Greetings, I trust this message finds you in good health. This represents the final Exchange newsletter for 2020. A few articles will appear next week before I begin a period of time off. Equity will continue to release episodes throughout the remainder of this year, as well.

With administrative matters addressed, our primary areas of focus this week are: companies initiating the process of going public, and the rate at which a specific group of startups are experiencing growth.

Although these two subjects aren’t directly connected, I won’t allow the constant stream of IPO announcements to overshadow the topic I intended to discuss. Therefore, we’ll begin with the SEC filings, and then move on to a more engaging analysis.

IPO – Yes or No?

The IPO landscape was active this week, with Coinbase and UIPath submitting confidential filings, Poshmark making a public filing, and Bumble reportedly filing privately. In essence, we’ve identified four additional companies planning to go public, joining Affirm and Roblox, who have postponed their respective offerings.

Considering companies like Chime, Robinhood, Expensify, and others have already reached a size that allows them to go public at any time, the prominent group of IPOs in 2021 has the potential to be comparable to what we observed this year.

Driven by unicorns seeking to access public funding, and with public markets reaching near record levels, it appears a significant influx of capital is anticipated in the coming months. This will result in increased aggregate venture capital DPI and TVPI figures, further enhancing the appeal of this asset class in the current environment of low yields.

The trend continues.

Evaluating the Scale of the Software Industry

Earlier this week, TechCrunch reported on Ramp’s latest funding round. Launched in February, Ramp was initially viewed by some as similar to Brex. Ramp and Brex both compete with Divvy and other startups (further details on two others will follow) to assist businesses in managing their expenses through a combination of physical and virtual cards, alongside software solutions.

Alongside the introduction of new software capabilities, Ramp disclosed its growth metrics as part of its announcement. When we contacted Divvy for comparable data, the company provided it. Brex chose not to release its results, which was acceptable. I also neglected to mention a couple of other competing companies, specifically Airbase and Plate IQ.

I should have included Airbase, as I previously covered it in March 2020 when it secured $23.5 million in a Series A extension (the new investment resulted in a tripled valuation, effectively making it a Series B). Regardless, Airbase is significant not only because it’s a competitor to Ramp, Divvy, and Brex, but also because it charges for its software.

This contrasts, as far as I understand, with Divvy, Brex, and Ramp, which prioritize acquiring a large number of customers and generating revenue from interchange fees. (Not charging for software integrated with standard cards reduces sales obstacles and, theoretically, promotes faster customer acquisition.)

However, while Airbase requires corporate clients to pay for its software, it is still experiencing substantial growth. According to an email from Airbase CEO Thejo Kote, the startup’s annual recurring revenue (ARR) has increased by 2.5 times this year, and payment volume has “grown 7 times on an annualized basis.”

These are exceptionally strong figures. Adding another successful company to the mix, well-known investor Garry Tan stated on Twitter that Plate IQ, a company I haven’t yet encountered, is “processing over $500 million in annual transactions and is profitable (generating actual earnings).” In comparison, the relatively new Ramp recently announced that it had surpassed $100 million in total managed spending.

My conclusion from this series of reports is not that any single company will emerge as the sole victor, or that one company is the undisputed leader. Instead, this week’s investigation into a specific software segment highlighted the immense size of the software market.

How is it possible for so many competing startups to grow so rapidly simultaneously? The answer is that the global economy is vast, and software continues to steadily penetrate an increasing portion of it. I anticipate that three of the five companies mentioned in this article will survive to reach public-company scale, with the remaining two being acquired by either private competitors or established public entities.

This leads me to favor cloud-based solutions. Nevertheless, let’s refrain from discussing this with VC Twitter.

Market Notes

For clarity this week, I’ve organized the remaining important information into two distinct categories. The first covers developments that weren't funding rounds, and the second focuses exclusively on the rounds themselves. Let's proceed:

• Slack’s corporate venture arm is actively investing again, with the parent company providing the funds. The available capital has been increased to $50 million.
• StockX has achieved a scale comparable to companies preparing for an initial public offering. Recent coverage by TechCrunch highlighted the resale marketplace’s potential for going public, and our analysis confirms this assessment.
• According to reporting from The Information, SoFi generated approximately $200 million in revenue during the third quarter and achieved positive EBITDA.
• Axios examined the expanding creator economy. Despite potential skepticism, its size and influence are substantial and warrant attention. We also discussed this topic on Equity, our podcast.
• Cryptocurrencies have re-emerged in the news, and the recent increases in asset values appear to be supported by more than just speculation.
• Robinhood experienced a challenging week. While the company’s prospects for an IPO remain viable – many companies have gone public while addressing legal issues – it was nonetheless a difficult period. Notably, Public.com secured funding equal to the amount of the fines Robinhood was required to pay.
• Startup valuations, particularly in Silicon Valley, are recovering from the downturn experienced during the COVID-19 pandemic.

Now, a significant number of large funding rounds have been completed.

Significant and Notable

This week’s compilation of diverse and noteworthy items is particularly substantial. Therefore, I’ve adjusted the title for this concluding newsletter of the year. Here’s a summary of the recent significant developments:

• Creditas, a company operating in Brazil, secured $255 million in funding. TechCrunch highlighted this investment as part of a broader trend of fintech funding directed towards Latin America.
• Zenoti, a Bellevue-based company located near Microsoft, achieved unicorn status after completing a $160 million funding round. The Seattle Times reports that the company develops cloud-based software solutions for the management of spas and salons. This demonstrates the considerable potential within the vertical SaaS market; for instance, Squire, a SaaS provider focused on barbershops, recently reached a valuation of $250 million.
• GoCardless continues to expand, raising additional capital this week and approaching unicorn valuation, further emphasizing the growth in the payments sector.
• Lydia, a French fintech company striving to become a comprehensive financial platform for younger customers, as described by Tech.EU, increased its Series B funding by $86 million this week. (Accel spearheaded both this round and Public’s most recent funding, marking a successful period for the firm.)
• ClickUp has secured a new $100 million investment, resulting in a company valuation of $1 billion, as reported by TechCrunch. This follows a $35 million raise in June. ClickUp is noteworthy as one of several companies that successfully completed two funding rounds in 2020, alongside companies like Ramp and SkyFlow.
• Bestow, operating in the Insurtech sector, received $70 million to support its digital life insurance offering. The Insurtech industry has seen considerable activity recently, with AgentSync securing funding in two separate rounds this year.
• Paxos, known for its cryptocurrency-related services provided to companies like PayPal, raised $142 million in a substantial Series C round. This investment reflects the current surge in the cryptocurrency market.

I will now be taking a break, and returning to my ongoing attempts to overcome my opponent in Civilization 6.

Best wishes.

Alex