Pandemic IPO Boom: How COVID-19 Fueled the Surge

This is The TechCrunch Exchange, a newsletter distributed on Saturdays, stemming from the column of the same title. You can subscribe to receive the newsletter here.

I was preparing to delve into the landscape of fundraising for mental health startups this week, however, a surge of S-1 filings has necessitated a postponement to Monday. We must now address the impact of COVID-19.

The pandemic has proven to be the most significant catalyst for startups and venture capital in 2020, beyond the existing trend of businesses transitioning to digital platforms. However, COVID-19’s influence extended far beyond this, simultaneously propelling some companies forward while causing setbacks for others. For every Peloton, there is likely a Toast, to illustrate this point.

This dynamic is reflected in the current group of unicorn IPO hopefuls, who largely benefit from the acceleration provided by COVID-19, rather than representing those companies negatively impacted by the pandemic. 

In essence, COVID-19 provided a considerable impetus for many of our recent IPOs, assisting them in reaching the public offering stage more quickly. Let’s examine this further.

Roblox, a gaming platform geared towards children, experienced benefits during the COVID-19 pandemic, as individuals spent more time at home and, seemingly, provided their children with funds for in-game purchases to ensure some tranquility. This proved to be a successful strategy, despite Roblox’s caution that growth may decelerate in the coming year, compared to its substantial gains in 2020.

However, Roblox is not the sole company leveraging the effects of COVID-19 on the market to become publicly traded while reporting strong results. We observed DoorDash submitting its filings last week, highlighting a significant increase in revenue partially attributable to consumers like us choosing to remain at home starting in March. It follows that delivery orders increase when leaving the house is restricted.

Affirm also received a boost from COVID-19, driven not only by the growth in e-commerce spending – Affirm offers point-of-sale financing to consumers during online transactions – but also by the success of Peloton, with many customers opting to finance their new exercise equipment through the payment service. Consider it a combined advantage.

The timing of the IPO is advantageous. Wish similarly fits into this pattern, although it encountered some supply chain and delivery challenges due to the pandemic, making its situation more complex.

Regardless, as global statistics demonstrate, COVID-19 continues to disrupt our health, well-being, and daily routines. Therefore, the trends observed in this week’s S-1 filings are likely to persist.

This presents a challenge for Airbnb, a unicorn originally slated for a direct listing but forced to pause its plans, secure funding, reduce its workforce, and now advance toward the public market with lower revenue in Q3 compared to the previous quarter. Eventually, Airbnb will regain its previous momentum, but it stands as the only company among the new IPO candidates that has been negatively affected by COVID-19, making it unique.

There are additional trends to monitor concerning the pandemic. Not every software company expected to thrive is currently doing so; Workday shares are down 8% today as I write, as the company indicated that COVID-19 is hindering its ability to acquire new clients. Here’s its CFO Robynne Sisco from its earnings conference call

Yeesh. Therefore, avoid assuming that all companies, or even all software companies, are experiencing positive outcomes based on recent IPOs. (To clarify, the pandemic is a humanitarian crisis, but my role is to analyze its business implications, so here we are. Best wishes, and please prioritize your safety.)

Market Notes

This week featured a significant volume of news, necessitating a concise overview.

I recently spoke with Brex CEO Henrique Dubugras, providing The Exchange with insights into the company’s experiences during the initial stages of the COVID-19 pandemic and the subsequent decision to reduce its workforce. The CEO explained that the company transitioned from monthly growth of 10% to 15% to experiencing negative growth – a challenge also faced by Airbnb with gross bookings earlier this year – and, having anticipated a strong year, was compelled to implement staff reductions. Dubugras emphasized the difficulty of this decision.

However, Brex’s performance recovered more quickly than anticipated, fueled by a surge in new business creation – detailed data is available here – and the accelerated adoption of digital platforms and financial systems like Brex’s by numerous companies. 

Looking ahead, Dubugras aims to broaden the range of companies Brex can support with underwriting, a logical step to significantly expand the company’s potential market. The company also fully embraces remote work, with the CEO discussing both the advantages and disadvantages of this approach during our conversation. Fortunately for this fintech unicorn, Dubugras noted that the anticipated drawbacks of a more remote workforce have not been as substantial as initially feared. 

Moving on to growth metrics: Verbit, a company leveraging AI for video transcription and captioning, secured a $60 million Series C funding round this week, led by Sapphire Ventures. While I was unable to participate in the round, the company’s press release highlighted a 400% increase in year-over-year revenue and a five-fold growth in revenue run-rate since 2019. Impressive results.

Jai Das spearheaded the investment for Verbit, and I will be hosting him for an Extra Crunch Live session in the coming weeks. (An Extra Crunch subscription is required; find more information here. The discount code ‘EQUITY’ may still be valid.)

Telos, a Virginia-based firm specializing in cybersecurity and identity solutions, became a publicly traded company this week. It came to our attention despite the overwhelming amount of recent news. To bring us both up to date, Telos priced its offering in the middle range but increased the number of shares, resulting in a valuation of approximately $1 billion, as reported by MarketWatch.

Following its initial public offering, Telos’s stock has shown strong performance. The cybersecurity sector is experiencing a particularly successful year.

Returning to the subject of SaaS, ProfitWell’s Patrick Campbell shared a wealth of data regarding the impact of COVID-19 on the B2B SaaS market. The overall trend is positive, with an initial downturn followed by accelerated growth. However, it’s important to remember the Workday example mentioned previously; not all software companies are enjoying such favorable conditions as 2020 draws to a close.

Finally, in response to Affirm’s S-1 filing, competing service Klarna chose to release its own performance data. We appreciate the transparency, Klarna. We value data. Klarna reported growing its customer base in the United States from 10 million to 11 million in just three weeks, representing a 106% increase compared to the same period last year. 

Affirm, you are now challenged to enhance your S-1 filing with even more detailed information as a playful response. I do not establish these expectations, however.

Various and Sundry

• Robinhood has decided to move forward with a single chief executive officer, rather than co-leadership. This streamlining for initial public offering preparations is well-received by The TechCrunch Exchange.
• In related news concerning Robinhood, The Exchange recently analyzed the company’s growth during the third quarter. The findings indicate a slower rate of expansion compared to the previous quarter.
• Lime has achieved profitability, with some qualifications. This represents a significant positive shift for the company.
• Bird is pursuing a public listing through a special purpose acquisition company (SPAC), a move met with skepticism.
• Our gratitude goes to the Google Chrome development team.
• Venture capitalists specializing in Software as a Service (SaaS) continue to express strong confidence in the potential for software companies to expand, as highlighted by Byron Deeter of Bessemer this week.
• This illustrates my state while sleeping.

With that, we’ll conclude for now. I wish you continued safety, health, and well-being.

Alex