Understanding SPACs Better

Understanding SPACs Better

Understanding SPACs Better

We inspect in detail how SPACs work, how has been the performance of SPACs in the past, and whether it is a fad that would fade away soon or meant to stay on.

SPACs are a major movement in the IPO world right now. Over the past few years, firms such as Nikola, Draft King, and Virgin Galactic have all joined the market through SPAC (Special Purpose Acquisition Companies). This has been a record year for SPACs with nearly $34.6 Billion in SPAC gross proceeds so far in 2020. That’s 3-4 times higher than the $12.1 Billion in gross proceeds in 2019 and the $9.7 Billion in 2018, as per Dealogic.

These structures, also known as blank check companies give private firms an alternative to an otherwise costly and time-consuming IPO process, making them hugely successful these days. Some investors see strong potential in SPACs and claim them to be a more effective way for firms to go public, but serious critics suggest they encourage backdoor transactions that are not worth the risk and promote opacity.

How do SPACs work?

SPAC mergers are very similar to a reverse merger. They are generally formed by investors with expertise in a particular industry or business sector to pursue deals in that area. While forming a SPAC, the founders sometimes have at least one acquisition target in mind, but they explicitly don’t identify that target to avoid disclosure requirements needed during IPOs. Hence, the name blank check companies. Many have argued that companies like Nikola and DraftKings wouldn’t have made been able to go through the normal IPO process because of the strict due diligence involved in a typical IPO.

Investors who buy stocks in the IPO have no idea what company they are ultimately going to invest in. They are effectively buying the target company’s IPO in advance (say Virgin Galactic) without knowing the essence of what the target company does and the price that will be paid by the acquiring company (say Social Capital Hedosophia Holdings Corp). It is important to note that these deals will be usually structured in such a way that if the investors don’t like the target company they can get their money back by just backing out of the deal before the merger closes.

Unlike normal belief, SPACs don’t seem to be cheaper than traditional IPOs. They pay underwriters and institutional investors a fee of around 5-6% of the sum raised and gives the founder up to 20% of the shares for free. Even after accounting for the additional cash brought in by SPAC’s sponsors and other friends and family, SPACs aren’t any less expensive than IPOs today.

With a conventional IPO, promoters and directors, and officers sign a lock-in for 180 days from the IPO date. For a SPAC IPO, the standard lock-in period ranges up to one year after the close of the closed merger or De-SPAC deal, subject to early termination of the common stock sell at a fixed price (generally $12 or above) for 20 out of 30 trading days beginning 150 days after the closure of the De-SPAC transaction.

The money earned by the SPAC is deposited into an interest-bearing trust account. The funds are only used to make an acquisition or to refund the capital to stakeholders when the SPAC is liquidated. SPACs normally have two years for getting completed or winding-up. Some instances include the SPAC’s working capital being funded by the interest received from the trust. Following the acquisition completion, a SPAC is listed on one of the prominent stock exchanges.

In our opinion, the fees and structure for SPACs would continue to whittle down and can become better than IPOs where bankers have created high-cost structures. Our primary concern is all-around compliance, investor rights’ protection, initial and ongoing disclosures, and scrutiny that make it safer for the general public to invest through an IPO. Unless SPACs can match IPOs in terms of transparency and reporting and third-party scrutiny (analysts industry experts), they will continue to be the domain of a small bunch of fund managers and institutions engaged in dodgy financial engineering. As the overall crypto industry has realized that being regulated has its benefits, SPACs will need to evolve to have the same or better standards than IPOs.

The biggest SPAC deals made thus far

Pershing Square Tontine made waves in the rapidly growing SPAC space with its July debut. The firm raised $4 Billion with its IPO, a record for such investment vehicles and a new sign of Wall Street’s obsession with SPACs. The stock is currently trading at a share price of $23.90.

Churchill Capital Corp III, and MultiPlan Inc. entered into an agreement to merge in a deal worth $11 Billion that will take the U.S. healthcare services firm public. The deal will expand MultiPlan’s data analytics platform and is the largest SPAC merger ever. The merged company will be listed on NYSE and will operate under the name MultiPlan.

MultiPlan will receive up to $3.7 Billion of new equity that will reduce the firm’s debt. The transaction includes $1.3 Billion worth of common stock at $10 a share and $1.3 Billion in convertible debt that will be convertible at $13 per share.

Blackstone-owned Vivint is also one of the biggest corporations to enter into a SPAC arrangement since the IPO. Blackstone had explored an IPO or sale of the technology company and ended up merging with a SPAC raised by SoftBank’s Fortress Investment Group, in a deal valued at $5.6 Billion including debt.

The SPAC and PE camaraderie

The SPAC burst is taking place at a time when trillions of dollars are sitting in private equity and venture capital funds. For institutional buyers, SPACs serve as an incentive to buy into glittering businesses that would otherwise stay private. Analysts claim that these cash shell structures remain a lousy gamble for average investors. The majority trades at less than $10-$12 per share, the regular price at which SPACs first sell their stock to the public.

For private equity funds, they have a strong economic interest in the company due to less upfront spending. A private equity fund financing a SPAC typically purchases between 2% and 3% of the shares on the public listing, more often by buying businesses via SPACs to pay down their obligations more efficiently.

For 21% of the founders of SPACs, an institution is either linked to a private equity fund or one of the managers is operating a private equity portfolio simultaneously.

Why are SPACs so popular now when they have been around since the 1980s?

In the 1980s, SPACs acquired a shady reputation tied to penny stock frauds. In the past two decades, new laws and regulations helped add credibility to bolster investor confidence. SPACs have an appeal to private companies that wish to go public in this volatile environment because SPACs guarantee the transaction at a certain valuation as opposed to the IPO which are seen as riskier and may or may not go through once documents are publicly filed. For example, WeWork’s IPO got scuttled once it published its details and intense scrutiny of the company led investors to back out.

  • It can take months for companies to negotiate pricing, file documents, get necessary approvals and then finally list on stock exchanges SPACs have an edge here where companies can work with stakeholders that understand them well and can conclude transactions quickly. Given the long timelines associated with an IPO, the valuation of the underlying company can also take a nosedive.
  • IPOs require significant private information to be made available to the general public for scrutiny. A large number of companies, especially tech companies are uncomfortable disclosing such details and may instead want to go through the SPAC structure which has lower disclosure requirements.
  • Businesses going public through SPACs in 2020 have had higher valuation and share price growth than traditional IPOs; in September, United Wholesale Mortgage went public in the latest SPAC transaction with a valuation of over $16 Billion.
  • With the quality of management teams improving, SPACs are gaining traction and more institutional investors and HNIs are buying in. With SPAC funds getting bigger, the scale of blank check deals is also expected to increase.

A lot needs to be done before SPACs go mainstream

  • One of the biggest issues is that firms going public via SPACs can afford to bypass critical oversight and intense scrutiny, unlike conventional IPOs. For example – Nikola, who went public via the SPAC a few months ago has turned out to be the focus on multiple allegations lately. Federal authorities have since begun to pose questions and the SEC is also investigating how SPACs report their ownership and how compensation is related to the purchase.
  • Investors are at greater risk compared to IPOs as they do not know the target investee company at the time of investment.
  • SPACs may prove to be quite expensive. In certain blank-check transactions, the founders of SPAC have the right to purchase 20% of the resulting public business at rock-bottom valuation. For example, initial shareholders of Social Capital got 20% of the Company at $0.002 per founder per share while the public shareholders got the remaining 80% at $10 per share.
  • Target firms also give up more power as they sell to a SPAC that has its operating staff in place. They are therefore subject to a vote and control by the owners of the SPAC. This can lead to deal cancelations even after the announcement.

Analyzing the performance of previous SPACs

We analyzed 50 SPAC merger deals that happened between 2015-2019 and how they are faring now. Are they profitable, what share price are they at now and how does the valuation look like? Look at the table attached in Annexure I for the detailed analysis.

While Nikola Corporation has been the biggest loser after its SPAC merger closed, its valuation has dropped by more than 50%, and currently stands at $7.14 Billion. The biggest gainers have been in the healthcare segment, financial services, analytics, and consumer goods. For Immunovant and AdaptHealth in the healthcare segment, the valuations have soared by more than 85%. For SaaS firms like Clarivate Plc, the valuation leap has been a colossal $5.7 Billion. Open Lending Corp which focuses on lending now has a share price of $26.12 with a valuation higher by 80% than its SPAC price.

The underlying fact is although some good names get benefitted from the SPAC route, total losses outnumber profitable SPACs. The majority of companies have not been able to perform well. Talking about the 50 deals that we analyzed, 37 of them (74% of total) now have current share price trading at less than $10 per share with a current average market capitalization of less than $250 Million. The number further disappoints as 40% of those firms end up with share prices trading at less than $5 in the stock market.

Upcoming SPACs

On 7th October, Momentus Inc. reported its intent to sign a merger agreement with Stable Road Acquisition Corp Momentus offers a “last mile delivery” service for spacecraft, with a transfer vehicle that helps deliver satellites from a rocket to a specific orbit. The merging business entity will be named Momentus Inc. after termination of the deal and its shares are to be listed under the ticker symbol “MNTS” on Nasdaq.

This merger will create the first publicly traded space infrastructure company. Strategic partners and clients include Lockheed Martin and veterans like SpaceX and NASA. The combined company will have an estimated valuation of approximately $1.2 Billion following transaction close in January 2021.

Post-merger Momentus will have approximately $310 Million in cash on the balance sheet, to be funded by Stable Road’s $172.5 Million of cash held in trust (assuming no redemptions) and $175 Million from a fully committed common stock PIPE at $10 per share, including investments from private equity growth investors, family offices and niche top-tier public institutional investors.

Will SPACs fare in the long run?

Bill Ackman’s SPAC which recently raised $4 Billion for his Pershing Square Tontine Holdings is by far the largest SPAC ever raised. There will be no founder’s stake in the company saving up on huge SPAC fees. If the SPAC succeeds in taking a large private company public – this will be the best proof of concept for the SPAC structure.

The premise of SPACs relies heavily on the reputation of the SPAC founder – their ability to raise funds from a broad group of shareholders. A blank check company is a testament to the faith that the investors have in that person’s ability to find and execute a good deal. We believe that the future of blank check companies remains doubtful. Investors find SPAC deals as a better way to go public, while critics argue that the SPAC boom is just a trend that isn’t destined to last in the long run.

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Will the DJI Drone IPO finally take off in 2021?

Will the DJI Drone IPO finally take off in 2021?

Will the DJI Drone IPO finally take off in 2021?

DJI Innovations is evaluating an IPO in mainland China and Hong Kong in early 2021. In this article, we evaluate the merits of the world’s large drone manufacturing company and what investors can expect from its IPO.

DJI Innovations is a Chinese company that produces commercial and recreational unmanned aerial vehicles (UAVs). Its product line covers the high-end UAV flight control system and ground control system, professional film and TV aerial photography platform, top commercial gimbal system, high-definition long-range digital video transmission system, professional-level wireless remote control and imaging terminal as well as intelligent model aircraft products and high-precision control module which are widely applied to flying toys.


DJI is the market leader with a 74% market share in the global drone market which is growing at 19.41% CAGR. DJI is currently offered at a valuation of 18Bn and expected to IPO in 2021 at 24 Bn USD (current discount 25%). DJI’s core business is strongly poised with an excellent value proposition to its clients – ranging from photography, agriculture, risk detection, racing to hobbyists. It has a market holding strategy of low price and high volume to keep competition at bay. However, it faces headwinds in the form of high risk from government regulations including a potential ban in the USA due to data hijacking risks. Another major risk is the development of open-source flight control platforms, which might ignite a fierce price war in the drone industry. 


Founded: 2006
Notable Investors: Accel Partners and Sequoia Capital
Headquarters: Shenzhen, China
Total Funding: $155 Mn
Chief Executive Officer: Frank Wang
General Manager, SF; Director, Aerial Imaging: Eric Cheng

The Secret of Success?

  • Market Share: China’s DJI possesses a 74% market share of the global consumer drone market. It was valued at $15 Bn in 2018 during its last fundraising round, ranking it among the top tech unicorns worldwide. The drone market itself is growing at an exponential CAGR of 19.4%.
  • Value Proposition: DJI offers drones with a wide variety of features, and at various price points to capture as much of the consumer market as possible. They have also vertically integrated drone manufacturing and own stakes in various key component suppliers, such as a majority stake in their drone camera supplier Hasselblad. This helps keep costs lower than any other player in the industry.
  • Continued R&D: In 2016, DJI internally incubated the team Livox that focuses on R&D of LiDAR sensors for high-speed self-driving and industrial robotics. As the range and image sensors are essential for drones as well, DJI has been working on similar technologies for years, thereby helping easy technology migration for the vehicle LiDAR. Besides, due to differentiated design, Livox LiDAR is tens of times cheaper than the ones manufactured by the US-based company Velodyne. DJI is known for continuous and relentless innovation and most of the competition is quite behind when it comes to drone technology.
  • High Volume and Low Price Point Strategy: the firm aims for profit margins in the low single digits to ensure competitors cannot offer a similar drone at a lower price point. The fruit of the company’s early start and commitment to cost control show in their manufacturing prowess. DJI consumer-level quadcopters have been outperforming their competitors in terms of drone size, stability, image quality, and battery life since the release of its Mavic pro series in 2016.
  • Strategic Partnerships: DJI has collaborated and created distribution agreements with many companies worldwide, including the Apple store since 2015 for its Phantom series and later the Mavic series making its products accessible to all consumers. These moves have improved brand awareness and allowed DJI to reach more consumers than the competition.
  • Industrial integrations: DJI has enhanced its integration capabilities by partnering with industry giants for niche capabilities:
    • Microsoft has integrated Azure IoT Edge and Azure Cloud with DJI drones to streamline the secure deployment of DJI drone squads. Also, DJI Manifold 2 has now been approved for Azure IoT Edge, making it easier for companies to deploy AI frameworks on computers.
    • FLIR Systems has launched the MUVE C360, the first multi-gas detector completely integrated with the DJI Matrice 210 drone, which will change the way emergency response teams treat toxic, industrial, and environmental accidents by offering a new level of protection, significantly minimizing time to action.
  • Future-ready product stack: DJI Drone technology helps companies and organizations around the world save time and money and increase the safety of employees in myriad industries. DJI focused on providing easy-to-use drones to farmers, agronomists, and stewards to help maintain their land in a more productive and environmentally sustainable manner, while also ensuring that emergency responders need assistance to respond effectively and save lives during natural disasters.
    • P4 Multispectral drone: the world’s first fully-integrated multispectral imaging drone designed to power next-generation agriculture and allow more effective land-use environmental management.
    • Agras T16 drone: The global launch of DJI’s leading spray drone for agricultural applications that makes it easy to apply liquids such as fertilizers and pesticides specifically to field crops and orchards.
    • DJI Disaster Relief Program: A new initiative to rapidly equip first responders with DJI drone technology and support during natural disaster response and recovery missions for wildfires, hurricanes, floods, tornadoes, and earthquakes.
  • Diverse client base: Caters to a diverse clientele in the industry from government to agri-businesses. Easily accessible to varied users such including hobbyists and professional photographers. They have expanded into racing drones for the gamers and even drones that carry people.

Key Risks

  • The US government may blacklist DJI for potential data threats. USA is DJI’s second-largest market. With rising geopolitical tensions, the situation might get worse, endangering approx. 40% of total revenues.
  • The American Drone Security Act is just around the corner, if passed it would mean that all federal agencies using Chinese drones, such as the Department of Justice and the Department of the Interior, would have 180 days to avoid using and purchase them. In other words, the police, fire departments, traffic controllers, and several others could lose their drone fleets and have to find other suppliers or give up using drones.
  • Big firms such as Intel and Qualcomm are making significant investments and waiting for opportunities to replace DJI as the top drone player. Competitive intensity is likely to increase going forward, especially in niche areas.
  • The development of open-source flight control platforms might ignite a fierce price war in the drone industry.
  • The CEO of DJI Frank Wang predicted that the company’s revenue would hit a ceiling of USD 3 billion as it already dominates the overall drone market.
  • The most problematic factor for the consumer drone market in it is the local market is evolving government regulations around the use of drones. As per Chinese regulations, only UAVs that weigh under 250 grams is not required to be filed with the local government. The current government regulation on consumer drones limits the functions of miniature drones and likely to restrict sales going forward.
  • The US Army has raised security issues as it believes that DJI can capture location, audio, and even visual data from consumer flights. The US Army is worried about the widespread exposure to data hijacking as drones might end up disclosing comprehensive knowledge about military activities, given that DJI is a Chinese business.

How justified are the current valuations?

The last reported market valuation for DJI drones was $15 Bn as per the latest round of funding in April 2018.  Based on current market news, DJI is likely to launch its IPO with a minimum valuation of $24 – $27 Bn. Taking EV/Revenue multiple into account and weighted average calculation of the comparable companies, we arrive at an NTM multiple of 4.77x – 6.15x which gives us an intrinsic valuation range of $9.54 Bn to $12.3 Bn.

Due to its colossal size and market share, it’s difficult to compare it with any other drone company which has a similar size or business growth potential, however, we have compared it to publically traded companies GoPro, Parrot Drones, and Plantronics.

     Table: Financial performance of DJI compared to its competitors

Metric DJI GoPro Parrot Drones Plantronics
Projected Revenue 2000 Mn 1194 Mn 128 Mn 1762 Mn
Revenue Growth 60% – 8% – 37% 24%
Fund Raised 155 Mn 288.2 Mn 1.2 Bn
Gross Margin 33% 37% 44%
Net Income – 67 Mn – 170 Mn – 71 Mn
 Valuation 12.3 Bn 1.2 Bn 723.1 Mn 2.7 Bn
EV/Revenue 6.15x 1.01x 5.65x 1.53x
Employees 14000 926 551 6584


Financial Highlights

Revenue: DJI has experienced very strong revenue growth in the past years and trends continue to remain very robust. With two product launches in the past six weeks and over 70% market share, revenues were up by 60% year-to-year growth at $2,000.6 Million and a profit margin of 26.17%. 

Fraud: Back in 2018, some of the employees had been inflating the cost of parts and materials for financial gain. DJI dismissed several employees, alerted law enforcement, and immediately set-up renewed internal channels for whistleblowers to report fraud. The amount of losses from the fraud is approximately around 1 Bn Yuan i.e. $150 Mn USD.


GoPro: GoPro is an American company that is engaged in designing and providing cameras, mounts, drones, and appliances. The company outsources a part of manufacturing to third parties in China. GoPro has a global presence, including Europe, the Middle East, Africa, and Asia-Pacific, with the Americas contributing over half of the total revenue. It raised $427 Mn in its initial public offering on the NASDAQ stock exchange under the ticker symbol of GPRO in 2014.

Parrot Drones: Parrot is a European leader based in Paris that creates, develops, and markets consumer technology products for smartphones and tablets worldwide. It offers consumer drones, including mini, AR, and bebop drones; commercial drones; handsfree kits, plug and plays, and infotainment products; Bluetooth, digital music, and infotainment solutions; and audio products and connected devices.

Yuneec: Major Chinese competitor and manufacturer of remote-controlled electric aviation designed for model making applications and to conduct aerial photography. The company’s aviation range from manned aircraft, electric drones, and audio controlled helicopters to micro-copters and camera supported quadcopters and hexacopters, enabling people to capture a broader picture and see live video of places from above.

UVify: Developer and manufacturer of autonomous unmanned drones based in San Francisco CA, designed to create amazing experiences with drones. The company’s drones can be used in drone racing, videography, freestyle flying, and research, enabling customers with intelligently designed, high-performance drones to fly farther and faster.

Autel Robotics: American developer of flying camera drones designed for aerial photography systems. The company’s flying camera drones utilize aerial engineering and camera drone technologies and develop quadcopters and flying remote control GoPro camera systems, enabling users with superior aerial imaging, filming, and photography.

Excellent business model and differentiated technology getting marred by trade tensions and emerging regulations

Market Saturation and growing competitive pressure growing headwinds: Unless DJI finds more markets for its products or meaningfully expands its product suite, its growth is likely to stagnate. Also, several other competitors are spending a lot more attention and money on this segment, and we expect higher competition going forward. At the current stage, DJI’s popularity is caused by a temporary situation where the flight systems powered by the above companies are not competitive enough in terms of stability, maximum flight time, and human interaction. However, as DJI’s technology in consumer drones reaches a ceiling, it is only a matter of time for other system providers to catch up with DJI.

Trade Tensions in the Global Markets can impact both supply and demand: The last two years have witnessed various cases of deglobalization, which is considered especially harmful for the development of tech firms. In DJI’s case, the risks aroused by the trend of deglobalization involves every step from production to sales of DJI’s business. On the production side, the company heavily relies on overseas hardware suppliers. The core components such as motion sensors, CMOS sensors, and GPS modules are mostly provided by the US and European companies. If DJI is blacklisted by the United States, it will lose access to motion tracking sensors that are supplied by InvenSense, Phantom series chips provided by Atmel, visual processors from Intel, and the WiFi SoC from Qualcomm. Not to mention the loss of almost 50% market share. This uncertainty is going to act as a glass ceiling to DJI’s IPO valuations and further share appreciation.

Dependency on non-domestic markets: The company has around 80% of total revenue from outside China and around 40% from the US market. Any change in regulations in the USA and EU can lead to significant disruptions to the business. In China as well, the company is now facing changing regulations that restrict the easy sale of more sophisticated drones

In a nutshell, DJI is likely to continue its pole position in the drone market for the near future with better technology, a large product stack, and a competitive manufacturing setup. However, there is a regulatory overhang over the company that stops it from commanding the kind of valuation a profitable company with $ 2 Bn+ revenue should command in current market conditions. We are sanguine about the prospects of DJI in the near term.



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Palantir Pre-IPO Analysis

Palantir Pre-IPO Analysis

Palantir Pre-IPO Analysis

Listing gains are likely to be capped by reputational concerns around an otherwise enviable product stack

Palantir IPO: Exercise extreme caution, may not be as smooth sailing as other recent tech IPOs

  • We believe that Palantir might continue to make winning bids for government contracts and maintain/increase its revenue share. However, future growth and share price will be driven by Palantir’s ability to acquire and grow large corporate customers, and not govt. contracts.
  • Palantir has not seen a single year of profits since inception 17 years ago. It is not clear to us how this situation will change in the coming year.
  • We firmly believe that their data mining software is industry leading. But we’re not convinced that this alone is enough for widespread corporate consumption.
  • Palantir has the first-mover advantage to offer specialised, customer-specific, use-case data analytics software. It needs to become price competitive to capture market share. 

Given the negative public image and governance concerns, we don’t think Palantir would repeat the success of a Snowflake or Unity. Listing gains maybe limited, long term investors may want to back the company.

The success of Foundry- Palantir’s enterprise SaaS platform will be the primary driver of its growth. However, in the near term, it will be out shadowed by its negative public perception and unethical use of private data. The stock is likely to underperform, atleast compared to more straight forward SaaS companies. Download the report for an in-depth analysis of this tech giant.


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Project Management Simplified?

Project Management Simplified?

Project Management Simplified?

Asana IPO listing expected

Imagine we told you that in the coming week you could invest in a company which has carved out a new space in the category of software? Hold on to that thought. Let’s say the company has recurring revenues, experiencing consistent growth in the recent past – capturing clients from government offices to professional cosmetics including a third of the Fortune 500 names. What if we say that the Co-Founders have already had a proven track record working with Facebook and that 98% of its employees would recommend it to a friend as a great place to work? If all of this interests you, read on…

We are talking about Asana – a work management software-as-a-service platform that helps teams orchestrate their work, from daily tasks to cross-functional strategic initiatives. Asana’s distinguishing factor is its integration capabilities including over 100+ popular applications that combine Dropbox, G Suite, Salesforce, Mail Chimp, and Slack. The company will shortly be traded on NYSE under the ticker symbol “ASAN”.

Company Highlights

  • Asana has over 82,000 paying customers as of July 31, 2020 and over 3.2 Million free activated accounts since inception, representing a large opportunity to convert these accounts into paying customers. 
  • The dollar-based net retention rate of Asana was over by 120% as compared to 2019. They don’t have a lot of meaningful product releases to date but the core features are worth the buck, as their biggest customers are spending more than they did a year ago. For customers with an ACV greater than $50,000, Asana’s NRR expands to over 140%, indicating that its biggest customers are spending significantly more than they did a year ago. 
  • The company’s focus on user experience underscored by sleek and intuitive design is not easily imitable. This indicates the extra productivity and admin features, Asana brings to its premium subscribers including advanced admin controls, specialized support and custom branding.
  • With already 41% of its business com­ing from outside North America, there is a huge potential to expand internationally by tapping enterprise-wide deployments with optimized budgets and its workflow-automation capabilities.
  • Asana has experienced a strong business growth in recent years, and trends seem to remain robust, although growth has been slowing modestly. Revenues were up by 86% year-to-year growth at $142.6 Million. In its most recent quarter ending July 2020, Asana recorded 57% year-to-year growth.
  • However, the market for work management solutions is increasingly competitive, fragmented, and subject to rapidly changing technology. The situation would only become more complicated for Asana, given the low barriers to entry in the industry and highly differentiated SaaS products.

With the current hype for anything SaaS, Asana’s IPO could open trading at a minimum of $9 – $10 Billion valuation just double the last reported secondary market valuation of $5 Billion, replicating the reactions in the lines of SaaS companies like Zoom, Tesla, Snowflake and Unity. The stock might be valued at around 45x forward revenue at the mean of this valuation, which would be among the highest multiple for valuations in the entire tech industry. Read the full report to find out how?

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The Pre-IPO Startup Equity Market

The Pre-IPO Startup Equity Market

The Pre-IPO Startup Equity Market

IPO market geared up for the busiest week

In a low-yield world, is Pre-IPO investing the hidden secret to higher yields?

  • Pre-IPO secondary transactions are growing, and over past few years have consistently generated higher returns over other traditional asset classes
  • Startups are remaining private longer. The average age of technology companies going public has gone from 4 years in 1999 to 11+ years now. As a result, several broker networks and pre-IPO marketplaces have emerged to provide liquidity to early stage investors and employees
  • Our analysis shows that secondary investments in mature startups 2-3 years prior to a liquidation event have yielded between 40%-70% annualized returns with fairly high success rates. That’s not a typo!
  • Case in point – Slack went public with IPO priced at $38.5 per share, earning around 200% above the last private funding round 10 months prior to the IPO.

However, investing in Pre-IPO is no silver bullet. Just like all other forms of investing, you can go wrong and will go wrong. Imagine investing in AirBnB in 2017, or in Bytedance in Dec 2019. AirBnB’s valuation has halved since, while Bytedance has taken a nosedive.

Is Pre-IPO investing the hidden secret to higher yields? Is it a promising asset class that can consistently deliver returns for private investors looking to invest in high quality high growth unicorns headed for a liquidity event in 12-24 months? What are the key risks investors should be aware of?
We did an in-depth analysis of the past performance of this market in order to quantify potential returns, as well as look for potential pitfalls. This report provides a complete analysis and our point of view of the Pre-IPO secondary market, its intricacies and future prospects.

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