Reports

Investing in alternative assets and why you should care about them?

by Sandeep Kumar

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What is the meaning of a secondary market?

The private secondary market is the one in which stakeholders of private, venture-backed companies (employees, ex-employees and early investors) wish to transfer their shares to an investor in exchange for liquidity. The investor on the other side exchanges cash in return of shares of that private company. The sales proceeds go to the selling shareholder, not to the company.

A primary issue of shares is the source of equity for a given company. Primary issue happens when a company issues a new class of shares and grants those to employees (in the form of stock options) or sells them to investors in an event of fund raise. The employees and investors who own primary shares may choose to sell them in the secondary market, through Torre Capital’s marketplace.

How can you diversify your portfolio and expect higher returns by investing in the secondaries market?

  • Given the expense of going public (which can be significant in terms of time and resources) and the public markets’ short-termism (which can cause public companies to focus on quarterly earnings and not on long term growth).
  • Tech-Based companies have fewer reasons to go public than they did a decade ago, because of which the venture-backed technology companies are increasingly reaching $1B and even $10B valuations before they go public, which leaves less potential for public market investors. In the year 1999, US technology companies went public typically after 4 years but today, the average technology company IPO comes after a minimum of 10 years.
  • As the companies are taking longer to go public, their early investors and employees have to wait substantially longer for liquidity than they would have in the past.

There are many reasons why early shareholders of now valuable private companies might want to tap into liquidity through Torre Capital. For example, an early stage venture capital investor might want to return capital to limited partners ahead of the launching of a new fund. An early employee of a now late-stage company might want to sell shares to finance transactions like buying a house.

Torre Capital acts as an intermediary between the shareholders who need liquidity, and the investors who want investment exposure to proven technology companies before they ultimately go public or get acquired. If the company goes public, investors receive shares post the lock-in period (which restricts private company shareholders from selling their publicly traded shares, ranging between 6 months to a year). If the company is bought for cash, the investors are compensated for the same as well.

More than $50 Billion in value is estimated to be locked up in private, pre-IPO companies, and the secondary market is unlocking that value for investors who were previously unable to participate due to high minimums and restricted entry.

Who influences the pricing of the secondary market?

The investors who participate in the fund raise have an influence on primary market prices; secondary transactions are usually priced in relation to the most recent funding. The price is generally influenced by factors of supply and demand. If a private company has a high demand, its shares might trade at a premium in the secondary markets (in other words, the shares would be priced higher than the share price from the most recent funding). If the sellers of a particular security are more than its buyers, the shares might trade at a discount (lower than the share price from the most recent funding).

Apart from the influences of demand and supply, following are the other factors that can affect the price per share of private market securities:

a. Share Class: Two of the primary types of shares are preferred stock and common stock.

  • Preferred stock is a type of equity security that has certain rights over common stockholders. These rights may include, but are not limited to, liquidation preferences dividends, anti-dilution clauses, and managerial voting power.
  • Common stock is a type of equity security that is most frequently issued to founders, management, and employees. In the event of liquidation, preferred shares are generally given priority over common shares.

b. Discount for Lack of Marketability: A valuation discount exists between stock that is liquid and traded publicly, and stock that is illiquid and not publicly traded. Because Torre Capital’s offerings are relatively illiquid, it’s common for them to be priced at a discount to the most recent round of funding.

Why invest with Torre?

Torre Capital is a VC funded Singapore based Financial Technology company and a Registered Fund Manager in Singapore. We are creating a fully digital Wealthtech to connect family offices and HNI investors with global opportunities, including alternative assets like Private Equity, Venture Capital, Real Estate Funds, and Hedge Funds. Our investment vehicles offer exposure to high quality global growth startups, private debt opportunities, and other thematic funds in the pre-IPO space. They are available to registered investors around the globe.

Our current customer set includes 500+ family offices and High net worth investors (CXOs, first and second-generation entrepreneurs). With the team composed of ex-Mckinsey consultants, Asset management veterans, and Digital experts.

Exclusive features offered by Torre:

  • Pre-vetted/ Curated funds
  • Low-minimums
  • Low and transparent cost
  • End-to-end digital

Who are the shareholders?

Shareholders include all angel investors, employees of the company, founders, or anyone who currently has equity in an eligible private company in the form of common shares, preference shares, stock options or restricted stock units. The following services are provided by Torre Capital to private company shareholders:

  • Opportunity to sell shares in the Torre Marketplace
  • Avail equity funding for your private company ESOPs

How does the Shareholder’s journey work?

a. For selling shareholders:

  • Register on the platform by providing a few basic details about your equity stake.
  • Explore the Torre Capital marketplace to submit your request. Our private market specialist connects with you to perform due diligence checks.
  • We offer the shares to our investor community and gather investment commitments. We also work with the company directly for a completely secure transaction.
  • Transfer documents executed and you receive the sale proceeds. Torre Capital charges a nominal transaction fee.

b. For shareholders who seek to avail equity funding:

  • Register your interest and submit your financing request. Find out how much funding you can avail.
  • Our credit experts get in touch with you to perform due diligence checks, understand your tax liability and underwrite the funding.
  • Depending on your company’s terms and agreement, the forward equity contract is signed and you receive your funds.
  • Share a portion of profits with us post liquidation event. In case of no liquidation event, you don’t have to pay us back.

Advantages of selling at Torre’s Marketplace:

  • Immediate Partial Liquidity.
  • Maximum benefit to shareholder: You only pay us in case of a liquidity event.
  • Get to keep your upside: If your company never meets a liquidation event, you still have received funding for part of your shareholding.
  • Minimized Risk: Upfront part funding and safety of investment till liquidation. 
  • Multiple asset class: If you own multiple classes of preferred stock, common stock, ESOPs, RSUs, you can sell them easily on the Torre Capital marketplace.

Who are the investors?

Currently only accredited investors as defined here are able to make investments through our platform (Investments are not open to US Citizens). With Torre’s platform, the opportunities are endless. You can choose to allocate capital across four different asset classes – equity, ESOPs, structured products, and funds.

How does the investor journey work?

  • Register your interest on our platform. We leverage our network to provide company specific offerings to all employees.
  • Reserve your interest. All IPAs issued post approval.
  • Shareholders agree to terms, sign a Forward share ownership contract.
  • Funds transferred to shareholders’ account. Company leadership informed of agreement with Torre Capital. Receive frequent updates.
  • Upon liquidation, receive principal and profits redemption requests raised to shareholders.

Advantages of investing at Torre’s Marketplace:

  • Exclusive access to high-growth startups: 20% – 30% discounted equity ownership in series D and above global pre-IPO unicorn/soonicorn shares leading to lower investments than secondaries.
  • No upfront cost: Zero transaction cost versus 10% charged by secondaries.
  • Attractive Returns: 3x – 5x better returns than direct secondary transactions.
  • Vigilant and protective measures: 3x collateral protection for initial investment till 80% downfall in stock value.
  • Faster cash-inflows: 3x – 4x faster return of capital than top VCs.

Torre’s Pre-IPO Fund

If you believe in the power of the Torre Capital platform for sourcing strong deal flow and you believe in the pre-IPO asset class, but you are not comfortable or otherwise do not want to select single names for investment, you should consider a managed fund investment. The Fund Series investment committee will select all investments, which are a curated subset of what comes across the Torre Capital platform.

If you would like your investment to give you diversified exposure to the pre-IPO asset class, but can’t commit to multiple $100,000 investments, a managed fund is a good option. You will get investment exposure to multiple pre-IPO companies that are carefully selected by the fund series investment committee.

Popular SaaS metrics to consider while investing in a Tech Venture

by Sandeep Kumar

SaaS metrics can answer important questions about your venture: Do I have the right business model? Is this the time to accelerate growth or to hit the brakes? Do I need to add new customers or focus on the existing ones? Should I add that new pricing level the products guy has been pestering me about? Is there really a limit to how much my venture can grow? Can it be changed?

With all the jargon and metrics whizzing around, it can be hard to keep track of what really matters. Today we break down what is that needs to be measured to unlock explosive growth! This article focusses on:

  • What are the most crucial metrics to measure at each stage of the startup?
  • Why are SaaS businesses different and how are the challenges they face different from other software startups?
  • And finally, is your SaaS business model viable?

Here goes…

So, what makes building a SaaS business so tough?

In one word.

Subscriptions.

Think about it. The revenues from a customer do not come instantly, like how it does when you sell a product. The revenues come over a period of time. If your subscriber is happy with your product and sees no reason to change it, they will stick with it for longer. And the longer they stick, the more money you pull out of them (on second thoughts, that sounds so pervert!). The longer a customer stays with you, the more you profit.

If on the other hand the customer signs up but ends up finding a better product or cheaper pricing or whatever, the customer will hit that CANCEL button and leave (churn). If this happens before you recover the money you spent in acquiring them, then, my friend you just made a loss. (Ouch!)

So, let’s get it straight. SaaS is not just about selling some piece of software to a customer. It has more to it. There is not just one but two sales you have to make. That’s right, two!

  • Getting your customer. Well, because, you need someone to buy your subscriptions.
  • Retaining that customer. So that you can increase the revenues generated from that customer. The longer the customer stays, the more revenues you get.

There is one last and final aspect to the two sales above. That is monetizing your customer.

Let’s look more into each one by one.

Getting those Customers (Acquisition)

Now, what do you think happens to your P&L while you are acquiring your customers? (Hint: Nothing good)

If ‘you bleed cash’ seems too hard a way to put it, then let’s just settle on, ‘you suffer significant losses’ Your server costs, employee wages, office rents, and all other costs don’t go on a pause magically.

And to add to your sorrows you also have to spend a bomb to woo your customers to your product.

A newbie SaaS business spends 92% of its revenues to acquire customers.

All this takes cash. Loads of it.

But wait, it gets worse.

The faster you try to grow, the more you bleed. (Ouch again!)

This naturally will extend to a cash flow problem as your customers will pay you only at the end of the year or month.

If you spend 1000 bucks to acquire a customer and bill them for $50 pm, you’ll need 20 months to break even on just one customer. Even worse, the customer may leave just after one year. Before you could recover your $1000.

But it’s not all blood and tears. The humble J curve is here to help you.

The horror story I just told you, well that applies only to the trough you see above in the J curve (the hockey stick head).

Once you hit breakeven on the individual customers, you’re off to the races!

So how do I know if I have hit the breakeven? Well, we have two metrics that help you do just that.

The first one is the Customer Acquisition Cost or the CAC, the horrors of which we discussed above. The CAC has been dubbed as the killer of startups. This is the amount you spend to get each customer. This of course varies from business to business.

Some businesses find a way to hack their way through the miseries of CAC. They build an audience first and then offer a solution to them. This way you get access to a ready-made audience that most probably will throw their money at you. You won’t have to spend (or spend not much) anything to get your customers.

The accompanying metric to CAC is the Long-Term Value or the LTV of a customer. Loosely, this is the total revenue you expect to get from each customer.

Using these two, you can find out if your business model works or not.  There are two rules of thumb to keep in mind:

  • Make sure your LTV > 3x CAC. Even higher LTV is better. Some startups have LTV at 4, 5, 6 even 7x to their CAC. While such a high ratio may seem good, just make sure that you are spending enough on marketing. Chances are you could do with putting in more money.
  • Make sure the months to recover CAC is less than a year. Basically, you should hit break-even within one year of acquiring your customer. Good startups have has this figure at just 10, 8, even 5 months.

This second rule can also be inverted and used to get a rough idea of how much you should price your product. Remember that $1000 spending to get your customer to pay you $50 pm? Well maybe you should bump your subscription cost to $83 (= 1000/12) or reduce your CAC.

Once you have these two rules nailed down, you can really step on the gas and expand like crazy. The LTV > CAC shows that your business model is viable and the CAC within 12 months shows that you can do hit profitability without going bankrupt. You have these two working in your favor, most VCs will be ready to fund you. (Nice!) Otherwise, maybe you need to change your business model somehow.

Based on Unity’s disclosure in its S-1 about the number of >$100,000 customers, adjusted with a bit of extrapolation for a single quarter we arrive at the numbers for the beginning of 2018. We are no able to judge that Unity added approximately 116 new and increasing >$100,000 customers in 2018 and approximately 111 new and increasing <=$100,000 customers back in 2019.$1.6 Mn per customer might seem huge, however, these are a large token of customers who are willing to spend more than $100,000 per year.

You can also combine them with segmentation (another qualitative metric of sorts) to see what segments of your customer base seem to be most promising. Alternatively, you can also use LTV: CAC to gauge what ad streams offer you the best returns and then heavy down on the ones that offer the most customers for the cheapest.

Making those Customer stick with you (Retaining)

So, you have a proven business model that has LTV > 3x CAC and time to LTV < 12 months. You’ve also secured funding now and have also expanded the team. Now you just scale the business and very soon you’ll make a bank!

You begin with 100 customers. At the end of the month, you find that 3 of them are no longer with you (not dead, they canceled subscription). 3 fewer participants on the platform. Big difference. You simply shrug it off and keep expanding rapidly.

A year passes and now you are acquiring customers by thousands. One fine month you acquire 10000 customers. At the end of the month, you notice 300 of this cohort (the group of customers acquired this month) have left.

Maybe losing 3 customers a month was okay, but 300 is big!

My friend, you’ve just run into customer churn

The churn is the % of customers you lose from a cohort each month. And this isn’t just another number in the spreadsheet. These are the number of people that tried your product but did not want to continue with it. You can only guess the reasons. Maybe they found a better product or maybe they found something cheaper. Either way, this sheds light on if your product is lacking.

The appropriate churn for a medium-stage startup is less than 5%. Great companies like Salesforce have kept it to less than 3%. This means that out of the 100 customers that signed up, 97 stayed on. Now as the scale of your business goes up, the goal must be to keep the churn numbers lower. As low as possible.

Now for all those who run a B2B SaaS. Let’s say you lose 5 customers out of the 100 you have. No big deal maybe. But what if these were your 10 biggest clients, responsible for a substantial churn of your MRR (Monthly Recurring Revenue)? Well, now you’re trouble. (again)

This kind of churn is called revenue churn. Again, there isn’t a clear way to get out of this, maybe you need to reiterate on your product or maybe you need to get a better sales team. There is however one trick to hack your way out of it.

Advance Subscriptions!

You just ask your customers to pay upfront and provide them access to your platform or app or whatever that you have. There are two benefits of doing this:

  • You get good cash flow, even before the sale is officially recognized. This increases your capital efficiency.
  • The customer is also less likely to churn as they have already parted with their money, they must as well use your product.

You may keep a track of this using the ‘Months up Front’ metric. The more months upfront you have, the lesser are the chances of cash flow issues and customer churn.

One has to be careful in asking for upfront payments though. A lot of the customers will not be happy paying for the product before they use it. (did I ask you to get a better sales team…?)

There is another superpower that only a few startups have. And that is the negative churn. Negative churn is when you increase your revenue from existing customers such that it offsets any revenue you lost from the churned customers. There are two ways to get to this coveted stage:

  • Up-sell your existing customers. Maybe sell premium versions or cross-sell other subscriptions.
  • Add a variable to your product. Maybe keep a variable number of accounts allowed/leads tracked/seats used. As the customer expands usage, the more you get paid.

Now as your startup expands to new customer segments or other markets, you may wonder if there was a way to know beforehand if the churn would trouble you or not. To counter that, we suggest startups use a Customer Engagement Score and Net Promoter Score.

Customer Engagement Score is a startup-specific metric that tracks how likely is a customer to continue using the product based on the features of the product they use and the frequency with which they use it. You basically assign points to each feature of your product (or to each product, if you have multiple products). Allocate more points for features/products you think would be more engaging.

You can verify your points allocation by using your historical churn data to see if the features/products you used actually predicted that churn.

You can also use this to find out which are the best features/products so that you can double down on improving that feature or up/cross-selling those products.

To put things into perspective Unity grew by 33% without taking into account any new customers and its actual growth was 42% because it added new customers. A growing base of customers that spends more every year is the reason behind the stellar growth numbers of Unity. Organic growth is much easier when you have a niche product.

The other metric worth tracking is the Net Promoter Score. This is a startup agnostic score, making it useful to compare across startups. You can learn more about NPS here.

The range lies between -100 to 100. Anything above zero is considered ‘good’, 50 above is ‘excellent’, and 70 above is ‘world-class. Any score above 71 is rarely attained.

For Unity, the score is between 41-50 among various platforms, which makes it number one amongst its competitors. Even the best of the companies like Amazon (54) and Apple (47) haven’t attained a score beyond 70.

There are a lot of additional factors to consider as well. The market has changed slightly, with many VCs now prioritizing profitability over crazily high growth. Companies that have both are ideal, but they are quite rare. Financial indicators are an excellent method to measure the health of a firm if it has more than a million ARR, but we also take a lot of qualitative aspects like the addressable market size, its demography, management and the team, and other factors into account.  The majority of traditional SaaS businesses aren’t like that. In order to push the expansion forward, the business must cautiously look at the health of its metrics mentioned above and invest money in sales, marketing, and its team.

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This article has been co-authored by Khubaib Abdullah, who is in the Research and Insights team of Torre Capital.

UiPath: On the Path to a Blockbuster IPO?

by Sandeep Kumar

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UiPath is a pioneer of the Robotic Process Automation industry. The company filed its first S-1/A this week, setting an initial price range for its shares. Shares are going to be listed in the price range of $52 — $54 bringing the valuation to $26.90 Bn — $27.90 Bn. It is all set to launch the IPO under the ticker ‘PATH’ on the New York Stock Exchange.

Incorporated in 2015 and headquartered in New York, UiPath develops computerized workflows to build, manage, measure, and engage with processes. Customers benefit from the platform’s innovative capabilities by eliminating work spent on time-consuming, repetitive, and tedious tasks.

The company’s products have become increasingly attractive for companies looking to boost productivity. This is especially true amid the global pandemic that has enforced technology and automation adoptions. The demand is much higher than initially expected. This has been driving the demand for IPO and the investors are bullish on the ‘PATH’ stock.

Company Snapshot 

  • Annualised Renewal Rate (ARR): $580 Mn
  • Annualised Renewal Rate growth Yoy: 65%
  • Total Customers: 7,968
  • Customers ≥ $100k
  • ARR: 1002
  • Dollar based net retention rate: 145%
  • Net Loss: $92 Mn

So how does UiPath make money?

Product Offering: The end-to-end platform provides a whole range of robotic process automation via a suite of interrelated software offerings. The flagship product offering, the UiPath Studio is an easy to use, drag-and-drop development platform designed for RPA developers engineering complex process automation. Other offerings include the UiPath Robot which emulates human behavior to execute the processes built-in Studio and the UiPath Orchestrator that tracks and logs Robot activity.

Market Model: UiPath has an efficient go-to-market model, which consists primarily of an enterprise field sales force supplemented by a high velocity inside sales team focused on small and mid-sized customers, as well as a global strategic sales team focused on the largest global customers.

Revenue Model: UiPath generates revenue from the sale of licenses for its proprietary software, its maintenance and support, and professional services. The license fees are based primarily on the number of users who access the software and the number of automation running on their platform. The license agreements have annual terms, and/or multi-year terms. Additionally, UiPath provides maintenance and support for its software as well as non-recurring professional services such as training and implementation services.

 

 

License (57% of revenue): UiPath’s primary business model is selling licenses through annual and multi-year subscription contracts. Being 57% of its business it shows a vibrant business model and the right product mix which is well received by the market.

Maintenance and Support (38% of revenue): The relatively large amount of maintenance and support revenue suggests that the customer base is being retained.

Services (<5% of revenue): A small part of its business is customer education and technical services likely around their UiPath academy.

UiPath’s Road to Dominance

UiPath is at the forefront of technology innovation and thought leadership in automation.

Companies such as UiPath have two ways to grow: either blasting through the market and acquiring more and more customers or be more docile and focus more on retention than expansion. UiPath chose the former. The company expanded internationally very early on, acquiring more and more customers from different nations. The growth was absolutely out of control.

Surprisingly, this does not mean that UiPath compromised on customer retention, the killer of all SaaS companies. UiPath managed to find the middle ground between blatant expansion and customer retention. The S-1 reveals an extremely high 96% “gross retention rate” and a dollar-based net retention rate of 145%. So, this says UiPath’s existing customers are spending more with the company and also sticking with it.

The Robotic Process Automation Landscape

According to an estimate by Bain & Company the size of the market for automation software will grow to approximately $65 Bn.

The market for automation is super-hot right now with the COVID pandemic making automation a dire necessity. UiPath is the clear market leader in this category. The S-1 puts their Total Addressable Market (TAM) at $60 Bn. Pre pandemic this figure stood at $30 Bn. Double the market size, in just under a year. That’s some serious growth.

It is clear that UiPath wishes to tap into the red-hot IPO market and rightly so. It needs to pad its balance sheet with as much cash as it can muster for the massive opportunity and the competitor risk it faces ranging from its peers such as Automation Anywhere to the giants like Microsoft. The principal purposes of this offering are to increase its capitalization and financial flexibility.

This is data from the Brookings Institution and the Organization for Economic Co-Development that depicts productivity statistics for the U.S. The smaller charts on the right are for Germany and Japan.

                                  Source: Brookings Institution and the Organization for Economic Co-Development 

The US showed productivity growth in ’95-’04, but that slacked off later. Similar is the case with Germany and Japan where the productivity levels have been falling continuously.

Humans are slowly reaching the very limit of what they can do alone to solve the most pressing challenges around the globe. Automation is what can free up labor and divert human intelligence and creativity into more engaging and worthwhile problems. The market is ready for automation and the post-pandemic world will witness never seen before levels of automation. 

Key Industry Risks

  • Barriers to Entry: Robotic process automation is very difficult to implement and therefore many organizations will not able to implement it thereby affecting the industry growth.
  • Sustainability: Any automation, no matter how advanced is not capable of perfectly emulating human behavior.
  • Affordability: The entire automation process is a costly proposition and affordability is an issue.

Key Company Risks

  • Growth Opportunity: The revenue growth rate of above 80% YoY may not be sustainable in the future due to the maturation of the business, increased competition, and changes to technology.
  • Limitations to Scalability: While the UiPath platform is intuitive and beginner-friendly, intra-organizational scalability poses an issue. Also, many features offered by UiPath are offered for free by other productivity platforms.
  • Pitfalls of Constant Innovation: Automation and Productivity Software is a fast-changing landscape. UiPath will need to disrupt itself to stay relevant.

Financial Highlights

Revenue: Total Revenue of $336 Mn in 2020 grew to $607 Mn in 2021, a YoY growth of more than 80%. Most of the increase was fuelled by the maintenance fees and other incomes. A 71% increase in license fees indicates a very fast-growing customer base.

UiPath has gone from making $169 Mn in the last quarter of FY 2019 to $580 Mn in the last quarter of FY 2021.

Gross-profit Margin: The gross profit margin stands at 90% and has increased from 72% in 2019 to 90% in 2021. This comes on the back of reduced travel costs due to the COVID pandemic and rapid international expansion which generated 66% and 61% of the revenue in 2019 and 2020 respectively.

Net-profit Margin: The Net Loss has also been improving over time, in spite of the break neck speed that UiPath seems to be growing at. This is explained by the Operating Expenses Line Item where all the three viz. licensing costs, maintenance costs, and other costs should have gone up, keeping in line with the revenue growth. On the contrary, all the three went down, while as the revenues shot up.

Cash Flow: Unlike a lot of other growth startups going public, UiPath has a positive free cash flow, saving cash on the operational front. This is rare for a rapidly growing company. Other growth stage companies to go public such as Snowflake and CrowdStrike had negative free cash flows. Quite a few haven’t made money, even months after listing.

This may pose a concern for investors who view UiPath to be a rapidly growing, disruptive startup. Generating cash may be interpreted as a sign of UiPath transitioning into its mature stage.

Alternatively, the plan may be, to slow down the growth, settle down, consolidate the customer base and the product offering, and then continue explosive growth. Daniel Dines, the founder of UiPath has been an unconventional CEO on many fronts, this may as well be a part of the bigger picture.

Other Interesting Tid-bits

Annualized Renewal Rate (ARR) is the key metric UiPath uses to gauge its business. It illustrates the ability to acquire new subscription customers and to maintaining the existing subscription customers. The ARR may fluctuate as a result of a number of factors, including customers’ satisfaction, pricing, competitive offerings, economic conditions, or overall changes in customers’ spending levels.

 

UiPath’s “ARR” rose by 65% over the last year, indicating a massive jump in the number of new consumers using UiPath. This again highlights UiPath’s ‘expanding, yet retaining’ value proposition.

  • Number of Customers: 6,300
  • Number of Enterprise Customers: 1,500. As of January 31, 2021, UiPath had 7,968 customers, including 80% of the Fortune 10 and 63% of the Fortune Global 500.
  • Number of Developers on the UiPath platform: 200,000
  • Number of People enrolled in UiPath Courses: 100,000

Is UiPath prepared to handle the competition?

The platform addresses the market for Intelligent Process Automation, which International Data Corporation, estimated would have a value of $17 billion by the end of 2020 and is expected to grow at a four-year compound annual growth rate of approximately 16% to $30 billion by the end of 2024. According to an estimate by Bain & Company the size of the market for automation software will grow to approximately $65 billion.

 

UiPath is a market leader in the Automation industry commanding a whopping 44% of the entire market.

Nearly every company’s a winner that gets to feature in the RPA Magic Quadrant from Gartner, and even just getting on the chart is a win for some companies. UiPath ranks very high, at the very top right of the matrix, strongly positioned as an industry leader as well as a visionary, with only Automation Anywhere coming close.

 

Source: Gartner’s RPA Magic Quadrant

The UiPath IPO will be a decisive moment for not just UiPath itself, but also Automation Anywhere. A tie-breaker between the two, the UiPath IPO will either force Automation Anywhere to respond with an IPO or simply perish.

Are the Valuations on the Right Path?

The NASDAQ 100 Technology Index is up by 62%, this year alone. This coupled with the high demand for the RPA products worldwide, and you get a red-hot market for the UiPath IPO. This is likely to benefit UiPath massively but is the valuation justified or the financials go for a toss?
UiPath was valued at $35 Bn following its last financing round in February. Based on a recently released statement by the management UiPath is likely to launch IPO with shares in the price range of $52-$54 bringing the valuation in the range of $26.90 — $27.90 Bn. This brings the EV/Revenue multiple to 45.88x.

 

 

How well do the Peers Fare?

Being the market leader with a 44% market share and its colossal size relative to the peers it is difficult comparing the company to its peers. However, we have compared it to its direct competitors Automation Anywhere (Private Company) and Blue Prism (London Stock Exchange: PRSM).

Taking the Taking EV/Revenue multiple into account and weighted average calculation of the comparable companies, we arrive at an NTM multiple of 12.33x which gives us an intrinsic valuation of $8.96 Billion.

Investment Recommendation

The UiPath IPO in any case is highly anticipated, being a market leader in the red-hot Robotic Process Automation market. The company has a strong reputation and a substantial client base. Despite that, it was a bit of shock that the IPO price range failed to reach the valuation company garnered in private funding. This might be caused by the general cooling of IPOs over the past few months.

Going public in a dynamic market like RPA is tricky. However, UiPath has demonstrated strong performance and growth potential and this should be an extremely successful IPO only cementing its leadership position. We forecast a strong performance and growth for the share and recommend a long-term positive outlook. 

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This article has been co-authored by Khubaib Abdullah and Ayush Dugar, who are in the Research and Insights team of Torre Capital.

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Investing in alternative assets and why you should care about them?

by Sandeep Kumar

Keep up to date with the latest research

What is the meaning of a secondary market?

The private secondary market is the one in which stakeholders of private, venture-backed companies (employees, ex-employees and early investors) wish to transfer their shares to an investor in exchange for liquidity. The investor on the other side exchanges cash in return of shares of that private company. The sales proceeds go to the selling shareholder, not to the company.

A primary issue of shares is the source of equity for a given company. Primary issue happens when a company issues a new class of shares and grants those to employees (in the form of stock options) or sells them to investors in an event of fund raise. The employees and investors who own primary shares may choose to sell them in the secondary market, through Torre Capital’s marketplace.

How can you diversify your portfolio and expect higher returns by investing in the secondaries market?

  • Given the expense of going public (which can be significant in terms of time and resources) and the public markets’ short-termism (which can cause public companies to focus on quarterly earnings and not on long term growth).
  • Tech-Based companies have fewer reasons to go public than they did a decade ago, because of which the venture-backed technology companies are increasingly reaching $1B and even $10B valuations before they go public, which leaves less potential for public market investors. In the year 1999, US technology companies went public typically after 4 years but today, the average technology company IPO comes after a minimum of 10 years.
  • As the companies are taking longer to go public, their early investors and employees have to wait substantially longer for liquidity than they would have in the past.

There are many reasons why early shareholders of now valuable private companies might want to tap into liquidity through Torre Capital. For example, an early stage venture capital investor might want to return capital to limited partners ahead of the launching of a new fund. An early employee of a now late-stage company might want to sell shares to finance transactions like buying a house.

Torre Capital acts as an intermediary between the shareholders who need liquidity, and the investors who want investment exposure to proven technology companies before they ultimately go public or get acquired. If the company goes public, investors receive shares post the lock-in period (which restricts private company shareholders from selling their publicly traded shares, ranging between 6 months to a year). If the company is bought for cash, the investors are compensated for the same as well.

More than $50 Billion in value is estimated to be locked up in private, pre-IPO companies, and the secondary market is unlocking that value for investors who were previously unable to participate due to high minimums and restricted entry.

Who influences the pricing of the secondary market?

The investors who participate in the fund raise have an influence on primary market prices; secondary transactions are usually priced in relation to the most recent funding. The price is generally influenced by factors of supply and demand. If a private company has a high demand, its shares might trade at a premium in the secondary markets (in other words, the shares would be priced higher than the share price from the most recent funding). If the sellers of a particular security are more than its buyers, the shares might trade at a discount (lower than the share price from the most recent funding).

Apart from the influences of demand and supply, following are the other factors that can affect the price per share of private market securities:

a. Share Class: Two of the primary types of shares are preferred stock and common stock.

  • Preferred stock is a type of equity security that has certain rights over common stockholders. These rights may include, but are not limited to, liquidation preferences dividends, anti-dilution clauses, and managerial voting power.
  • Common stock is a type of equity security that is most frequently issued to founders, management, and employees. In the event of liquidation, preferred shares are generally given priority over common shares.

b. Discount for Lack of Marketability: A valuation discount exists between stock that is liquid and traded publicly, and stock that is illiquid and not publicly traded. Because Torre Capital’s offerings are relatively illiquid, it’s common for them to be priced at a discount to the most recent round of funding.

Why invest with Torre?

Torre Capital is a VC funded Singapore based Financial Technology company and a Registered Fund Manager in Singapore. We are creating a fully digital Wealthtech to connect family offices and HNI investors with global opportunities, including alternative assets like Private Equity, Venture Capital, Real Estate Funds, and Hedge Funds. Our investment vehicles offer exposure to high quality global growth startups, private debt opportunities, and other thematic funds in the pre-IPO space. They are available to registered investors around the globe.

Our current customer set includes 500+ family offices and High net worth investors (CXOs, first and second-generation entrepreneurs). With the team composed of ex-Mckinsey consultants, Asset management veterans, and Digital experts.

Exclusive features offered by Torre:

  • Pre-vetted/ Curated funds
  • Low-minimums
  • Low and transparent cost
  • End-to-end digital

Who are the shareholders?

Shareholders include all angel investors, employees of the company, founders, or anyone who currently has equity in an eligible private company in the form of common shares, preference shares, stock options or restricted stock units. The following services are provided by Torre Capital to private company shareholders:

  • Opportunity to sell shares in the Torre Marketplace
  • Avail equity funding for your private company ESOPs

How does the Shareholder’s journey work?

a. For selling shareholders:

  • Register on the platform by providing a few basic details about your equity stake.
  • Explore the Torre Capital marketplace to submit your request. Our private market specialist connects with you to perform due diligence checks.
  • We offer the shares to our investor community and gather investment commitments. We also work with the company directly for a completely secure transaction.
  • Transfer documents executed and you receive the sale proceeds. Torre Capital charges a nominal transaction fee.

b. For shareholders who seek to avail equity funding:

  • Register your interest and submit your financing request. Find out how much funding you can avail.
  • Our credit experts get in touch with you to perform due diligence checks, understand your tax liability and underwrite the funding.
  • Depending on your company’s terms and agreement, the forward equity contract is signed and you receive your funds.
  • Share a portion of profits with us post liquidation event. In case of no liquidation event, you don’t have to pay us back.

Advantages of selling at Torre’s Marketplace:

  • Immediate Partial Liquidity.
  • Maximum benefit to shareholder: You only pay us in case of a liquidity event.
  • Get to keep your upside: If your company never meets a liquidation event, you still have received funding for part of your shareholding.
  • Minimized Risk: Upfront part funding and safety of investment till liquidation. 
  • Multiple asset class: If you own multiple classes of preferred stock, common stock, ESOPs, RSUs, you can sell them easily on the Torre Capital marketplace.

Who are the investors?

Currently only accredited investors as defined here are able to make investments through our platform (Investments are not open to US Citizens). With Torre’s platform, the opportunities are endless. You can choose to allocate capital across four different asset classes – equity, ESOPs, structured products, and funds.

How does the investor journey work?

  • Register your interest on our platform. We leverage our network to provide company specific offerings to all employees.
  • Reserve your interest. All IPAs issued post approval.
  • Shareholders agree to terms, sign a Forward share ownership contract.
  • Funds transferred to shareholders’ account. Company leadership informed of agreement with Torre Capital. Receive frequent updates.
  • Upon liquidation, receive principal and profits redemption requests raised to shareholders.

Advantages of investing at Torre’s Marketplace:

  • Exclusive access to high-growth startups: 20% – 30% discounted equity ownership in series D and above global pre-IPO unicorn/soonicorn shares leading to lower investments than secondaries.
  • No upfront cost: Zero transaction cost versus 10% charged by secondaries.
  • Attractive Returns: 3x – 5x better returns than direct secondary transactions.
  • Vigilant and protective measures: 3x collateral protection for initial investment till 80% downfall in stock value.
  • Faster cash-inflows: 3x – 4x faster return of capital than top VCs.

Torre’s Pre-IPO Fund

If you believe in the power of the Torre Capital platform for sourcing strong deal flow and you believe in the pre-IPO asset class, but you are not comfortable or otherwise do not want to select single names for investment, you should consider a managed fund investment. The Fund Series investment committee will select all investments, which are a curated subset of what comes across the Torre Capital platform.

If you would like your investment to give you diversified exposure to the pre-IPO asset class, but can’t commit to multiple $100,000 investments, a managed fund is a good option. You will get investment exposure to multiple pre-IPO companies that are carefully selected by the fund series investment committee.

Project Management Simplified?

by Sandeep Kumar

“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”

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?

Palantir Pre-IPO Analysis

by tradmin

Listing gains are likely to be capped by reputation 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.

“Listing gains are likely to be capped by reputation 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.

 

This article has been co-authored by Prerna Singla and Anurag Somani, who are in the Research and Insights team of Torre Capital.

Will the DJI Drone IPO finally take off in 2021?

by tradmin

“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.”

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.

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.

Overview

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 USD and expected to IPO in 2021 at $24Bn 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.

Snapshot

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

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.

Competitors

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.

This article has been co-authored by Sargam Palod, who is an Investment Analyst at Torre Capital.

3D gaming comes of age

by tradmin

“Since 93 out of the 100 largest gaming studios are Unity’s clients, more than half of all mobile computing, PC and console games on the market are made using Unity’s platform.”

Unity IPO lists on 17th Sep 2020, one of the many in an avalanche of US tech IPOs to hit the market in the next 6 months.
Unity Technologies is the creator of an end-to-end development platform that is used to build immersive and multi-platform applications such as mobile devices, home entertainment systems, laptops and computers, and augmented and virtual reality devices. In 2004, Unity was founded by Nicholas Francis, Joachim Ante and David Helgason. The company will shortly be traded on NYSE under the single-letter “U”.Digital channels, if used efficiently, could transform the customer experience by offering better products at a much lower price point by eliminating useless intermediaries.
Company Highlights
Growth in Revenues and Expenses: The company has seen increase in sales in the market and innovative solutions divisions. From $380.8 Million in December 2018 to $541.8 Million in December 2019, reflecting an annual rise of 42%. The key costs of Unity are to investments in R&D and recruiting skilled workers to retain the innovative technological niche in the market. The company’s costs rose dramatically by 33.5%, from $429.8 Million in 2018 to $573.9 Million in 2019.
No Debt: Unity is a zero-debt company with its valuation soaring from $6.28 Billion since its last round of financing in May 2019 to $10.01 Billion while it filed for an IPO in a short span of 1 year.
Acquisitions: Unity’s new acquisitions include Applifier, deltaDNA, Finger Food, Multiplay and Vivox, which have improved the platform ‘s versatility, added the main creative talent to the staff, and further strengthened Unity’s one-stop integrated platform to meet developer demand.
Market Share: Since 93 out of the 100 largest gaming studios are Unity’s clients, more than half of all mobile computing, PC and console games on the market are made using Unity’s platform.
Business Verticals: Unity’s SaaS operates with a remarkable net expansion rate; and it can also assert exposure to domains such as mobile ads, 3D animation and AR / VR content. It also enabled Unity expand globally by growing the number of customers producing yearly revenue of more than $100,000 by 39% to 716 in the reporting period of June 2020.
Key Players: Unity’s strategic partners in the gaming market are Sony Corporation, Microsoft, Nintendo are big tech giants who try to keep innovating and releasing next-generation gaming consoles provide….download the complete report here
 

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