The Pre-IPO Startup Equity Market

by tradmin | April 7, 2021

“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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Coinbase IPO: $100 Billion listing, will the momentum continue for the crypto giant?

by Sandeep Kumar

Coinbase is a US-based cryptocurrency secure exchange that makes it easy to buy, sell, and store cryptocurrency like Bitcoin, Ethereum, etc. It offers products for both institutional clients and retail clients.The platform provides trading and storage services for 58 cryptocurrencies. Coinbase Prime is a platform dedicated to institutional clients. It also offers a debit Visa which enables clients to spend cryptocurrencies anywhere Visa is accepted.

Coinbase is going for a direct listing on Nasdaq under the ticker ‘COIN’. A direct listing is an alternative to an IPO, and it provides investors and employees the liquidity to their ownership stakes on the listing. This may not be beneficial for the company as no new capital is raised or shares are being issued. However,Coinbase will save millions of dollars in costs usually incurred in IPO.

 Snapshot

  • Founded: 2012
  • Notable Investors: Andreessen Horowitz,Paradigm,Ribbit Capital,Tiger Global, and Union Square Venture
  • HQ: San Francisco CA, United States
  • Total Funding: $847 Mn
  • CEO/ Management experience: Brian Armstrong is the co-founder and the Chief Executive Officer. Brian previously founded UniversityTutor.com. Fred is also co-founder and serves as managing partner at Paradigm (Crypto Fund).

Business Model

Coinbase makes money by charging fees for its brokerage and exchange services. In addition to the brokerage fees, Coinbase also charges variable spreads on purchases and trades. There is also a “Coinbase Fee” in addition to the spread and the cost of depositing money mentioned below in the chart. This fee is dependent on the value of the purchase, payment type (debit/credit), and region you are purchasing from. Customers can upgrade to Coinbase Pro for free after they have sufficient knowledge and experience.For advanced clients, Pro services offer research charts and more complex trading options.Company Highlights

Payment Method

Coinbase Fee

Bank Account

1.49%

Coinbase USD Wallet

1.49%

Debit/Credit Card

3.99%

ACH Transfer

Free

Wire Transfer

$10 ($25 Outgoing)

Crypto Conversion

2.00%

 Fee Structure at Coinbase

Competitive Advantage

Coinbase’s strategy has been to secure virgin markets by focusing on rapid customer volume growth, being the first to implement no fee forthe first $1 Mn of cashouts. This has been a great strategy leading to rapid customer growth.It also developed a pricing model that takes advantage of bitcoin price volatility by monetizing cashouts, which protect bitcoin users against volatility.

Over the years hacking has been one of the major risksleading to bankruptcyto many exchanges. Coinbase boasts an industry-leading security system to protect crypto assets and user data to avoid such ill fate. There has been no reported case of hacking for the company to date.

Market Sentiments

Coinbase is poised to list at a multiple of over 50x revenues.The market is bullish on Coinbase and the future of crypto assets. Crypto Assets have traditionally been highly volatile and have had multiple boom and busts in just one decade. Post the pandemic, the acceptance of crypto-asset has led to prices and trading volume rise exponentially with more acceptance by institutional investors, Coinbase on its part has also planned its listing when the market sentiment is at an all-time high with bitcoin touching a record ATH$60,000 and investors being super bullish on cryptocurrencies. The market is expecting the listing of Coinbase at a very high valuation of around $70Bn – $100 Bn.

Key Risks

  • In the past, there have been many security breaches and loss of crypto assets held by users ex: Mt. Gox. Such a catastrophe could adversely impact Coinbase’s brand and financial condition.
  • Cryptocurrency is highly regulatory and evolving and with many counties banning cryptocurrencies, any adverse regulation can be detrimental to the running of Coinbase.
  • The crypto market is highly innovative, the competition will further intensify in the future as existing and new competitors introduce new products or enhance existing products leading to lower revenues for Coinbase. Exchanges such as Binance, Kraken, Bybit, Bitmex, and Bitflyer have much larger trading volumes than Coinbase and differentiated products such as derivatives and crypto financing.

Financial Highlights

  • Total Revenue (2012-2020): $3.4 Bn
  • Revenue break-up: 96% – Transaction volume-based fee, 4% – Subscription products and services
  • Subscription and Services growing 126% YOY and more stable than the transaction-based fee.

Other Information

Coinbase has two classes of common stock, Class A common stock and Class B common stock. Each share of Class A common stock is entitled to one vote. Each share of Class B common stock is entitled to twenty votes and is convertible at any time into one share of Class A common stock. In the Listing, only the Class A of 114.9 Mn common stock is available.

  • Supports 90 crypto assets
  • Monthly Active Users: 2.8 Mn
  • Lifetime Trading Volume: $456 Bn
  • Total Assets on Platform: $90 Bn
  • Retail Users: 43 Mn, Institutional Investors – 7000

Market Opportunity

The Growth of Crypto Assets has grown at a CAGR of 195% over the last decade,the size of the market has hit $2 Tn in April 2021 and is poised to continue growing at an accelerated rate with increasing institutional and retail participation. Coinbase today has around 12% of the total crypto assets in its users’ wallets and will look to increase its market share.

Market Competitors

The Top 10 Crypto Exchanges have only ~25% Market Share, Overtime, Coinbase, and other big crypto exchanges will be leading market share gains at the expense of smaller players.

Valuation

The Valuation of Coinbase is in line with other fast-growing exchanges such as Robinhood at 56x revenue multiples. Being the first crypto exchange to be listed, there are no direct competitors to compare Coinbase with.Hence, we are using Robinhood which is a private startup and fast-growing with innovative products and services and has recently started providing a crypto exchange on its platform.

 

Being listed directly, there is a possibility of scarcity premium due to limited supply of Coinbase shares leading to higher valuations.

Valuation ($Bn)

Net Revenue ($Bn)

EV/Revenue

Robinhood 2020

40.0

0.7

58.8x

Robinhood 2021

80.0

1.4

57.1x

Coinbase 2020

68.0

1.2

56.7x

Coinbase 2021

100.0

1.2

77.0x

In the S-1 filing, Coinbase reported that the average share trading price was $343.58 in the private market in the Q1 of 2021 which is valued at $68 Bn. However, in the secondaries, the shares of Coinbase were trading at a valuation as high as $100 Bn, this would bring the multiple to around 77x multiples. Assuming an estimated 266.2 Mn outstanding shares, the shares are expected to trade in the range of $360 – $370. For now, 114.9 Mn shares have been registered to trade on the exchange.

Investing in Coinbase! Should you be cautious?

With investor sentiments at an all-time high, Investors looking for a quick buck can buy the shares during the direct listing and continue holding Coinbase as long as the crypto momentum continues. Long-term Investors however should understand that Coinbase fortunes are directly linked to the value of crypto assets. Expect the stock to be volatile and with some periods of under performance when crypto assets are in the bust phase. We recommend the investors to be optimistic about the long-term prospects of Coinbase but understand that there would be periods of under performance from time to time.

Wall Street’s dream week, crazy week for the IPO market

by tradmin

“U.S. IPOs are having a busy week as 21 companies are expected to price their offerings raising more than $10 billion combined in the coming weeks.”

23 new IPOs were listed at NYSE and Nasdaq combined, making it one of busiest week in Wall street in last few years. Wall street is for visionaries, people who can look forward and measure up the market moves. It’s not for people Reminiscing the past and wallowing in its sorrow. Corona pandemic was past and the recovering economy, potential successful vaccine and rising sentiments among investors are already showing signs. Wall street has always been front runner and rightly so. The last week has seen crazy amount of IPO activity in the market and many more billion-dollar companies are soon to follow.

Snowflake’s share soared on the first day of trading with its valuation doubled from $33 Bn to over $70bn, making its initial public offering the largest ever for a software firm. Snowflake is a cloud computing company, that went public on NYSE on 16th Sep 2020 and raised $3.36 Bn. The overenthusiasm among the investors pushed the first day trading price to $245 — more than double its IPO price — in New York trading. Multiple VC and early stage investors have been able to mint billions of dollars from the IPO. The share got additional traction after the investment interest from Ventures and Berkshire Hathaway.

JFrog a DevOps software development company also went public on 16th Sep 2020 with IPO priced at $44 raising $509 Mn at the company valuation of just about $4 Bn. By end of the day JFrog’s stock soared 47.3%, closing at 64.79. JFrog was reportedly valued at $1.5 billion last year and IPO provided a huge valuation boost to the company. The soaring valuation of the company shows how much the investors are willing to pay for high growing SaaS company.

Unity Software went public with a blockbuster IPO this Friday, with its price jumping 44% by the end of the day. The company raised proceeds of around $1.3 Bn by selling 25 million shares at $52. Its stock raised as high as $76 in early day trading lifting company’s valuation to around $20 Bn. Unity is world famous gaming development studio that is known for hits such as “PokemonGo”, “Call of Duty:mobile” etc. Unity expected its IPO price to be round $34 – $42, but the enthusiasm about the stock among the public helped company go with IPO at $52. Sequoia Capital and Silver Lake were the biggest investors in Unity before the IPO, with Sequoia owning more than 24 per cent. Unity reported loss of $54 Mn this year, even though its revenue is on the rise, reporting $351 Mn earnings last year, 39% up from previous year. Gaming is the fastest growing segment in media category with 2.5 billion gamers worldwide and $140 Bn in revenue which is also consistently rising exponentially.

Sumo Logic: Sumo logic was the third venture backed software company listed this week, on 17th Sep 2020, on the exchange with the price above its anticipated range. The company raised $326 Mn with shares priced at $22, with the day closing at 26.8 a 22% jump in the closing price. Sumo logic is pioneer in continuous Intelligence with applications across digital transformation, cloud computing and analytics. Sumo like many others going public this week has shown solid revenue growth but also equitably growing losses. But the multiple times oversubscription of the company shares and the rising stock price shows the confidence investors have on the company and its growth potential.

Investors are bullish on the market and wall street is riding on the positive wave. Past few weeks have seen strong IPO activity after a long dull period, with 23 new IPO listed on NYSE and Nasdaq just this week. List of IPO listed during this week:

Billions of dollars have changed hands with number of VCs and early stage investors making big exits. Just a month ago when the companies were worried sick about corona and its potential impact on the investments and their portfolio, last few weeks have seen a complete shift in scenario. Sequoia a leading VC was largest owner of Unity, had 8.4% stake in Snowflake and some ownership in Sumo Logic had around $9 Bn worth in these three companies, earning health profits with exits. Many other investors have seen a profitable run and the IPO fever is not expected to end any time soon.

Whatever be the reason, be it the recovering economy from the pandemic, be it the strengthening investor sentiment or be it the escape from the future political uncertainty from elections IPO market is up and running. U.S. IPOs are having a busy week as 21 companies are expected to price their offerings raising more than $10 billion combined in the coming weeks. 

What is the motivation behind Torre Capital?

by tradmin

“We built this platform to create a differentiated experience, and that is what we are going to provide.”

In my erstwhile career as a Digital Consultant with first Accenture Digital and then Mckinsey, I have had the privilege of building Digital Banks and Fintech platforms from scratch. There were two key takeaways I had from all these experiences put together:

Digital channels, if used efficiently, could transform the customer experience by offering better products at a much lower price point by eliminating useless intermediaries.

By the time any financial instrument reaches retail hands, a large portion of the profit pool has already been siphoned off. It is a rather simplistic but fairly accurate argument that institutions benefit from early access to investments, which at a later stage gets distributed to unsuspecting retail investors.

I went looking for a white space in the finance industry armed with these two hypotheses, and soon found one.

Over a period of six months from January 2020 – June 2020, I personally spoke to over 200 High net-worth investors and about 50 family offices across 5 APAC countries. The entire group had a few complaints and requirements:

Issues with current wealth managers:

If they didn’t offer their entire portfolio to one private bank, they wouldn’t take them seriously. Anything short of double digits, and you won’t get the advisory or access you need

Mostly unsure on how much trust to place on their Relationship Managers.

High and opaque fee structure which made returns look ordinary.

What do they really want:

Institutional Access to exclusive products that helped enhance portfolio returns but without the potential of steep drawdowns. Not equity baskets or mutual funds that everyone else is offering under the garb of managed AUM or roboadvisory.

Clear and unambiguous understanding of products on offer. No opaque language or unnecessary jargon

Clear and transparent pricing that doesn’t try to fleece at the cost of returns. No kickbacks to funds or investment managers

An easy self-directed process to invest using digital channels rather than being chased by Relationship managers

Support who is readily available and knowledgeable to answer queries, handhold during the investment process. But no hard sell or repeated follow-ups

Ergo! Torre Capital

We built Torre Capital with the sole intent of providing a platform that looks out for investor interests before anything else.

We bring our investors access to asset classes at low minimums so that they can invest even with modest portfolios. We do with only the top decile of funds and startups and other assets that have an excellent track record of protecting and growing investing principal. And we do this at AUM fees that are 5x lower than traditional players.

We currently bring you access high quality Private Equity Funds, Venture Capital Funds, and Pre-IPO startups. Create a login in 2 minutes to check out the available opportunities.

Why should you care as an investor for private markets?

Better Returns and lower volatility

In multiple articles that follow on this blog as well as my LinkedIn profile, I will demonstrate how returns in PE/VC/Pre-IPO opportunities are calculated and why they make sense. For now, I will borrow from Bloomberg and Goldman Sachs to illustrate the point. They looked at overlapping data for hedge funds, private equity and real estate 1990 to September 2017. A traditional 60/40 portfolio of U.S. stocks and bonds — as measured by the S&P 500 Index and the Bloomberg Barclays U.S. Aggregate Bond Index — returned 8.2 percent annually during that period, including dividends.

Adding a 10 percent allocation to each of the three alternative investments — as represented by the HFRI Fund Weighted Composite Index, the Cambridge Associates US Private Equity Index and NCREIF Fund Index Open-End Diversified Core Equity, respectively — would have added 0.7 percentage points a year. And thanks to hedge funds’ ability to short stocks and the fact that private assets aren’t subject to the whims of public markets, adding alternatives would also have resulted in smaller declines during each of the last two bear markets.

Our promise

We built this platform to create a differentiated experience, and that is what we are going to provide. As investors, you can be assured of:

We will never recommend an investment that we would not put our own money in. None of our team members have a revenue or fee income target, the only target they have is to make sure that we protect our investors’ faith at all costs

We will not push products, we will put the facts in front of you as transparently possible, and answer your queries as needed. But ultimate investments decision remains with you.

Unlike every other fund out there we do not charge any fees on committed capital. You pay when you invest and start earning. Or else you pay nothing.

We will not build hidden fees in asset prices. All fees are transparent and upfront. We would rather see you walk away than feel cheated at any point of our interaction

And it begins!

The word Torre means tower, or watchtower in Spanish. While you progress in your careers, we will make sure your money works as hard as you do, and that is always protected in the best manner possible.

Reach out to me at [email protected] 24*7 and I guarantee a response within 24 hours (not working hours!). As we work to expand and better our offering for your investing pleasure, please feel free to send across your feedback and comments.

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