Tag: funding

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One Medical’s IPO will test the value of tech-enabled startups

Hello and welcome back to our regular moning look at private companies, public markets and the gray space in between.

Today we’re digging into the One Medial S-1 IPO filing. The company, popular in Silicon Valley and known for an investment from Alphabet, intends to debut this year on the Nasdaq under the ticker symbol “ONEM.” The company’s filing notes a $100 million IPO raise, a placeholder figure designed to indicate to investors the rough scale of its impending offering.

One Medical was valued at around $1.5 billion in its most recent, 2018-era fundraise according to CBNC, reporting that the company has since traded on the secondary markets for around $2 billion.

We’ll start by exploring the trusses and underpinnings of its business before turning to the question of how to value yet another tech-enabled business with lower gross margins than what tech companies tend to sport. One Medical’s valuation picture is also complicated by slow, if accelerating growth, rising unprofitability on a GAAP and adjusted basis and rising operating cash burn.

Facts and figures

Before digging into the numerical stuff we’re going to pause and quote the company’s introductory information. Normally we skip the stuff, but here are the two key sentences from the document (emphasis mine):

  • “Our mission is to transform health care for all through our human-centered, technology-powered model.”
  • “We are a membership-based primary care platform with seamless digital health and inviting in-office care, convenient to where people work, shop, live and click.”

Translating a bit, those statements read like One Medical saying that it’s a technology company with recurring, subscription-style revenues. Every company wants to be a SaaS business — the industry enjoys sky-high revenue multiples — making the phrasing from One Medical unsurprising.

One Medical charges a yearly membership revenue fee to customers, providing it with eight-figure subscription revenues; the company’s membership revenue has convinced some in conversation that its SaaS-ish elements will be richly valued. While I doubt that anyone views One Medical as a SaaS business, the question remains how similar to one if might appear once we dig into its financial results. (The closer to SaaS it can appear, the more One Medical may be worth.)

To spoil what’s to come, it looks very little like a subscription-first business.

It’s not a SaaS business

One Medical’s membership business is sizable, but doesn’t appear to generate the majority of the company’s revenues (just $38.0 million in “membership revenue” out of $198.9 million in total top line during the first three quarters of 2019). And, One Medical’s gross margins are far below what we tend to see with software-subscription companies.

What is One Medical, then? The company is a healthcare provider with a technology and subscription twist, it appears.

The firm does have some attractive elements, however, including:

  • Accelerating revenue growth: Revenue grew from $154.6 million in the first nine months of 2018 to $198.9 million in the first nine months of 2019, representing growth of 28.6%. That’s faster than its 2018 full-year growth result of 20.3%.
  • Improving gross margins: The company’s gross margins (not including depreciation and amortization costs) rose from 35% in the first three quarters of 2018 to 40% in the first three quarters of 2019. Inclusive of excluded costs, the figures were 30% and 35%, respectively.

While those are bright spots for One Medical, each represents improvement from a lackluster base. The company’s revenue growth rate is improving, but the company still theoretically hitting its growth curve. (The company doubled its sales and marketing spend in 2019 to juice growth, mind.)

And, the firm’s margins are improving, but are not where we’d expect for a company with its implied revenue multiple.

Turning to One Medical’s issues:

  • Rising operating and net losses: The company’s operating loss grew from $25.1 million in the first nine months of 2018 to $35.2 million in the first nine months of 2019. Its net loss similarly rose from $26.9 million to $34.2 million.
  • Rising adjusted losses: One Medical’s adjusted losses (adjusted EBITDA) rose from $7.1 million in the first three quarters of 2018 to $15.6 million over the same period of 2019. That’s more than double.
  • Rising CAC: Using a crude bit of math, One Medical spent about $565 in sales and marketing costs per new member (net) in the first three quarters of 2019. That figure was about $348 in calendar 2018.
  • Low gross margins: Reporting 40% gross margins while stripping out some costs (following how the S-1 is worded) is pretty good for most industries. For venture-backed companies that raised hundreds of millions, it’s a slightly stunted figure.
  • Rising operating cash burn: One Medical’s operations consumed $11.4 million in cash during the first three quarters of 2018. That rose to $24.1 million over the same period of 2019.

How do we value the company? That’s hard. But we can use some old marks to get some numbers.

What’s it worth?

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BigID bags another $50M round as data privacy laws proliferate

Almost exactly 4 months to the day after BigID announced a $50 million Series C, the company was back today with another $50 million round. The Series D came entirely from Tiger Global Management. The company has raised a total of $144 million.

What warrants $100 million in interest from investors in just four months is BigID’s mission to understand the data a company has and manage that in the context of increasing privacy regulation including GDPR in Europe and CCPA in California, which went into effect this month.

BigID CEO and co-founder Dimitri Sirota admits that his company formed at the right moment when it launched in 2016, but says he and his co-founders had an inkling that there would be a shift in how governments view data privacy.

“Fortunately for us, some of the requirements that we said were going to be critical, like being able to understand what data you collect on each individual across your entire data landscape, have come to [pass],” Sirota told TechCrunch. While he understands that there are lots of competing companies going after this market, he believes that being early helped his startup establish a brand identity earlier than most.

Meanwhile, the privacy regulation landscape continues to evolve. Even as California privacy legislation is taking effect, many other states and countries are looking at similar regulations. Canada is looking at overhauling its existing privacy regulations.

Sirota says that he wasn’t actually looking to raise either the C or the D, and in fact still has B money in the bank, but when big investors want to give you money on decent terms, you take it while the money is there. These investors clearly see the data privacy landscape expanding and want to get involved. He recognizes that economic conditions can change quickly, and it can’t hurt to have money in the bank for when that happens.

That said, Sirota says you don’t raise money to keep it in the bank. At some point, you put it to work. The company has big plans to expand beyond its privacy roots and into other areas of security in the coming year. Although he wouldn’t go into too much detail about that, he said to expect some announcements soon.

For a company that is only four years old, it has been amazingly proficient at raising money with a $14 million Series A and a $30 million Series B in 2018, followed by the $50 million Series C last year, and the $50 million round today. And Sirota said, he didn’t have to even go looking for the latest funding. Investors came to him — no trips to Sand Hill Road, no pitch decks. Sirota wasn’t willing to discuss the company’s valuation, only saying the investment was minimally diluted.

BigID, which is based in New York City, already has some employees in Europe and Asia, but he expects additional international expansion in 2020. Overall the company has around 165 employees at the moment and he sees that going up to 200 by mid-year as they make a push into some new adjacencies.

BigID announces $50M Series C investment as privacy takes center stage

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As Indian startups raise record capital, losses are widening

Indian tech startups secured nearly $14 billion in 2019, more than they have raised in any other year. This is a major rebound since 2016, when startups in the nation had bagged just $4.3 billion.

But even as more VC funds — many with bigger checks — arrive in India, the financial performance of startups remains a cause for concern.

Whether it’s mobile payments or education learning apps, each startup today faces dozens of competitors in their category. Many of these sectors, such as social commerce and digital bookkeeping, are just beginning to see traction in India, which has resulted in investors backing a large number of similar players.

This has meant more marketing spends; to create awareness among consumers (or merchants) and stand out in a crowd, many firms are heavily marketing their services and offering lofty cashbacks to win users.

What is especially troublesome for startups is that there is no clear path for how they would ever generate big profits. Silicon Valley companies, for instance, have entered and expanded into India in recent years, investing billions of dollars in local operations, but yet, India has yet to make any substantial contribution to their bottom lines.

If that wasn’t challenging enough, many Indian startups compete directly with Silicon Valley giants, which while impressive, is an expensive endeavor.

How expensive? Here’s an exhaustive look at the financial performance of several notable startups and major firms in India as disclosed by them to local regulators in recent weeks. These are Financial Year 2019 figures, which ended on March 31, 2019. Some of the filings were provided to TechCrunch by business intelligence platform Tofler.

Flipkart

Flipkart, which sold a majority stake to Walmart for $16 billion last year, posted a consolidated revenue of $6.11 billion for the financial year that ended in March. Its revenue is up 42% since last year, and its loss, at $2.4 billion, represents a 64% improvement during the same period. The ecommerce giant this year has expanded into many new categories, including food retail.

BigBasket

BigBasket delivers groceries and perishables across India and became a unicorn this year after it raised a $150M Series F led by Mirae Asset-Naver Asia Growth Fund, the U.K.’s CDC Group and Alibaba. The startup posted revenue of $386 million, up from $221 million last year. Its loss, however, more than doubled to $80 million from $38 million during the same period.

Grofers

BigBasket rival Grofers, which raised $200 million in a financing round led by SoftBank Vision Fund, reported $62.6 million on revenue of $169 million. The company’s chief executive and co-founder, Albinder Dhindsa, has said that the startup is on track to sell goods worth $699 million by the end of FY 2020.

MilkBasket

Milkbasket, a micro-delivery startup that allows users to order daily supplies, reported revenue of $11.8 million, up from $4 million last year. During this period, its loss widened to $1.3 million, from $130,000 last year.

Lenskart

Lenskart is an omni-channel retailer for eyewear products. Earlier this month, it raised $275 million this month from SoftBank Vision Fund. It posted a revenue of $68 million — and its loss shrank from $16.5 million to $3.8 million in one year.

Rivigo

Rivigo, a five-year-old startup that is attempting to build a more reliable and safer logistics network, raised $65 million in July this year. Its revenue increased 42% to $143.8 million while its loss also increased to $83 million.

Delhivery

SoftBank-backed logistics firm Delhivery, which raised $413 million earlier this year from SoftBank and others, said its revenue has grown 58% to $237 million since FY18, while its loss has almost tripled to $249 million.

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How to tell if your startup deserves press coverage

Tech reporters’ inboxes are filled with garbage pitches from misguided founders who assume that the smallest milestone warrants a write-up.

Founders dream of seeing their company’s name in headlines without knowing how that might help or hurt them. But with the proper intentions, strategy and timing, they can score press that makes their imagined future look inevitable.

Step one: accept the fact that you don’t get to decide what’s newsworthy.

Inside your company, you may have total control, but working with reporters requires abdicating that iron grip. They can’t be intimidated or paid off, but you can collaborate with them — take their success into account alongside your own, recognize their duty to serve the public, and you’ll learn to pitch like a pro.

Here we’ll discuss different reasons why you might want press, why maybe you shouldn’t, and how to understand what reporters consider newsworthy. You’ll learn about the three big benefits of coverage, what’s changed about readership over the past decade, the most common mistake in startup PR and how to combine your milestones into a compelling story.

In part two of this ExtraCrunch guide, I’ll explore how to pick specific publications and reporters to work with. Future posts will examine how to hire help with PR, formulate a pitch, deliver it to reporters, prepare for interviews and conduct an announcement. If you have more questions or ideas for ExtraCrunch posts, feel free to reach out to me via Twitter or elsewhere.

Why should you believe me? I’m editor-at-large for TechCrunch, where I’ve written 4,000 articles about early-stage startups and tech giants. For a decade, I’ve reviewed startup pitches via email and Twitter, at demo days for accelerators like Y Combinator and on stage as a judge of startup competitions. From warm introductions to cold calls, I’ve seen what gets reporters’ attention, why some pitches are immediately rejected and how stories become enduring narratives supporting companies as they grow.

Let’s start with why you should want startup press in the first place.

Three realistic goals for press coverage

What’s your objective? It won’t matter to the reporters or the readers, and it won’t get you written about. But you need goals to work towards even if you never speak them aloud in an interview.

First, you should know what you’re giving up. To run an effective PR process, you’ll be distracted from building product and running your business. An agency can help, but founders and key employees must still put in time to meet with the PR team to define and refine positioning and messaging, offer product updates and set priorities.

Talking to the public will expose your secrets to potential competitors who could use the info to copy what’s working, learn from your mistakes and exploit the markets and opportunities you’re not. It can also bring in new users or customers before you’re ready, or before there’s enough adoption around them to make your product work. If press exposes you to a scattered cadre of early adopters around the world who have no one to use your app with, they might never give you a second chance, so you have to grow thoughtfully.

There are three big benefits you can get from startup press, but perhaps not in the ranking you’d assume.

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Airbnb’s New Year’s Eve guest volume shows its falling growth rate

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

It’s finally 2020, the year that should bring us a direct listing from home-sharing giant Airbnb, a technology company valued at tens of billions of dollars. The company’s flotation will be a key event in this coming year’s technology exit market. Expect the NYSE and Nasdaq to compete for the listing, bankers to queue to take part, and endless media coverage.

Given that that’s ahead, we’re going to take periodic looks at Airbnb as we tick closer to its eventual public market debut. And that means that this morning we’re looking back through time to see how fast the company has grown by using a quirky data point.

Airbnb releases a regular tally of its expected “guest stays” for New Year’s Eve each year, including 2019. We can therefore look back in time, tracking how quickly (or not) Airbnb’s New Year Eve guest tally has risen. This exercise will provide a loose, but fun proxy for the company’s growth as a whole.

The numbers

Before we look into the figures themselves, keep in mind that we are looking at a guest figure which is at best a proxy for revenue. We don’t know the revenue mix of the guest stays, for example, meaning that Airbnb could have seen a 10% drop in per-guest revenue this New Year’s Eve — even with more guest stays — and we’d have no idea.

So, the cliche about grains of salt and taking, please.

But as more guests tends to mean more rentals which points towards more revenue, the New Year’s Eve figures are useful as we work to understand how quickly Airbnb is growing now compared to how fast it grew in the past. The faster the company is expanding today, the more it’s worth. And given recent news that the company has ditched profitability in favor of boosting its sales and marketing spend (leading to sharp, regular deficits in its quarterly results), how fast Airbnb can grow through higher spend is a key question for the highly-backed, San Francisco-based private company.

Here’s the tally of guest stays in Airbnb’s during New Years Eve (data via CNBC, Jon Erlichman, Airbnb), and their resulting year-over-year growth rates:

  • 2009: 1,400
  • 2010: 6,000 (+329%)
  • 2011: 3,1000 (+417%)
  • 2012: 108,000 (248%)
  • 2013: 250,000 (+131%)
  • 2014: 540,000 (+116%)
  • 2015: 1,100,000 (+104%)
  • 2016: 2,000,000 (+82%)
  • 2017: 3,000,000 (+50%)
  • 2018: 3,700,000 (+23%)
  • 2019: 4,500,000 (+22%)

In chart form, that looks like this:

Let’s talk about a few things that stand out. First is that the company’s growth rate managed to stay over 100% for as long as it did. In case you’re a SaaS fan, what Airbnb pulled off in its early years (again, using this fun proxy for revenue growth) was far better than a triple-triple-double-double-double.

Next, the company’s growth rate in percentage terms has slowed dramatically, including in 2019. At the same time the firm managed to re-accelerate its gross guest growth in 2019. In numerical terms, Airbnb added 1,000,000 New Year’s Eve guest stays in 2017, 700,000 in 2018, and 800,000 in 2019. So 2019’s gross adds was not a record, but it was a better result than its year-ago tally.