It was a little over a year ago when the market first started noticing that the private startup market had gotten just a little ahead of itself, with various dotcom 2.0 darlings such as Dropbox, Square and others slashing their private valuations by substantial amounts. Well, overnight investors at peak private valuations got another harsh reminder of just how much they may have overpaid when Cloudera, once one of the most highly valued private tech companies, priced its IPO at less than half the company's valuation from its last private financing round back in 2014.
As the FT notes, the share sale marked a new low for so-called unicorns, or private tech companies once valued at more than $1bn. Companies such as Cloudera have turned to Wall Street as the once red-hot private investment market has cooled, forcing some to take big discounts on their former valuations to raise more money.
Among the biggest losers in the Cloudera IPO, if only on paper, will be Intel, which sank $742m into the big data company in 2014. At the time, that investment set a record $4.1 billion valuation for Cloudera, pushing it into the top 30 ranking of most valuable global "unicorns" according to the WSJ. Fast forward to late on Thursday, when the company announced a price of $15 for shares in its IPO. While above the indicated range of $12-$14, it was less than half the $30.95 it sold its shares for in 2014.
Cloudera will raise $225 million in cash proceeds from its NYSE IPO on Friday, giving it an initial market cap of $1.9 billion.
While there have been various other tech companies that have suffered the "private valuation" hammer, forced to accept much lower valuations to maintain their access to capital in the public market, none has taken as big a cut.
“Nothing has happened quite like Cloudera — yet,” said Kashif Sheikh, an analyst at PrivCo, which tracks the financing of private companies. “People are coming to realise that these companies are not worth those last private rounds.”
It goes without saying that when it comes to venture capital, there is nothing quite as bad as a down round: private tech companies have long tried to avoid the stigma of pricing their shares below a previous sale, but - as the FT notes - the practice has become more common recently, as private sources of capital have become harder to tap and stock market investors have demanded lower prices.
In late 2015, payments company Square set the valuation for its IPO 42 per cent below the $6bn it had reached in a previous private financing round. Others, such as cloud storage company Box, have also taken a pricing hit to make the switch to the public markets. Square’s shares have since more than doubled, lifting them back above their previous high-water mark in the private market. Box’s shares are also up, rising 23 per cent since its IPO, though they are still 14 per cent below its former private valuation.
That said, there is hope that after the bubble burst in the private market, it may persist in the public one, where the insanity lately has been a sight to behold: tech companies have enjoyed a stronger reception on Wall Street so far this year than for some time. Shares in Snap, owner of disappearing message service Snapchat, have risen 30% since its debut, while three software companies have had a strong reception in recent weeks.
Perhaps the momentum algos will take Cloudera and double it overnight, allowing all those who were stuck at the last valuation round to get our quietly.
Perhaps not: Cloudera was set up to support Hadoop, a technology spun out of Yahoo and used to manage very large data sets. As the FT observes, one headwind for its IPO was the weak performance of Hortonworks, a Hadoop company that went public in 2014. Its shares have fallen from an offering price of $16 to their current level of $10.57.
Meanwhile, Cloudera’s sales grew 68% in the year to January. But it lost $187m in the period, almost as much as its $200m in revenues. The good news: nobody cares about such arcane concepts as profit or loss anymore, and courtesy of the SEC and FASB, with non-GAAP revenue increasingly more prominent in earmings reports, soon financial reports will be literally whatever management wants them to be.