ESO Monthly Start-Up

June 2024

The IPO Roadmap May be Winding, but the Destination is Clear

As we near the end of the first half of 2024, the IPO landscape for VC-backed companies is looking much brighter than it was this time last year. We have seen a couple of high profile exits for companies such as Reddit, Rubrik, and Astera Labs, and as I’m writing this intro, they are all still trading above or near their IPO price.

The success of this cohort has been encouraging for others looking for positive signals from the market, and as such, we have another group of companies that are looking to hit the public markets in the near term. Each company has a unique characteristic that may help or hurt them in the markets. We’ll break down each of them below.

“The AI Hotshot” - CoreWeave, a cloud AI startup running data centers for Nvidia, announced plans at the end of May to IPO in early 2025. CoreWeave has boomed the past year riding the AI wave that has taken the VC world by storm. Although it has grown rapidly over the past year thanks to Nvidia, future growth prospects remain uncertain. A CoreWeave IPO should give us a glimpse into how the public markets appetite for AI will be. Additionally, Nvidia’s stock market performance will likely be a bellwether for them as the companies are closely tied.

“The Solid Contender” - ShipBob, a company that handles fulfilment for small and medium-sized ecommerce businesses, announced in February that they were seeking to hire underwriters for a U.S. public offering that could be launched this year. The listing is expected to value the company at roughly $4 billion. Shipbob has been performing well, and recently grew its revenue to roughly $500 million, helped by their new partnership with TikTok.

While ARR isn’t a perfect estimate of revenue, based on this data, their current LTM revenue multiple is around 8x. The valuation is lofty, however. Similar publicly company valuations suggest ShipBob will need significant growth this year to hit the $4B mark. Additionally, ShipBob is still not profitable, a characteristic that investors have become more weary of in recent years. Time will tell how the market and valuation ultimately shakes out, but all things being considered, ShipBob is likely set to have a solid IPO.

“The Tortoise” - Slow and steady describes the next IPO hopeful we will discuss. Egnyte, which provides storage, governance, and security tools to companies in industries including life sciences, financial services, retail, and publishing, has hired bankers for an initial public offering that could value the company at more than $3 billion. Egnyte has been around since 2007, a lifetime in the startup world, but since then, has continued to grow steadily. More importantly, the company has reached profitability. While Egnyte might not have the same show stopper growth rates that we sometimes see with high profile IPOs, the company having achieved profitability should be taken positively by investors.

“The Underdog” -  Tempus is an interesting case study to look at, as their profile compared to the other 3 companies looks much more shaky. Tempus was last valued at $8 billion, and the company recently revealed that they received a $200 million investment from new investor Softbank. Had they not raised that money, they likely would have run out of cash this year. Burn is the main issue with the company, with the cost of their labs being very expensive to run. Tempus has accumulated a $1.5 billion deficit over the years, burning through nearly all of the equity and debt it has raised. The IPO is likely due to needing more cash, and it will be interesting to see if investors have the same appetite for this more risky IPO prospect that they have had with the other recent new public offerings.

Why this matters: All of this being said, investor interest is there. All of the big tech IPOs for 2023 and 2024 have been oversubscribed and recent debuts have managed to hold or trade above their IPO prices in the market. Although there is still some uncertainty as to how public investors will treat middle of the road companies, the main point of all of this is: With markets having performed as well as they have over the past year, and the success of recent IPOs, the argument that the market is not receptible to new IPOs is becoming less and less convincing.

Tips of the trade

A section where we provide helpful tips for anyone with stock options or shares at private companies.

Vesting Your Equity

Vesting: The process by which an employee earns the right to own equity over time, typically according to a predetermined schedule.

If you accept an offer at a startup, a big part of your compensation package is your equity. People often rationalize lower salaries for the chance of a big return on their equity package, but don’t always understand what they are given.

A seemingly obvious but very important aspect of an equity grant is the vesting schedule.

Vesting Stock Options

Stock Options typically fully vest over a 4-year period. This means it will take 4 full years of employment to earn the full option package you were granted.

Option grants also usually feature a 1-year cliff. This means you do not earn any equity until you have completed 1 full year of employment. Following that 1st year of employment, 25% of your options will vest since 1 of 4 total required years have been completed. After that, the remaining 75% of options will vest over the next 3 years on a monthly cadence.

example: Typical vesting schedule

Jan 1, 2024 (grant date): You are granted 4,800 options that vest over a 4-year schedule with a 1-year cliff date.

Jan 1, 2025 (1-year cliff date): 25% of your options vest aka 1,200 options
Feb 1, 2025: 1/48th of your options vest aka 100 options. 1,300 total vested.
Mar 1, 2025: 1/48th of your options vest aka 100 options. 1,400 total vested.
Apr 1, 2025 - Dec 1, 2027: 1/48th aka 100 options vest each month.

Jan 1, 2028 (4-year vesting completion): 1/48th aka 100 options vest. 4,800 aka 100% total options vested.

Vesting RSUs

RSUs commonly feature double trigger vesting. When RSUs vest they turn into shares of the company’s stock. This conversion to shares triggers a taxable event.

To prevent taxes being owed on pre-IPO shares, companies use double trigger vesting. This means RSUs must meet the time vesting schedule described above as the first trigger. The second trigger is the company reaching an IPO. Once the company goes public, the RSUs fully vest and are converted into shares, thus triggering taxes. At this point, taxes are more easily paid as the shares are publicly traded and can be sold to cover the bill.

Why this is important: This all may seem trivial, but when accepting a job offer it is important to know that the equity you are granted is not yours right away. It usually must be earned over a 4 year period, thus 4,800 shares really only means 1,200 shares per year. Employees looking to leave for another opportunity must also factor in losing any unvested options they have yet to earn. It may make sense to finish up a month’s worth of vesting before leaving if you are close to a vesting date.

Financing your option exercise can be expensive and a require a large capital outlay. Feel free to reach out to us to discuss your options for partnering with ESO to exercise your options risk-free.

The ESO Fund does not provide legal, financial, or tax advice.

Public Multiples Check-in: "Yesterday's Price is not Today's Price"

May equity markets were positive for the month, with the S&P and Nasdaq posting great performances. All the three major indices end May in the green, with the S&P, Nasdaq, and Dow up 4.8%, 6.9%, and 2.0%, respectively. The Nasdaq posted its best monthly gain since November, and the S&P had its been since February. The largest multiple declines across the sectors that we track were Cryptocurrency and HealthTech, which both declined by 28%. Industrials saw the best uptick year over year, up 22%.

Why this matters: Similar notes as last month on the public side, but performance for the year continues to be good. Although there is still some volatility and recession fears looming, late-stage public companies are going to have a hard time continuing to argue market conditions are behind their public debut delays.

May's Top Ten:

  1. As we mentioned earlier in the newsletter, CoreWeave announced they are seeking an IPO in 2025. This announcement comes on the heels of a $1.1 billion raise led by Blackstone, Magnetar, and Coatue. CoreWeave is currently valued at $19 billion.

  2. Another IPO that we mentioned in our intro was announced this past month and made our top ten was Tempus announcing their IPO. The company has been reported to be seeking around $600 million in funding.

  3. Last IPO notice in the top 10 is that Shein is reportedly set to file for IPO as well. The interesting note about this filing? They are going with a UK IPO. The decision to list in the UK over the US likely has to do with ongoing tensions between China and the U.S.

  4. Speaking of geopolitical tensions between China and the U.S., ByteDance’s TikTok sued the US government this month over a law that President Biden signed last month outlawing the app nationwide unless it finds a buyer within a year. The lawsuit alleges the ban to be unconstitutional as it violates their First Amendment rights.

  5. We are continuing to see startups fail during this liquidity crunch, with Takeoff Tech filing for Chapter 11. The grocery e-commerce company has struggled as demand declined post-Covid.

  6. AI startup Anthropic has been continuing to grow and has hired their first CFO this past month. Krishna Rao, Airbnb alum, has joined the company as they look to accelerate plans for international expansion and growth

  7.  Groq, an Nvidia challenger, is seeking to raise around $300 million and has tapped Morgan Stanley to help with the fundraise. The new round would roughly double its total funding.

  8. The 100x days are back! Bessemer is leading a raise in AI powered search engine Perplexity at a valuation of $3 billion. The round is notable because of the 150x revenue multiple at which the round was raised.

  9. Figma employees and early shareholders are going to be able to sell as much as $900 million of their shares to new investors at a valuation of $12.5 billion. The price notably represents a nearly 38% decline from Adobe’s proposed plan to buy the company for $20 billion.

  10. Military defense startup, Anduril, is seeking roughly $1.5 billion in fresh funds that would value the company at $12.5 billion or more. The potential funding round would be an increase from the $8.5 billion valuation at which investors including Valor Equity Partners and Founders Fund valued the company a year and a half ago.

Why this matters: We’re loving that the Top 10 continues to include IPO news. This movement is much needed after a lackluster 2023, and is encouraging to the VC ecosystem as a whole. Public markets have performed well in 2024 thus far, and late-stage companies looking to go public may not be able to blame the bad exit environment for much longer.

Startups that are still hiring!

Open positions are per the company's website.

About ESO Fund

ESO Fund empowers startup employees to turn their stock options into reality. Since our inception in 2012, we've been dedicated to providing risk-free funding for the exercise of stock options, ensuring that individuals can seize the opportunities embedded in their equity.

Our mission is simple: to make equity compensation accessible and understandable. Through our innovative solutions, we've assisted countless individuals at 650+ companies in realizing the full value of their stock options, contributing to the success stories of numerous startup employees.

For more information on ESO Fund and how we can help fund your option exercise, please refer to our website at www.esofund.com!