ESO's Monthly Start-Up

October 2023

The IPO Market is Back Open: Now What?

As of market close on Monday 10/2, Klaviyo (KVYO) is up 11.6%, Instacart (CART) is down 10.1% and Arm (ARM) is trading 2.5% above its IPO price.

There may be some early appetite for these IPOs given 2 of the 3 are trading above their offering price. That being said, pricing is tricky due to the extremely high valuations these companies commanded during the boom period. Each company debuted at lower a valuation than they had received privately in the past, but were able to trade with relative stability given all three major indices ended September in the red. This is a small, but important victory early on for these tech IPOs.

While these were the most notable companies to go public during the month, Rayzebio (RYZB) went public on the 15th and is fairing much better. The San Diego-based biotech is currently sitting 14.6% above its IPO price. It is worth noting that Rayzebio was most recently valued at $600M following its Series D in September of last year. They currently sit at more than double that valuation.

As we move forward, prospective IPO candidates will have to contend with the prospects of debuting at a discount to their all time high valuations, as the market has indicated that these are no longer reasonable prices.

Speaking of prospective IPO candidates: Rubrik (cloud data management) and Turo (Airbnb for cars) have both indicated interest in going public in the near-term. Rubrik has raised over $500M since 2015 and has hired bankers to underwrite their IPO. Turo has led us down this path before, filing a private S-1 in 2021 and a public document in early 2022. They have since filed an updated S-1 revealing 59% revenue growth and profitability in 2022 along with continued growth in an unprofitable first 6 months of 2023 (see the S-1 here).

Why this matters: Despite a lackluster couple weeks for tech stocks overall, these stocks have performed well since their IPOs. This will go a long way towards setting the pricing of future exits and funding events. Private company pricing had become somewhat disjointed from the public markets as VC valuations hadn’t been tested in public waters in almost 2 full years. Seeing these 3 large and fairly unique companies (plus the smaller Rayzebio) will allow private investors to evaluate companies with more confidence, as opposed to simply slapping a discount on a 2021 valuation.

Tips of the trade

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

Equity terms you should know

Stock (Share): Having a share of stock means you're a shareholder in a company. You own a piece of that business and have the potential to earn a share of its profits and growth.

Stock Option: An option is the right to purchase a share of the company’s stock at a set price.

Exercise: exercising a stock option simply means you will receive a share of the company’s stock by purchasing it at your set strike price.

Strike Price: this is the price at which an option holder has the right to purchase shares of their company’s stock.

FMV: this is the current Fair Market Value (hence FMV) of one share of a company’s common stock.

Vesting: a time-based schedule that outlines how many options or shares an employee earns based on the length of their employment.

ISO: Incentive Stock Options are a type of stock option granted to current full time employees. ISO’s have favorable tax treatment via AMT, but they expire 90 days after termination of employment.

NSO: Non-Qualified Stock Options are another type of stock option that companies can grant to anyone (employees, contractors etc). NSO’s are taxed as regular income at exercise, but their expiration date can be extended up to 10 years from the date they are granted.

RSU: Restricted Stock Units are another type of equity compensation. As opposed to stock options, RSUs simply turn into shares without the need for exercise once they vest. RSUs are taxed as they turn into shares, but typically feature both time-based and exit-based vesting schedules.

AMT: Alternative Minimum Tax is the special rate applied to ISO exercises: either 26% or 28%.

Secondary Sale: the secondary market is a place where private shares can be bought and sold.

Tender (Buyback): when companies or investors offer to buy shares from shareholders at a certain price.

IPO: an Initial Public Offering is when a private company lists its shares for sale on the public markets for the first time. This allows private shareholders to sell their stock after a 6 month IPO lockup.

M&A: Mergers & Acquisitions are when one company either combine with or purchase another company. This typically leads to liquidity for shareholders.

Check out our Equity Terms page for more!

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.

Secondary Market Sentiment

Big news! We’d like to announce a new partnership for our Newsletter. Going forward, the wonderful folk at Hiive will be the exclusive data provider for our monthly dive into the state of the secondary markets.

We’re very excited about this partnership and highly recommend checking out their platform if you’re in the market to buy or sell private stock!

We’ve made it a point of emphasis that the lofty VC price tags from the ‘21 bull market are no longer in vogue. We now have a great visual to back this up.

While it seems private market valuations have stabilized since April or so, the median buyer’s bid price is 59.5% below the last round valuation while sellers only ask for a 40.9% discount.

This implies that transactions are likely to get done somewhere in the ~50% discount to the last round range, but with such a large spread it is clear that sellers are holding out for a turnaround while buyers hold their ground given the high interest rate environment.

The market remains seller heavy with only 4 bids for every 10 asks: a Bid/Ask ratio of 0.4 - the lowest mark of 2023.

Why this matters: Until things change in the public markets and interest rates become less attractive, the flow of capital into the private markets is likely to remain at a slow crawl. A good performance from our three IPO darlings would likely ignite some activity in the private markets: especially for near-term IPO candidates.

Hiive is disrupting the venture capital secondary market with the first direct trading platform for shares of late stage and pre-IPO companies. Access buyers, sellers and current market pricing for hundreds of unicorns including names like SpaceX, Databricks, Reddit, Stripe, and Rubrik. There is no charge to access the marketplace, and buyers never pay fees.

Sign-up in five minutes and discover why over 10,000 investors, including the world’s largest investment funds, trade on Hiive.

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

All three indices ended September in the red, with the S&P, Nasdaq, and Dow down 4.9%, 5.8%, and 3.5%. As such, all sectors that we track saw their forward multiples in September decline relative to those in the prior month. Fintech, Enterprise SaaS and Consumer sector multiples are trailing the previous year as well, with Fintech down the most at 8%. Industrials and Crytocurrency continue to see the largest increases at 10% and 33%, respectively, year over year.

Why this matters: Analysts have indicated that September’s decline is the result of a deeply oversold condition starting to develop. While being oversold does not necessarily mean there will be a bounce back, it does create a situation where stocks are cheap relative to their recent price range. With October being a historically winning month for stocks, we will see if there is a multiple recovery next month.

September's Top Ten:

  1. The Klaviyo, Instacart, and Arm IPOs are of course, number 1 for the month of September (we covered them in back to back intro).

  2. Who's got next? Rubrik and Turo have indicated interest in being the next two tech IPOs. Hopefully more companies will follow suit.

  3. Yeah… we’re talking about OpenAI again. The AI superstar is in talks with SoftBank to raise more than $1B in funding to build the “iPhone of artificial intelligence”.

  4. Cisco (CSCO) purchased Splunk (SPLK) for $28B (its largest acquisition ever).

  5. Shopify (SHOP) invested an undisclosed amount in Faire. The deal includes a partnership between the two ecommerce companies making Shopify the preferred POS provider for Faire users. Shopify also aims to make it “easy for Shopify merchants to find new wholesale buyers via Faire’s wholesale marketplace”.

  6. Not all partnerships are meant to last… Just 5 months into their partnership, SentinelOne (S) has ended things with Wiz. This cybersecurity break up comes on the heels of rumors that Wiz (valued at $10B in early 2023) was considering buying the $4B public Sentinel One. SentinelOne cited a “lack of execution” as a reason for ending the short-lived partnership.

  7. Anduril, the $8.5B defense unicorn, recently acquired unmanned fighter jet maker Blue Force Technologies to add portfolio of autonomous assets.

  8. Robinhood (HOOD) announced they would be buying roughly 55M shares for $600M+ from the US Gov’t. These shares were previously owned by the former FTX CEO Sam Bankman-Fried and were seized by the US Gov’t earlier this year.

  9. The post 2021 SPAC reckoning continues as e-scooter company Bird is delisted from the NYSE after its market cap fell below $15M. Bird was once valued as much as $2.3B.

  10. Palo Alto Networks (PANW) is in talks to acquire Talon Cyber Security and Dig, two Israeli startups, for around $300M-$400M a piece.

BONUS $100M+ funding rounds we noticed! Here is non-exhaustive list of companies that raised 9 figure rounds in September:

AlphaSense ($125M Ser E), Harbinger ($140M Ser B), Alto Pharmacy ($120M), CMR Surgical ($165M), Cato Networks ($238M), Mapbox ($280M), Writer ($100M Ser B), Shield AI ($150M), Generate Biomedicines ($273M Ser C), VideoAmp ($150M Ser G), Lyten ($200M Ser B), Enfabrica ($125M Ser B), Getir ($500M), Perfios ($229M Ser D), Mariana Oncology ($175M Ser B), Apollo Therapeutics ($226M Ser C), Boston Metal ($262M Ser C), Inceptive ($100M), Ascend Elements ($460M Ser D), Nimbus Therapeutics ($210M), D-Matrix ($110M Ser B), and Beta Bionics ($100M Ser D). That’s $4.4B in funding amongst 22 companies.

Why this matters: Money is flowing to a degree. As mentioned last week we got our first tech IPO in more than a year. We’ve also seen funding tick up slightly from its early 2023 lull, and M&As are happening every week. As these tech IPOs continue to trade and are hopefully joined by others, private companies will benefit from more a robust set of pricing comps. This should lead to more fundraising and acquisitions as investors and companies are able to come to an agreement on pricing after seeing how these IPO pioneers fair on the public markets.

Startups that are still hiring!

Open positions are per the company's website.tember

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 financing 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!