The first room 2021 was a busy season for technology outlets. Coming out of a hot period in the last quarter of 2020, it was no surprise that tech novices sought liquidity through a variety of mechanisms at the beginning of the new year.
There were IPOs, there were direct listings, there were PE agreements. Hell, we even saw enough SPACs that we lost control of some; amid all the noise, you will miss an occasional note, no matter how well tuned your ear is.
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Each path is still open for startups at an advanced stage to look for exits: the IPO market was welcome until a few minutes ago and private equity firms are full of money and willing to pay higher multiples than they would normally pay. And there are enough SPACs to bring the entire recent Y Combinator class to the public.
Choosing which option is the best among the many possibilities of a buffet is an interesting task for startup CEOs and their boards.
DigitalOcean went public through a traditional IPO, raising a large amount of capital in the process. The public cloud company focused on SMB probably felt like a somewhat obvious IPO candidate when you read its results. The Exchange spoke with the company’s CEO, Yancey Spruill, about the choice.
Latch, on the other hand, decided that a SPAC was the best way out of the gate. The Exchange spoke with the company’s CFO, Garth Mitchell, about the transaction and why it made sense for his company.
And finally, The Exchange spoke with AlertMedia’s founder and CEO, Brian Cruver, about his decision to sell his Texas-based company to a private equity firm.
To prevent this post from reaching an astronomical word count, we’ll give you a brief overview of each deal and then summarize the company’s views on why your liquidity choice was the right one.
Three paths to liquidity
Starting with DigitalOcean, a few notes: First, the company has publicly publicized its growth in recent years. We knew that it had an annualized execution rate of around $ 200 million in 2018, $ 250 million in 2019 and about $ 300 million in the first half of 2020. It later announced that it reached that milestone in May last year.
So when DigitalOcean decided to go public, we were not surprised. The company ended up setting the price at $ 47 per share, the upper limit of its range. Since then, its shares have suffered somewhat, dropping to less than $ 37 per share, before recovering to $ 43.80 at the end of yesterday’s trading session.
Enough of all that. Why did the company decide to go public through a traditional IPO? Spruill said his company analyzed SPAC’s direct listings and offers. She chose the IPO route because it suited the company’s goals of generating a broad shareholder base and, at the same time, creating a branding opportunity.
The cost of an IPO is comparable, he added, to other exit options. Spruill also praised the IPO process itself, noting that its stringent requirements have made DigitalOcean a better company.
Earlier in our chat, I asked Spruill a question I asked all CEOs on the day of the IPO: How are you feeling? It’s a little boring, but sometimes it draws ideas from executives and founders who, after weeks of discussing the inner workings of their companies, answer a rare personal question.
Spruill said he felt incredible and that nothing could replicate an IPO as the culmination of so much work invested in building a company and its team. If you add up wins and losses over time, with more of the first than the last, and can cross the finish line with the right metrics and market, you can win a spot to be “interrogated” by the “best investors “he said.
These investors invested about $ 750 million in their company, Spruill added. Funds that can be used to pay off debts and free up more cash flow. It’s not a bad day, I would say.