Here we are again. Again.
Yes, it’s another morning in which we have to discuss a venture-backed technology company going public at a price above its IPO range.
This time it’s Poshmark, which priced its IPO at $42 per share last night, comfortably ahead of its $35 to $39 range that already greatly boosted the company’s valuation. The consumer-to-consumer used fashion marketplace sold 6.6 million shares at its IPO price, raising a gross $277.2 million before other possible shares are sold.
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According to Crunchbase data, that’s the biggest round Poshmark has raised in its history.
The company was able to so greatly boost its valuation in the process that the resulting dilution is minute. This is the late-2020, early-2021 IPO market in action: Pick a private company, boost its worth greatly in its public offering when comparing to its last private valuation, send it to trade and watch its worth — usually — soar.
Then venture capitalists get to complain that Wall Street is underpricing their children while, from where I sit, it always appears that the VCs who put the last money into the company before its public offering tend to do even better than the bankers.
A useful question to ask: Who is underpricing whom?
But this morning we have some work to do. First, what are Poshmark’s final simple and diluted valuations, what revenue multiples does it sport today, and, what do we think its final pricing means for public markets in general?
A hint: Nothing that follows is bearish.
Poshmark’s IPO pricing
There are a few ways to consider Poshmark’s value. One is to use its simple share count, a figure that doesn’t include vested-yet-unexercised stock options and RSUs. Another is to include those shares.
Here are the resulting valuations:
- Poshmark IPO valuation, simple share count: $3.08 billion.
- Poshmark IPO valuation, simple share count and underwriters’ option: $3.12 billion.
- Fully diluted valuation, per Bloomberg: $3.5 billion.
Just how strong are those final results? Let’s remind ourselves of when the company last raised capital, and at what price: November, 2017. $87.5 million at a post-money valuation of $625 million.
Ha! That means that the company’s fully diluted valuation is 5.6x its final, venture-capital led round.
Doing some quick math this morning, using Poshmark’s Q3 2020 revenue to set an annualized run rate, the company is worth 12.7x its current top line, using its fully diluted valuation in our calculation. That is expensive, but not as extreme as some other companies that we have seen recently.
Perhaps Poshmark’s recent profitability is boosting investor interest? Or, public markets are simply willing to pay 2016-era software prices for 2021-era e-commerce marketplaces.
Repriced
Poshmark’s repricing in the public markets is less extreme than what we saw with Affirm; the VCs who put money into that company last September made a comical return. And it appears that private investors were also incredibly wrong when it came to the value of Roblox. Sorry founders, your VCs were super cheap! They had no idea what your company was worth and managed to get your shares on discount!
Poshmark has more time between its last private round and its new, shiny public valuation, we should note. Still, a greater than 5x jump since its last investment makes me wonder if VCs weren’t underpricing the company back then.
That feeling will be compounded if the company surges today in trading, as Affirm did yesterday. Not only would that stretch Poshmark’s revenue multiples further, it would add to the general discredit of the venture-focused money people who we suppose know what they are talking about when it comes to equity in private companies.
VCs can only really guess how much startups are worth based on what the public market tells them, which means that private pricings lag behind the ball, are too conservative as the market heats and probably even more overly conservative when things are bad. Oof.
Poshmark starts to trade this morning. More then.
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