Allbirds is a tech-enabled shoe company that raised a series of venture capital rounds since mid-2015, per Crunchbase data. And it’s going public.
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The company’s IPO would be something we’d cover regardless of how it fit into — or didn’t — a particular trend that we’re watching in the larger startup market. But luckily for us, Allbirds’ IPO pricing not only reprises its own value but also provides a bit more context concerning what related startups may be worth.
That’s thanks to its status as a “tech-enabled company,” as opposed to a pure technology outfit. To reiterate our notes concerning the distinction between the two, we consider Allbirds tech-enabled instead of tech proper because it uses technology methods (e-commerce, in its case) to improve on a traditional business (making and selling shoes), instead of, say, operating a purely digital marketplace where others sell wearable goods.
You can use a gross-margin test for this sort of distinction, if you want to be technical.
“Tech-enabled” may sound like a pejorative, but it’s not. It’s a descriptor, and one that is only rude if you are hoping that tech-enabled businesses will attract pure-tech valuations, and, implicitly, larger revenue multiples than may be truly warranted.
Allbirds gave us pricing information for its IPO this week, providing another window into the world of tech-enabled valuations. A key topic, given that we just saw Rent the Runway price its IPO quite well and we have Sweetgreen in the wings.
With lots of pure tech companies going public, and enough tech-enabled unicorns debuting at the same time, we can break the two groups into distinct cohorts.
With that, let’s talk Allbirds and what its expected revenue multiple tells us about how such companies are valued. Hint: We appear to be narrowing on a price range.
Allbirds’ IPO valuation
In an S-1/A filing this week, Allbirds disclosed that it expects its IPO to price between $12 and $14 per share. The company is selling 15,384,615 shares itself, with an option to sell another 360,415 shares under certain conditions. That works out to as much as $220.4 million in gross receipts for the company itself, not including shares being sold by existing stockholders.
After its IPO, Allbirds expects to have 143,480,229 shares outstanding, inclusive of the full whack of shares offered to underwriters that they may or may not purchase. Using that max share count, and the upper end of Allbirds’ current IPO price range, the company would command a valuation of $2.0 billion.
Per IPO watching group Renaissance Capital, Allbirds’ fully diluted valuation at $13 per share is also $2.0 billion, a figure that we calculate would scale to $2.15 billion at $14 per share.
Now, what should we make of those prices? The company’s last private round — a $100 million infusion — valued Allbirds at $1.7 billion. We can see, then, that the company has a shot at besting its final private price.
That’s good, even if the delta between Allbirds’ final private figure and its upper-end-IPO valuation is not as large as some of its investors must have hoped. Regardless, the company appears safe from a down-IPO. So, frankly, all things are fine; Allbirds will raise a huge chunk of capital at a higher valuation and will float. That’s a solid IPO regardless of the pace of recent valuation accretion that its new per-share price may or may not detail.
But let’s go a layer deeper and think about tech-enabled pricing more generally. Allbirds thinks that its Q3 revenues landed between $61.0 million and $62.5 million, up 29% and 32%, respectively.
Let’s use the upper number; we’re feeling generous. At that revenue figure, Allbirds closed Q3 2021 on an annualized run rate of $250 million. At a valuation of $2.15 billion, Allbirds is worth around 8.6x its current run rate.
Now, rewind the clock to what we learned from Rent the Runway’s IPO:
This brings us back to Rent the Runway, more of a tech-enabled business than a technology firm. As such, we’d expect it to trade at a discount to purely tech companies, and it is. Worth just over 7x its July 31, 2021 run rate (quarter times four), it’s hardly valued like a high-growth SaaS company.
A 7x multiple for Rent the Runway is in the same ballpark as what Allbirds will command, despite having wildly different businesses. Each, however, depends on technology to deliver a physical good that they are either renting or creating, and the resulting margin has to fund the rest of their business operations.
It’s too soon to write out a new rule of thumb, something like tech-enabled valuations at IPO for companies that remain unprofitable but are seeing double-digit year-on-year growth should see a mid- to high-single-digit multiple. But when we do get pricing information from Sweetgreen, we’ll have another data point for our mix. At that point, we might have enough numbers to issue an edict.
Today, it merely appears that the market is sorting out tech-enabled valuations. More when we get the next set of data.
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