Forge Global will begin to trade on the New York Stock Exchange today, having completed its merger with Motive Capital Corp as part of a SPAC combination. TechCrunch covered the blank-check tie-up when it was announced last September. Our first look at the deal’s metrics is here.
To say that the IPO market has changed since last September is an understatement; the pace of public offerings from tech startups has slowed to a crawl in the wake of a sharp repricing of the value of technology stocks since late-2021 highs. Richly valued private companies that might have targeted IPOs have pulled back on plans and the rate of new S-1 filings is de minimis.
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This makes the timing of Forge’s public debut illustrative. The company’s combination and flotation will at once provide a data point regarding market appetite for such deals, and the company’s stock price will also reflect, to some degree, the level of investor optimism in other companies not going public.
Let me explain. Forge operates a market for private shares — equity in unicorn startups, basically. And because the company’s business model is largely transaction-based, the more that folks buy and sell those shares, the more money that Forge earns.
Optimism, therefore, about the company’s future is predicated on its supply staying high; too many IPOs would limit private-market availability of shares in hot companies, constraining Forge’s growth prospects.
The irony is this: The better that Forge fares when it trades today, the more likely it is that other tech companies will get off the bench and start to consider — once again — the public markets. If they do, the act could limit Forge’s market by reducing the number of unicorns that investors want access to, but cannot in normal ways given their private-market status. We’ll talk more about this in a moment.
The tensions between Forge’s public-market success and the pool of companies it wants to list on its private market, however, are modest in comparison to the sentiment impact from the company’s trailing performance and the cash haul from its SPAC deal. So before we get too lost in our market theoreticals, let’s talk hard numbers.
Cash, growth, and guidance
In its SPAC investor deck, Forge said that it would record around $123 million in 2021 revenue and $151 million in 2022 revenue. But as we’ve seen some SPAC combinations miss guidance, we’re going to check Forge’s 2021 actuals to see not only how the company did, but how it performed compared to prior guidance.
Here’s what the company reported for 2021 revenues earlier this year and what it expects for 2022, based on the most recent data:
- 2021: “In 2021, Forge’s revenue less transaction-based expenses grew 75% as compared to pro-forma 2020 revenue less transaction-based expenses, to just over $125 million, surpassing the Company’s published expectations of $123 million.”
- 2022: “In conjunction with reporting strong Q4 and full year 2021 results, Forge expects total revenue less transaction-based expenses between $149-$153 million for 2022, which represents 21% growth at the midpoint, consistent with prior guidance.”
Before we go further, a historical caveat. Forge’s 2021 expansion pace was juiced by the company’s purchase of SharesPost in late 2020, so the company’s growth deceleration from 2021 (mid-70s) to 2022 (low 20s) is partially artificial. Still, the company’s 21% midpoint growth target in 2022 is a few points under what it initially guided (23%), though at the upper end of its guidance, it would meet its prior forecast.
How are investors grading the above performance? Modestly, it appears. Here’s how Forge described its SPAC deal when it was announced:
- The deal was “expected to provide up to $532.5 million in cash proceeds prior to the payment of transaction expenses and up to $100 million of cash consideration, including $118.5 million between committed PIPE proceeds and Motive Partners’ Forward Purchase Agreement”
What was the final result?
- Per the company, the final transaction gave “Forge Global … gross cash proceeds of approximately $215.6 million, prior to transaction fees and expenses, which included cash proceeds from Motive Capital Corp’s forward purchase agreement, PIPE investments, and funds released from Motive Capital Corp’s trust account.”
So a little less than half the expected cash. Before you jump to conclusions and consider the Forge deal a flop, recall that other SPAC deals did worse when it came to cash collection in better market conditions. Forge just raised a few hundred million dollars while going public during a closed IPO cycle. Not bad?
We’ll have to see how the company’s stock trades today to get a full bearing, but Forge is at least evidence that SPAC deals are still possible today, provided that targets are met and guidance matches prior forecasts. For some unicorns, that’s good news. Enough to shake up the IPO market? Probably not.
Forge’s market is probably safe
If Forge had collected all the cash that it had initially hoped, and the company’s shares have an incredibly strong first day of trading, we’d have felt comfortable saying that its public debut could help get more unicorns off the bench. And if that happened, Forge’s own public-market success might have an impact on its core market by limiting supply.
Doubly ironically, despite Forge showing that some public-market debuts are still possible even in today’s market conditions, it’s likely more impactful that the company raised nine figures of new capital in its offering. By attracting that level of cash, Forge has plenty of capital to invest in and improve its marketplace. That could mean better liquidity for private-market companies that are attractive to external investment and mature enough to warrant secondary trading. Unicorns, in other words.
So the Forge deal could spur some more IPOs, sure. But it could also wind up using its own public-market money to better its private-market exchange, making it possible for unicorns to stay private longer by allowing their backers the ability to cash out early.
Thus far, shares of Forge are up around 10% in early trading, a good start. But we shall not overindex on a few first trades. More at the end of the day.
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