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May 24, 2019
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Unpacking Pinterest’s IPO expectations

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For seven years, Pinterest has been considered a “unicorn,” boasting a valuation larger than $1 billion since its 2012 Series C funding round. Before that, it was considered an underdog, puzzling some investors with its “digital pinboard” and preference for “quality growth.”

Now, as the company takes its final step toward its Thursday NYSE initial public offering, it’s being called an “undercorn.”

Pinterest plans to sell shares of its stock, titled “PINS,” at $15 to $17 apiece, less than the roughly $21 per share it charged private market investors to participate in its mid-2017 Series H, its last private financing. That IPO price translates into a mid-range valuation of $10.64 billion, or nearly $2 billion under the $12.3 billion valuation it garnered after its last round, hence “undercorn.”

There are many potential causes to a down round like this. In the case of Pinterest, it’s probably less a result of newly public Lyft’s poor performance on the stock market and more a result of its own reputation for slow growth. Pinterest is a disciplined company that’s carved a clear path to profitability. It has invested a lot of time and energy into building a positive, diverse culture and a product devoid of trolls and hate speech — time some believe should have been spent focused on rapid growth and scale.

Sure, if Pinterest had tossed its values aside and blitzscaled, maybe it would debut with a larger initial market cap, but its corporate culture will be key to its long-term value, and investors are going to get rich off its IPO either way. So Pinterest is an undercorn — who cares?

Pinterest isn’t too nice

Ben Silbermann, chief executive officer of Pinterest. Photographer: Yana Paskova/Bloomberg via Getty Images

Founded in 2010, Pinterest is one of the youngest members of the newly dubbed “A-PLUS” cohort of unicorns, made up of Airbnb, Pinterest, Lyft, Uber and Slack. Compared to its peers, Pinterest has raised a modest $1.47 billion in equity funding from Bessemer Venture Partners, which holds a 13.1 percent pre-IPO stake, FirstMark Capital (9.8 percent), Andreessen Horowitz (9.6 percent), Fidelity Investments (7.1 percent) and Valiant Capital Partners (6 percent), according to the company’s IPO filing.

Today, Pinterest counts more than 250 million monthly active users, despite a company culture that many have said has slowed progress. Co-founder and chief executive officer Ben Silbermann, as The New York Times pointed out in a recent profile, is not your typical unicorn CEO. He has refused to adopt the move fast and break things mentality, and shied away from the press and focused on “quality growth” and a supportive company culture.

Even with Pinterest’s new status as an undercorn, Bessemer still owns a stake worth upwards of $1 billion. At a midpoint price, FirstMark and a16z’s shares will be worth about $700 million each. Pinterest employees may be too nice to make decisions as quick as other unicorns, as is the claim in CNBC’s recent piece on the company, but the company wouldn’t be where it is today if it completely lacked a “strategic direction.”

“Being nice and having core values and making decisions with intent is to their overall benefit,” Eric Kim, the co-founder of consumer tech investment firm Goodwater Capital, told TechCrunch. “They’ve done an amazing job at being very disciplined with a focus on top lines.”

IPO prospects

More often than not, businesses accrue value at IPO. Look at Zoom, for example; the under-the-radar video conferencing business is expected to increase its valuation nine times over in its IPO, expected tomorrow.

It’s a disappointment to late-stage investors when the opposite happens for one obvious reason: They may not see a return on their investment. If Pinterest indeed becomes an undercorn next week, the new investors that participated in its Series H may have to hold on to their stock longer than planned in hopes its value climbs over time. That, right there, is the worst thing about being an undercorn. These titles are otherwise just nonsense.

Pinterest’s valuation has long radically exceeded its revenues — a factor that surely paved the way for a down round — yet it was touted as a tech marvel, a unicorn among unicorns. In recent years, its valuation has swelled from $4.75 billion in 2014 to $10.47 billion in 2015 to, finally, $12.3 billion in 2017. Meanwhile, Pinterest posted revenues of $299 million in 2016, $473 million in 2017 and $756 million in 2018. There’s no denying the company’s clear path to profitability, as its losses are shrinking year-over-year while profits grow, but 2018’s revenues are still 16 times less than Pinterest’s “decacorn” valuation.

Silicon Valley has a tendency to over-value unprofitable consumer-facing businesses; Pinterest’s down round IPO could be a sign of Wall Street’s reckoning with Silicon Valley’s vanity metrics. Pinterest, however, isn’t the first unicorn to take a hit to its valuation at IPO. Both Box, the cloud-based content management platform, and payments company Square were undercorns when they went public, for example. Square has since thrived as a public company, while Box is currently trading around its initial share price.

“The recovery is all about execution as a public company when everything is much more transparent,” Monique Skruzny, CEO of InspIR Group, an advisory firm focused on investor relations, told TechCrunch. “The IPO is the beginning of a company’s long-term relationship with the public markets and the public markets have to make money. Going public at a valuation that may not necessarily be what some might think or consider to be the top leaves room for upside going forward.”

For Pinterest, continuing to cut losses and surpassing $1 billion in revenue this year is key. Given its history, financial metrics and the generally favorable market conditions, it looks poised to make that happen.

The bottom line is Pinterest, given its slow growth and inflated valuation, was probably always doomed to be nicknamed an undercorn. Its culture, however, shouldn’t be to blame for its new status. After all, a $10 billion IPO is something for the tech industry to be proud of, not to criticize.

In the words of former investor and Evernote co-founder Phil Libin, who joined me on the Equity podcast last week to talk IPOs: “Who would criticize a company who sacrifices growth because they have important culture? Losers, honestly.”

“If they didn’t have the culture and the people they wouldn’t have made anything,” he added.

Ro, a direct-to-consumer online pharmacy, reaches $500M valuation

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Venture capitalists have valued direct-to-consumer telehealth business Ro at $500 million with an $85 million Series B financing, sources confirm to TechCrunch.

The fresh round of funding comes seven months after Ro — widely known for its men’s health brand Roman, a cloud pharmacy for erectile dysfunction — made headlines with an $88 million Series A. 

Ro didn’t immediately respond to a request for comment.

The company’s outsized Series A, led by FirstMark Capital, was used to launch and scale its second digital health brand, “Zero,” a treatment plan meant to help men and women quit smoking. Zero sells a $129 kit complete with a month’s worth of prescription cessation medication Bupropion, nicotine gum and access to an app used to track progress.

Its latest infusion of capital will likely be used in part to support its third personalized health brand, Rory, a purveyor of women’s health products the business unveiled last month. Targeting menopausal women, Rory offers six products treating four conditions — including prescription medication and supplements for hot flashes, over-the-counter treatments for insomnia, prescription vaginal estrogen cream and an all-natural water-based lubricant for vaginal dryness and Latisse, which helps grow eyelashes — which are available for purchase and direct-to-consumer delivery.

“Right now, we have [millions] of women experiencing menopause,” Rory co-founder Rachel Blank told TechCrunch last month. “They are walking around and frankly, their vagina hurts and they are uncomfortable. Really, what we are building at Rory is a lot of the educational content around this to let women know they have choices and they can take control during this phase of life where they feel like their bodies are rebelling against them.”

When asked whether Ro was fundraising to bolster the new effort, Blank, a former investor at Ro-backer General Catalyst, declined to comment. Curiously, a source with knowledge of Ro’s fundraising said there was no mention of the imminent launch of its women’s brand, Rory, in its pitch to VCs earlier this year.

Ro was started by a trio of entrepreneurs: Rob Schutz, Saman Rahmanian and chief executive officer Zachariah Reitano in 2017. Reitano had previously co-founded a Y Combinator -backed startup called Shout, Rahmanian is a co-founder of the WeWork-acquired business Managed by Q, and Schutz worked as the vice president of growth for Bark&Co before building Ro.

The startup initially launched under the name Roman, which became its flagship brand when the business adopted the umbrella name Ro last year. Roman offers men a $15 online doctor’s consultation, which, if they are an appropriate candidate, gives them access to an instant prescription for Viagra, Cialis or generic drugs that can be filled at Roman’s in-house cloud pharmacy.

In a 2017 interview with TechCrunch’s Josh Constine, Reitano said he began experiencing ED at 17-years-old: “I think in a good way I’ve become numb to the embarrassment,” he said. “I remember the embarrassment of having the condition with no solution, and that’s much worse than sharing the fact that I had it and was able to fix it myself.”

Ro has previously raised $91.1 million in venture capital funding, hitting a valuation of $154 million with its Series A, according to PitchBook. Its investors include Initialized Capital, Box Group and Slow Ventures, as well as angels like Y Combinator partner Aaron Harris, Benchmark’s Scott Belsky and the chief executives of Casper, Code Academy and Pill Pack.

Founded just two years ago, Ro was amongst the first of a new cohort of men’s health businesses supported by VCs. Hims, one of the leading brands in the space, has similarly landed big rounds of capital from top-tier investors. Most recently, Hims brought in $100 million at a $1 billion valuation from an undisclosed growth-stage fund.

Several other companies, including Numan, Manual and Thirty Madison, have raised capital to support men with hair loss treatments and ED medications delivered to discreetly their doorsteps, among other products.

1stdibs, the high-end online marketplace, just nabbed $76 million in Series D funding

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1stdibs began pushing the antiques business into the 21st century long ago. Apparently, investors think it can push further and faster with $76 million in new funding. That’s how much the now-18-year-old, New York-based company says it just closed on for its Series D round, led by T. Rowe Price Associates, with participation from earlier backers Index Ventures, Benchmark and Spark Capital.

The company now boasts a valuation of well over $500 million, it tells the WSJ. Other investors in the new round include Sofina Group, Foxhaven Asset Management, and Allen & Company, as well as Michael Zeisser, who is the former chairman of U.S. Investments for Alibaba Group, and Groupe Artémis, which owns the auction house Christie’s.

1stdibs has always been an interesting startup, one that’s both loved by the antiques dealers who use it, and, apparently, feared. When, in 2016, 1stdibs became heavier-handed about enforcing the commissions from each sale on its platform — and on which it relies for revenue — more than 30 dealers reportedly met at a design store in lower Manhattan to grouse about the development, complaining that the company had begun prizing revenue growth over its relationships.

Of course, with venture-capital funding — and the company has now collected $170 million altogether — comes expectations. And despite pushback from dealers, they’ve apparently stuck with the platform. 1stdibs says an average of 50 items sell for more than $5,000 on its platform daily, and that 15 of these are items that sell for more than $10,000. (A quick scan suggests a very wide range of prices, with many vintage items priced at $5,000 or less, but plenty with far richer tags, like a three-carat ruby and diamond ring available right now on the site for a cool $200,000, and a chandelier dating back to roughly 1870 and selling, someone is hoping, for more than $300,000.)

With venture funding comes competition, too. Though 1stdibs may be the doyen of the online antiques market, other, newer companies eyeing its traction have since emerged on the scene, many of which have also since raised venture funding and are also growing fast, including The RealReal, which was founded in 2011 and is reportedly weighing a public offering; and Chairish, founded in 2013, which sells vintage and used decor.

Chairish has raised just $16.7 million from investors to date. The RealReal has raised $288 million.

In fact, a fight for brand recognition in what’s become an increasingly crowded playing field as the U.S. population ages (and more antiques are dispersed into the world) may ultimately lead 1stdibs to follow a growing number of formerly online-only marketplaces now extending their reach into the offline world.

Though the company already has a New York location, in a block-long, late-19th-century warehouse called the Terminal Stores building, CEO David Rosenblatt tells the WSJ that using its new funding, more brick-and-mortar showrooms may be in its future.

Sketch, maker of popular design tools, just landed $20 million in Series A funding from Benchmark in its first outside round

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You’ve probably noticed: design has become central for many businesses that might have once considered it an afterthought. Indeed, with sales and marketing so thoroughly optimized at this point — and companies wondering how else to trounce the competition — there’s now a race afoot for numerous startups looking to become the Salesforce of design.

InVision is one of them. Just three months ago, the design collaboration startup raised $115 million in Series F funding at a $1.9 billion valuation. More recently, Figma, another design player, sealed up $40 million in Series C funding in a round that brings its total funding to $82.9 million and a valuation of $440 million.

Still, if the venture firm Benchmark has its way, Sketch — a seven-year-old, 42-person, Europe-based company — is going to win this race. Truth be told, Benchmark jumped at the chance to back Sketch founders Emanuel Sa and Pieter Omvlee when they reached out to the firm, says Chetan Puttagunta, the newest general partner at Benchmark. “We’d definitely known of Sketch and once we got a look at the company, we were blown away by it. There’s so much potential of what this could be that things moved fast. There wasn’t much of a negotiation. We were like, ‘What do you guys want to do? Let’s do it.’”

It helps that Sketch —  which has a completely distributed workforce, with designers and other employees based around Europe and the U.S. — has been profitable from the outset, and that one million people have already paid it $99 for a perpetual license (with one year of free updates).

Also impressive: those sales are entirely organic, and they are directly from Sketch’s site. Though its design tools were once available in the Mac App Store – – Apple once gave it a design award and it routinely topped the Mac App Store charts — the company parted ways with Apple back in 2015, including owing to Apple’s guidelines about what a Mac app can and can’t do, and the time Apple takes to approve app updates, among other things.

Benchmark — which isn’t sharing Sketch’s post-money valuation or how much of the company that $20 million is buying the venture firm —  also sees a future wherein Sketch moves beyond its roots as prototyping tool for both highly experienced and novice designers to build out their experience without the help of coders. The idea is for it to become a tool that teams big and small can gather around. In other words, like Invision and Figma (and Adobe and Autodesk), Sketch is going after the enterprise now, too.

In fact, Sketch is already planning some big upgrades that will be available this summer, as Sa and Omvlee told us yesterday from their respective offices in Portugal and The Netherlands. One major offering around the corner that builds on its existing cloud offering is team collaboration, via a tool called Sketch for Teams. As the two tell us, Sketch wants to be where all documents live and it will allow teams to make annotations and comments in the app.

Sketch is also bringing its tools to the browser starting later this year so users can render an entire document, add developer handoff, and allow editing along with collaboration, all without the need to leave the browser.

All of these features will be made available to anyone who downloads Sketch. In other words, then, as now, everyone gets the same functionality. Asked if there may eventually be features for enterprises that are not available to Sketch’s loyal base of current customers, Puttagunta says it’s a possibility, but that “at the moment, there’s no plan to bifurcate anything. Different modules, different charges —  that’s all speculation at this point.”

Sa and Omvlee echo the point, telling us candidly that much remains to be seen. “We need to define a strategy,” says Sa. “So far, we’ve been focused on developing the product, but when the time comes, we’ll discuss [more of these business particulars] with Benchmark and the rest of the team and come up with the best solution.”

What won’t change, says Omvlee, is its focus on creating a product that users love so much that they tell others about it. “Our focus all along has been on making design available to pretty much anyone out there, and then get out of the way.”

Pictured above, left to right: Sketch founders Emanuel Sa and Pieter Omvlee.

Airtable CEO Howie Liu on the continued importance of getting a ‘unicorn’ valuation

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When in 2015, Slack raised money at a $1 billion valuation, founder Stewart Butterfield spoke candidly about why it was important to him, and why if Slack wasn’t assigned a valuation north of that number at that point in time, Slack wouldn’t raise anything. Said Butterfield, speaking to Fortune, it “means that we’re a part of that conversation about companies worth $1 billion.”

Fast-forward nearly four years, and things apparently haven’t changed much. Indeed, Howie Liu, the co-founder and CEO of Airtable — a 5.5-year-old, San Francisco-based company that sees itself as a coding platform for non-techies — says Airtable was very much focused on being valued at north of $1 billion when it closed its most recent round in November.

“There’s unquestionably a market-signaling effect in raising money at a valuation that, in our opinion, doesn’t come close to the ultimate expected value of the company,” said Liu, in conversation with senior Recode editor Teddy Schleifer at a recent industry event hosted by this editor. “It externalizes a little bit the progress we’ve made and addresses a lot of the open questions that companies face when they first start out. It sends a signal to our customers, to potential future team members and just the general community that talks about these things.”

The continued relevance of that billion-dollar number is interesting, particularly given that there were more than 300 so-called unicorn companies in operation as of last month, according to the research firm CB Insights. Even Liu acknowledged at the event that the number is pretty “arbitrary.” At the same time, he noted, it’s “something that I think carries gravitas in the minds of the general public. So I do think it matters to some extent.”

Airtable last year raised most of the money it has secured to date, raising $59 million last March from CRV, Caffeinated Capital and Slow Ventures before raising another $100 million in November from Benchmark, Thrive Capital and Coatue Management at a post-money valuation of $1.1 billion.

Liu suggested to Schleifer that Airtable didn’t need to raise outside funding, presumably thanks to the momentum its tools are enjoying with more than 80,000 organizations. According to a Forbes report late last year, one in six customers is paying for its freemium products, which includes a collaborative spreadsheet that can store images, videos, documents and URLs, all of which can be dragged around easily and make sense of otherwise disjointed endeavors.

“We’ve always had this long road ahead of us, and until somewhat recently, we’ve been able to sustain our operations without any external capital [owing to] a product that monetizes itself, from a customer base that gets real value from us.”

Asked then why Airtable would raise so much, giving up some company ownership to its investors in the process, Liu said there’s validity in the adage that the “best time to raise is when you don’t need to raise. You’re in the best position to make a case for investment if you’re at a point where you don’t need capital to survive.”

Indeed, don’t be surprised to see Airtable raise more money in the not-too-distant future, given its ambitions to be viewed as far more than a maker of productivity tools or spreadsheets or database products, though it offers all of these things.

“We’ve always been motivated by the fact that software is the most important medium ever created, or, at least, in the last 100 years, yet its potency is completely inaccessible to most of the world,” said Liu to Schleifer. “If you’re a programmer in Silicon Valley, you can tap into this very powerful technology as a medium for creative expression or economic value creation. Yet for everyone else, you get this kind of prefabricated result.”

Rather boldly, Liu continued on to say Airtable is creating a new category around democratizing software value to the entire world — and that it sees itself as peerless, for now. “For us at least, the way we see the world today, as we define the category that we’ve pioneered ourselves, it’s really more of this open territory. Maybe a serious competitor will enter at some point,” but Airtable plans to gather up as much market share as it can in the interim, he said.

Of course, there are many (many) productivity tools in the market with which Airtable competes. Liu, who reportedly favors simple black jackets, pants and shoes and was dressed accordingly for the event, doesn’t seem to care. In fact, he insisted at the event that an acquisition couldn’t be further from his mind. He noted that he’d sold his previous, very early-stage startup to Salesforce as a then recent-graduate of Duke University, but he suggested that Airtable is very much a long-term play that’s just getting started.

“We don’t entertain offers,” said Liu when asked who has been kicking the tires. “In order to get an offer, you have to at least accept an inbound invitation . . . and it’s literally not worth the time of day, talking. You do that if you want to hedge your bets and if you want a Plan B, if you need to bail out at some point, so you have this [potential partner].”

“So zero talks,” said Schleifer.

“Zero,” said Liu.

“And you think you can be a hundred billion, two-hundred-billion-dollar company at some point.”

“We do,” Liu said with a shrug.

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