Public Markets Startups

Carbon Black’s IPO Pricing Shoots For Unicorn Status

Impending IPO Carbon Black announced its first IPO price range today, telling investors that it hopes to secure a $15 to $17 share price in its debut. Those prices would value the firm at a billion dollars or more, putting the endpoint security firm into unicorn territory.

As with every new public offering, there’s a lot to unpack in Carbon Black’s march to IPO. Today we’ll peek at its last private valuation, its implied new valuation range, and how the latter stacks up with a market comp that we already know.

Strap on your nerd pants.

What It Was Worth

According to Crunchbase data, Carbon Black raised a total of $191.7 million during its life as a private company. Carbon Black most recently added $14 million to its Series F in 2016, bringing the full round’s tally to just over $68.5 million.

So the firm’s Series F valuation is what we want to get our hands on. Happily, Redpoint’s Astasia Myers has the number we want in her analysis of Carbon Black’s S-1:

Since 2003 the company has raised $190M in venture funding from Atlas Ventures, Highland Capital Partners, KPCB, Sequoia Capital, among others. Carbon Black’s last round was a $68.5M Series F with a $609M post-money valuation.

After that $14 million the company was worth just about 61 percent of one unicorn.

Notably, Crunchbase has record of a number of secondary transactions for the firm since that last external infusion. It seems likely that the firm’s value didn’t stay fixed during its various secondary sales. However, since we have a good, recently priced normal private round, we’ll stick with its figure: $609 million.

What It Might Be Worth Now

Folks calculate a company’s value at IPO a few different ways. First, there’s price. Some outlets, analysts, and other various spreadsheet-minded people will use midpoint price in their math. That means that if a company intends to price from $12 to $14, they’ll use $13 as their valuation-generating expected price.

There’s some good sense to that. However, it’s also common to use the firm’s upper price bound to calculate potential value, and then simply tell the reader or listener that a range’s highest price is being used in the math.

Moving past price, there are shares to count up. When it comes to share counts, you want to know if a firm’s anticipated IPO valuation is calculated using a fully-diluted share count or not.

In Carbon Black’s case, the firm intends to sell 8 million shares, in addition to its extant outstanding share count of 57,825,141 shares. As you can quickly add, those two numbers sum to 65,825,141 shares.

Simple! And the company’s S-1/A agrees:

Nifty. So now we can simply take that number of shares and calculate a simple market cap result. 65,825,141 multiplied by $15 works out to $987.4 million. And at $17 per share, Carbon Black is worth $1.12 billion. (The firm’s midpoint valuation using our current share count is $1.05 billion.)

But there are other shares to take into account. The offering’s underwriters can purchase up to 1.2 million more shares at the IPO price if they wish. And there are a host of shares that may be issued if employees exercise stock options. Indeed, if you list up all the stock options and “shares of common stock reserved for future issuance,” you wind up with 28,772,085 more shares.

(Add that to our previous 65,825,141 and we now have 94,597,226, which, at $17 per share, are worth $1.61 billion. So if you use a fully-diluted share count inclusive of all past, exercisable options, and future shares reserved for equity compensation, at the high-end of its valuation Carbon Black is worth over 1.5 unicorns.)

Regardless, we can see that the firm is worth around $1 billion and up, depending on where it prices in its range and precisely how many shares we count.

This all shakes out after the company goes public, but during the pre-IPO period you will see a number of different figures. Read the fine print.

Why Isn’t It Worth This Much?

All this circles back to Myers and her great piece on Carbon Black’s financial performance. She makes the argument that Carbon Black has a decent market comp in recent IPO Zscaler. It’s a fair idea. Both companies are security shops and have similar revenue counts and more, as we’ll see.

The following chart from her piece compares the companies’ vitals and then puts Zscaler’s revenue multiple (market capitalization/last twelve months’ revenue) onto Carbon Black’s own top line to get an echoed market cap:

This brings us to our subhed for this section: why isn’t it worth this much, where “this much” refers to that final tally in the Carbon Black column. That figure works out to a $3.46 billion market cap—if Carbon Black manages to get ahold of Zscaler’s revenue multiple.

The firm seems to understand that it won’t. Why that’s the case is a good question. First, Carbon Black is growing more slowly. Second, its operating losses (ignoring net losses for a moment due to some non-cash accretion expenses) are going up; Zscaler’s operating losses are going down.

If you are losing more money over time to grow more slowly than a different company, you won’t get its revenue multiple. And that’s why it likely won’t wind up worth the same on a multiples basis.

Top Image Credit: Li-Anne Dias

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