The Pulse #60: Tech IPOs are back!
Also: Instacart cutting on Snowflake spend while onboarding to Databricks; Why companies go public; Scaleups that could IPO in 2023; and ChatGPT’s enterprise plan.
Programming note: The Pulse is a day earlier than usual, as tomorrow Part 2 of Measuring developer productivity? comes out — a shared article with.
It’s almost all about a topic we’ve not talked in a while: IPOs! We cover:
Tech IPOs are finally back! After more than 18 months of no major tech IPOs, 3 tech companies indicated they plan to go public in the coming months: Arm, Instacart, and Klaviyo.
Instacart is spending less on Snowflake, and more on Databricks. Instacart’s public filing document revealed how the company is cutting its Snowflake data cloud spend by 70%. At the same time, the company is quietly migrating Amazon Kinesis Data Firehose ETL pipelines to Databricks – a Snowflake competitor. There is no Snowflake to Databricks ETL pipeline migration happening, though. Exclusive.
Why do companies go public? There are a bunch of downsides for a company to be public. There is, of course, the big upside and motivator: money.
Tech scaleups that could IPO in 2023. Stripe, Reddit, Databricks, Discord and other likely candidates.
ChatGPT and the importance of data ownership with AI. Most large companies would not onboard to an AI vendor that uses input data for customers to train their own models. ChatGPT’s new enterprise offering guarantees that this will not happen. Good news for enterprises: bad news for startups looking to compete with ChatGPT.
A well-deserved promotion at Microsoft. Scott Hanselman has been at Microsoft for 16 years. He’s just been promoted to Vice President of Developer Community. Scott is one of the best teachers I know, and so this promotion is validating to see.
1. Tech IPOs looking to be – finally! – back
It’s been 18 months of no major tech company going public. The last major IPO was HashiCorp IPO’ing in December 2021. HashiCorp is an infrastructure company, known for products like Terraform (infrastructure as a code), Vault (secrets management), Nomad (cluster management) and others.
However, last week, three tech companies started the process to go public within a month or two:
Arm: the company designs semiconductor chips, and then licenses its intellectual property to other companies. Today, 99% of premium smartphones – iPhone and Android models – are powered by Arm according to the company, and various analysts put their PC CPU share around 13-14%.
The company is aiming to raise $6B in capital at a valuation of around $70B. In 2016, investor Softbank purchased Arm for $32B: so going public at a $60-70B valuation would be a huge win for Softbank.
Arm is headquartered in Cambridge, UK, and employs about 6,000 people: the majority of them in the UK, US and India.
Arm is profitable: between March 2022 and March 2023 (when the company’s fiscal year runs) the company generated $2.6B in revenue, and $524M in profit. Arm has been steadily profitable in the last 3 years, which investors will surely appreciate, and this profitability – together with Arm processors dominating the mobile market; and taking a foothold within PC as well – will surely boost the company's market value.
Instacart is a personal grocery shopping service that delivers groceries to your door. Headquartered in San Francisco, the company employs about 3,500 people and has raised $2.9B in funding.
Instacart has turned profitable in the first 6 months of 2023 – and was making a loss before. Between January and June 2023, the company generated $1.4B in revenue, and turned a $242M profit.
Klaviyo: a marketing automation maker, with email, SMS and push notifications integrations. The company is headquartered in Boston, and has offices in Denver (US), London (UK) and Sydney (Australia). Klaviyo employs 1,500 people. The company is on track to make a profit in 2023: the first 6 months of the year it generated $320M in revenue, and a $15M profit (net income). Like Instacart, the company recorded its first-ever profits in the first 6 months of 2023.
Klaviyo previously raised nearly $800M in funding, and was valued around $10B in August 2022. The company hopes to raise at least $750M with its public offering.
All tech companies going wanting to go public are profitable, which is notable. During 2020-2021, many tech companies IPO’ing were not profitable: they only had a path to eventually get there. It is interesting to see that both Klaviyo and Instacart were making a loss in 2022: but they both highlight how, in the first 6 months of 2023, they turned this into a profit.
I don’t know how much the public markets will care about current profits: but all of these three listings seem to be “playing it safe.” If their IPOs are successful – meaning, they raise the target amounts, and the stock starts trading at a favorable valuation – then we will see more companies look to take advantage of IPO’ing as well.