Blog Article | Rohit Kulkarni
Posted: June 27, 2017

Tintri IPO: Does A Downround Present An Opportunity?

Roughly 10 IPOs will be priced this week, making it the busiest week so far in 2017. Among them, Tintri, a San Francisco bay area cloud storage company, is pursuing an IPO with a valuation that implies a roughly 50% haircut to its private valuation in July 2015. This is one of the steepest valuation resets we have seen among VC-backed companies pursuing an IPO in the recent past. So, why is Tintri facing such a steep downround IPO? Three reasons:

#1. Tintri faces a long list of large competitors and continues to burn significant amount of capital.

#2. Tintri’s losses are growing faster than its revenues, increasing the uncertainty around its profitability outlook.

#3. Recent valuation trends for storage companies haven’t been encouraging, either. Nutanix shares have declined more than 50% since its first week highs, and trade marginally above its IPO price. Pure Storage shares have broken below its IPO price. Both SimpliVity and Nimble Storage were acquired by Hewlett Packard at a roughly 40% discount to their peak valuations.

So, despite such a negative backdrop, why invest in Tintri now? Three reasons.

#1. Downround IPOs have traded well so far. A down-round IPO isn’t the end of the road for VC-backed IPOs in 2017. We have seen such IPOs in the past. Recently, Cloudera went public with a 50% haircut to its private valuation. Square, Box, New Relic, and Apptio all went public below their private valuations, but today all four are trading above their IPO prices. Apigee also pursued a down-round IPO and was eventually acquired by Google at a solid premium. We estimate that roughly one in six VC-backed tech companies that go public do so with a haircut to the private valuation. Tintri is the 10th VC-backed IPO in 2017. So, 2017 down-round IPO proportion is within the historical range. All in, a valuation reset approved by a relatively efficient public market could be a healthy sign for the company and the overall VC ecosystem.

#2. Tintri is an attractive acquisition candidate. We believe Tintri is pursuing a large addressable market, and has demonstrated an impressive track record of building a solid partner ecosystem. However, it needs the backing of a large platform to succeed over the longer term. Large tech companies including Microsoft, Amazon, Google, IBM, and Cisco have big aspirations in this space.

#3. At IPO levels, Tintri presents an attractive GARP trade. At roughly $375 million in implied IPO market cap, Tintri would be trading below 3x TTM revenues. On the other hand, both Nutanix and Pure Storage are currently trading above 3x TTM revenues. While there are lots of moving parts here, for bargain hunters with a higher tolerance for risk, this is an opportunity. **GARP: Growth at a reasonable price (investing style)

If all goes well for Tintri later this week, key winners would be lots of employees based in the San Francisco Bay Area, and early investors including NEA and Lightspeed Venture Partners.

Tintri M&A Waterfall Chart

Tintri M&A Waterfall Chart

Tintri IPO Waterfall Chart

Tintri IPO Waterfall Chart

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Rohit Kulkarni
Article Author

Rohit Kulkarni

Rohit is the Managing Director, Private Investment Research for SharesPost Research LLC. Prior to joining SharesPost, Rohit was a Vice President, Senior Analyst at RBC Capital Markets.

Tintri

Tintri

Sector: Hosting/Storage
Founded: 2008
Funding to Date: $260MM
Last Round Estimated Valuation: $788.06MM
FULL COMPANY PROFILE

PLEASE READ THESE IMPORTANT LEGAL NOTICES AND DISCLOSURES

This blog post is being published by SharesPost Financial Corporation, member FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management, LLC., an investment adviser registered with the Securities and Exchange Commission, are wholly owned subsidiaries of SharesPost, Inc. SP Investments Management, LLC is the investment manager of the SharesPost 100 Fund, a Registered Investment Company, and other funds. These entities and funds (hereafter “SharesPost”) does, seeks to do business with and owns the companies covered in this research report. Consequently, investors should be aware that SharesPost has a conflict of interest that could affect the objectivity of this report.

None of the information contained in this blog post represents an offer to buy or sell or a solicitation of an offer to buy or sell any security and no buy or sell recommendation should be implied, nor does it constitute an offer to provide investment advice or service. Registered representatives of SharesPost Financial Corporation, do not (1) advise any member on the merits or advisability of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax or transactional advisory services.

Information regarding companies in the SharesPost 100 List available on the website has been collected from or generated from publicly available sources. The availability of company information does not indicate that such company has endorsed, supports or otherwise participates with SharesPost. Company “thesis” are the opinions of SharesPost and are not recommendations to buy, sell or hold any security of such company.

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