Blog Article | Rohit Kulkarni
Posted: March 8, 2017

Unicorns Galloping? MuleSoft Is Next

Mulesoft

Let me get to the punchline first: The past six weeks have been very positive for Unicorn exits, to say the least, and that bodes very well for the IPO market in coming months.

In late January, AppDynamics was expected to be a bellwether for tech IPOs, but was acquired by Cisco just hours before pricing its IPO. AppDynamics pocketed a solid 95% premium above its Series F private funding round in Dec 2015.

Two weeks back, Snap’s initial pricing range implied a “flat round.” But last week, Snap’s shares priced at a 30% premium above its May 2016 Series F private funding round. Today, Snap’s public market capitalization is 40% above its most recent private valuation.

Earlier this week, MuleSoft launched its IPO roadshow, likely making it the first Enterprise Tech IPO of 2017. We expect a number of similar Cloud-based Enterprise Tech companies to go public this year, and hence, we will be watching MuleSoft closely to gauge investor appetite and sentiment for similar such companies.

What’s to like about MuleSoft? MuleSoft is an 11-year old company based in San Francisco with more than 850 employees. MuleSoft helps businesses such as Gap, Unilever, Netflix, and Spotify connect applications. It reported nearly $200 million in 2016 revenues, growing 70 percent year-on-year. Roughly $150 million in revenues came from subscription offerings, and the rest came from Professional Services.

We believe MuleSoft’s topline growth can be regarded as “high quality” (read as “sustainable”). MuleSoft is growing its customer base, it is retaining its customers at a higher rate, and it is growing its footprint inside existing customers (higher contract values). Such sustainable growth means that MuleSoft is much closer to a cash-flow break-even point. In other words, MuleSoft’s financials paint a clean story, with attractive unit economics and a clear pathway towards profitability, which could happen as soon as 2018. MuleSoft has raised $260 million in private funding till date, and plans to raise almost $210 million in its IPO (at the high-end of the pricing range, including green-shoe). It has more than $100 million in cash on its balance sheet.

Why does MuleSoft IPO matter? Google News returns more than 550,000 results for “Snapchat IPO,” compared to fewer than 5,000 results for “MuleSoft IPO.” Yet, we think MuleSoft IPO is an even more important bellwether event for Unicorn IPOs in the pipeline. Why?

  1. There were a lot of encouraging signs from Snap’s IPO for future Unicorn IPOs, but we’d reckon that the Snap IPO was a unique event, probably once in a five-year phenomenon. Snap’s IPO was driven by its perceived scarcity value and unique corporate governance issues.
  2. Unlike Snap, MuleSoft IPO is a fairly normal Cloud-based Enterprise Tech IPO. We expect a number of similar Cloud-based Enterprise Tech companies to go public this year. Hence, MuleSoft IPO pricing and early trading activity would be a key barometer of institutional investor appetite and sentiment.
  3. Unlike Snap, MuleSoft doesn’t have special voting shares or super-voting class of shares or any special extended lock-up periods. Simply put, MuleSoft shares would largely be priced on company fundamentals and outlook, unlike Snap.
  4. Unlike Snap, MuleSoft IPO includes 100% primary shares. There are no selling shareholders. All existing VCs and execs are holding on to their shares.
  5. Unlike Snap, MuleSoft is headquartered in the Bay Area. We’d argue that a successful Silicon Valley Unicorn IPO could prove to be very contagious to others waiting in the wings.

My SharesPost colleague, Sven Weber, commented earlier this year, the Private Tech Growth asset class is here to stay. We agree! Our 2017 Investor sentiment survey clearly highlighted bullish prospects for Private Tech company valuations. And, past six weeks are a clear evidence to the fact that Private Tech Growth as an asset class has emerged from its funk and is more vibrant that ever.

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Mulesoft

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.

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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