“…the line between public and private markets continues to blur.”
Placing my bets
// There has been a bit of SPAC saturation lately, so forgive me, but when I saw that Dragoneer had raised $600M to participate in this trend, it made me ask why and what are they doing. Because the ‘SPAC isn’t prohibited from merging with a company that Dragoneer already backs, although such a transaction would be subject to an independent review,’ I wanted to try my hand at handicapping who they could buy. Not only did this give me an excuse to take a closer look at the media-shy Dragoneer and its portfolio, but also I get to post the best VC logo out there.
Investors in SPACs have to bring more than just access to capital and an easier path to IPO. After the company is publicly listed, these investors need to continue to support their companies to make sure everyone gets a good return on investment. When you read about someone like Michael Klein, he seems like someone you want to partner with because he has a long term plan. Similarly, it’s not a stretch for a venture firm to choose the avenue of a SPAC as it lines up with their core competencies…access to capital and help to grow the business.
In researching Dragoneer’s portfolio I started by looking at what verticals they are most familiar with, software and fintech. The company has made ~59 investments, ~28% have been in software while ~24% have been in financial services. I then looked at the maturity of the company - what stage and how old the company is, thinking about the probability and timing of an IPO. Finally, I looked at funding as well as valuation. From other SPAC deals, I assumed Dragoneer will buy a company 4x to 5x the money it has raised. The company said it could raise another $150M on top of the $600M, therefore putting possible acquisition prices at $4B to $5B.
A quick note on data. I used Crunchbase along with Google for these rough numbers. CBInsights and Pitchbook essentially start at the Crunchbase level and then just layer on analysts and data scientists to gather and fine-tune their cache. But, for this exercise, I thought it would suffice.
Below are the companies I’ve chosen for my Win, Place, Show. However, I’ve boxed them as a hedge. If I miss on my SPAC bet, look for these companies’ valuations to increase within the next year.
Win - Founded in 1995, PointClickCare develops web-based products and services to help long-term care providers manage the complete lifecycle of resident care. The company has raised a total of $221M and Dragoneer has led two of their rounds. Their last raise was in February 2018 and the company is valued just above $1B. The company floated the idea of an IPO in 2017.
Place - Hippo Insurance is only five years old and is currently at a Series E having raised a total of $359M. After its last raise just recently, the company was valued at $1.5B. At the time of the announcement, the CEO said they were ready to go public in 2021. One of its public competitors, Lemonade, currently has a market cap of $3.2B.
Show - Gusto, the nine-year-old HR management platform currently sits at a Series D which they raised one year ago. Dragoneer led their Series C. The company has raised $516M and is valued at $3.8B. The CEO said an IPO is ‘not if but when.’ The valuation could be too high for Dragoneer, but when compared to public comp Workday and its $42B market cap, it could be tempting to pay up for the company.
Research I’m Reading
// A couple of weeks ago I wrote about knowing ‘Who’ is buying, in a similar vein, here’s a report on market efficiency titled Who is on the Other Side?, written by Michael Mauboussin when he was at Blue Mountain Capital. Mauboussin is one of the best I’ve come across and this is one of the more informative and useful research pieces that I’m definitely going to keep in my back pocket.
‘There are two related but distinct markets to consider: the market for information about assets and the market for assets. There is a range of costs to acquire information and trade on it. There should be a return to gathering information in the form of excess returns. Markets are “efficiently inefficient.”’
Company to Know
// Flying under the radar, and quickly mentioned in Dan Primack’s newsletter, Carta acqui-hired Australia' MarketGrid Systems.
‘MarketGrid has developed the new generation of matching engines and automated trading systems for financial markets. The MarketGrid Matching Engine is an ‘exchange in a box’, providing the complete infrastructure for the automated trading of virtually any financial instrument.’
Carta is going all-in on CartaX, as they should, having raised almost $500M in just over a year.
Investor to Follow
// Gavin Baker is a public/private investor and CIO and Managing Partner at Atreides Management. Prior, Baker managed the $17B Fidelity OTC fund from 2009-2017. He is a public/private investor that focuses on both fundamental and technical analysis.
Recently, he was interviewed by Koyfin where they talk about competitive dynamics in the semiconductor industry and secular growth drivers like AI.
“I think the most important thing in investing…ultimately investing is all about finding the right balance between humility and conviction and you have to find an investment style the fits your own personal emotional makeup because I think the most important factor is the ability to be rational when wrong.”
Here is his interview on Invest Like the Best where he talks more about the public and private market relationship.
If You’d Like to Know
// Private
Affirm Prepares IPO That Could Value Fintech Firm at Up to $10B (WSJ)
TransferWise Sees Valuation Climb to $5B (CNBC)
Remitly raises $85M at a $1.5B Valuation (TechCrunch)
RedBird Capital Partners, Oakland A’s Executive Billy Beane Launch Sports-Focused SPAC (WSJ)
Rush Street Interactive to Go Public as Part of a $1.8B Deal (WSJ)
SoftBank Saw Opportunity in Wirecard Before It Unraveled (WSJ)
Billion Dollar Deals See Private Credit Step Out of the Shadows (Bloomberg)
// Public
Boaz Weinstein Piles Up 90% Gain in Hamptons, Bets on More Chaos (Bloomberg)
Steve Cohen’s Point72 Closing to New Money After Raising $10B (Bloomberg)
Hedge Fund Investors Ditch Misfiring Quant Trade Losing Billions (Bloomberg)
Cboe Proposes Plan That Could Curb Advantages of Fast Traders (WSJ)
Powered by China, a Technology Benchmark Opens in Hong Kong (WSJ)
China’s Newest Equity Market Gets Off to a Stumbling Start (FT)
Data
// From the Financial Times, Why Investors Jumped for Jio.
‘The attraction for Western investors is that Jio seems to cover all the bases in terms of India’s digital future and its ability to tap an enormous potential market.’
// Thanks.
This newsletter is created and authored by Bryce Tolman and is published and provided for informational purposes only. The information in the newsletter constitutes the Author’s own opinions. None of the information contained in the newsletter constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. You understand that the Author is not advising, and will not advise you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent any of the information contained in the newsletter may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.