As the second quarter races to a close, we’re down to the wire for IPOs looking to get out before June ends. One such company is SentinelOne, a cybersecurity startup backed by Insight Venture Partners, Redpoint, Tiger Global Management, Data Collective and Anchorage Capital, among others.
SentinelOne raised an ocean of capital while private, including nearly $500 million across two rounds in 2020. Its debut is therefore a huge liquidity event for a host of investing groups. And today, the cybersecurity unicorn had good news in the form of an upgrade to its IPO price range.
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Last week, The Exchange wrote that the company’s IPO would be a “good heat check for the IPO market” given its rapid growth and pace of losses. How investors valued it would help explain the public market’s current appetite for loss-making startups. Today’s news implies healthy appetites.
SentinelOne raised its IPO price range this morning from $26 to $29 per share to $31 to $32 per share, a sizable lift to its valuation and IPO raise.
This morning, we’re unpacking the company’s new valuation range, thinking about SentinelOne’s growth and revenue results compared to similar public companies, and working to understand if the company is inexpensive, neutrally priced or expensive compared to current comps. Sound fun? It will be!
What’s SentinelOne worth?
Recall that when SentinelOne last raised capital it was valued at $2.7 billion on a pre-money basis. The company was therefore worth just under $3 billion after the $267 million round. The unicorn is going to yeet that figure into space in its IPO, barring something catastrophic.
Its new IPO price range of $31 to $32 per share values the company on a much richer basis. With an anticipated simple share count of 253,530,006 after its IPO, inclusive of a private placement, the company would be worth $7.86 billion to $8.11 billion.
A quick calculation this morning of SentinelOne’s fully diluted valuation — a figure that takes into account shares that can be issued thanks to vested options, and RSUs that have been fully earned — provides a valuation range of $9.46 billion to $9.77 billion. All four numbers would rise if we took into account the company’s greenshoe offering, in which its underwriting banks can buy equity in the company at its IPO price if they wish.
As you can see, every valuation point that we calculated is a massive improvement over what the company managed to raise back in 2020. You have to wonder if a lot of VC carping about mispriced IPOs is simply misplaced guilt surrounding the prices that the particular investing class manages to get away with in hot companies before they go public. If I were SentinelOne, I would be more irked about how underpriced my recent venture rounds were than I would be by a strong first-day IPO pop, provided that it manages the latter.
Regardless, let’s do the math on the company’s new valuations to get a handle on the effective price that public investors may pay for SentinelOne’s stock. All the math that follows uses the company’s Q1 2021 revenue, on an annualized basis:
- Run rate multiple using SentinelOne’s higher simple valuation: 54.2x.
- Run rate multiple using SentinelOne’s higher fully diluted valuation: 65.3x.
Now, it is Monday morning, and I suppose there’s a chance that I borked the maths at some point. But those prices feel rich. Of course, SentinelOne has a number of things going for it apart from its raw financial performance. It’s a software company, which means that it’s in the right market category for what many consider to be a secular shift in the global economy toward a more digital world. And SentinelOne works in cybersecurity, a hot subsector of the hot software market.
It’s not a surprise to see the company moving toward strong IPO pricing. But golly gee, this is ‘spensive, right?
Turning to market comps, SentinelOne grew just over 108% from Q1 2020 to Q1 2021. Its closest comps on the Bessemer Cloud Index are Shopify and Snowflake. Shopify has an enterprise/run rate multiple of 44.7x and Snowflake has a 74.6x multiple of the same metric. So, SentinelOne is not that expensive?
I mean, it’s not cheap, but its valuation is perhaps defensible if you are bullish on the company. What a market!
Backing up to our first thought about heat checks and the larger IPO market, I cannot read SentinelOne’s raised price range as anything other them a thermometer threatening to explode. Snowflake and Shopify are priced like they are going to change the world — and, to some degree, they have. It’s rather complimentary to see SentinelOne perhaps mimic the feat.
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