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On Tuesday, cloud business software provider ServiceTitan offered a price range for its initial public stock of $52 to $57 per share, with hopes of raising $446.2 million to $514.2 million in the medium term.
It also made some other interesting disclosures about what it will do with the money and who it will sell the shares to.
In its latest form Form S-1A SECThe company revealed that it plans to use a significant portion of the money — about $311 million — to buy back all shares of its non-convertible preferred stock, at $1,000 per share — the price those investors paid.
In addition, you will pay these shareholders any unpaid dividends per share. The investors, according to these documents, are Saturn FD Holdings, LP and Coatue Tactical Solutions PS. The company was on the hook for an annual dividend of 10% for five years and 15% for the sixth year for these stocks. For context, the average dividend yield for public technology companies is 3.2%, he says Dividend.com. By the way, these are not the largest venture capital funds invested in ServiceTitan. ICONIQ Growth, Bessemer Venture Partners, and Battery Ventures are in that order. A TPG entity is also a major investor, the documents say.
Unwinding expensive private capital investments is not what most companies say they will do with IPO money. They tend to set aside money to run their business, or for potential acquisitions. In this case, ServiceTitan says it will use whatever is left as working capital for the company or for other company uses.
This latest revelation comes on the heels of news that ServiceTitan sold its soul, so to speak, in 2022 when it raised a Series H round by agreeing to give investors in that round a “complex IPO structure.”
This price range means that the company will almost certainly have to give Series H shareholders a block of shares as part of the IPO as well. If the IPO stock price was less than what the Series H investors paid, ServiceTitan agreed to cover losses, and for each quarter it delayed the IPO after May 22, 2024, the company agreed to owe those investors more. It revealed that they paid $84.57 per share.
VC Alex Clayton, general partner at Meritech Capital, known for his IPO analysis, was the first to point out the painful ratchet structure in… Blog post That spread quickly. Spending a significant portion of ServiceTitan’s IPO money to exit a preferred stock deal “makes sense,” he told TechCrunch.
“They obviously want a table with a cleaner cover, so they use the proceeds to buy it back. They can buy this back at any time and now they have the funds to do so.”
However, it seems that the company also needs funds for its business. While losses are shrinking, at the end of fiscal 2024, it lost $183 million from operations and recorded a net loss of $195 million when accounting for interest and other costs.
However, Clayton also believes bankers are playing their typical IPO pricing games with a range of $52 to $57, which is lower than he expected. This means the company may actually price above the range – helping to create positive headlines and excitement for the show. If so, ServiceTitan can clean its cover table and get more cash.
“This is just the initial range, and it will likely be priced and traded at a higher price. Remember, bankers want an ‘IPO’ and that will not excite companies to work with them if they price the IPO too high and it trades below the issue price. I think the company will trade at The high is $60 or the low is $70.
In this context, ServiceTitan has also better clarified who will be eligible to purchase shares in its direct stock program. ServiceTitan has set aside 5% of its shares to sell to friends and family of the founders and, as it explained, to some of its clients’ executive-level decision-makers.
While there may be some conflict of interest issues – with a client who is also a shareholder choosing the seller – private equity sales are becoming more common. For example, Reddit, which went public earlier this year, did this for its moderators.
All of this is to say that ServiceTitan’s IPO may dazzle or it may whine, but it’s not much of a reflection of when tech IPOs will start in earnest again.
ServiceTitan did not immediately respond to a request for comment.
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