Rubric's IPO Filing Tips for Tech Companies on Diluting the Public Markets | Tech Crunch

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Cybersecurity company Rubrik, which amassed more than half a billion dollars in data while private, filed to go public after Bell on Monday. The fact that Rubrik has now chosen to pursue a public offering suggests the IPO market is heating up for tech companies, soon after startups from Reddit and Astera Labs.

As a private-market company, Rubrik last raised a lettered round in 2019 when it closed $261 million at a post-money valuation of $3.3 billion, according to Crunchbase data. A company may be lucky enough to price its IPO shares significantly higher than its last primary round. Buyers in the secondary market have bid for $6.6 billion worth of the company's shares in recent months. Secondary data platform Caplite estimates the company's valuation at around $6.3 billion.

Rubrik sells its cloud-based data protection platform to enterprises. As of January, the company had 1,700 customers with an annual contract value of $100,000, and about 100 customers paid Rubrik more than $1 million annually, according to its IPO filing.

Within the growth of the rubric

Rubrik initially projects a moderately growing software business with net losses that widened to $354 million in its most recent fiscal year.

From fiscal 2023 to fiscal 2024, which ended at the end of January this year, the company's revenue rose from $599.8 million to $627.9 million, or just under 5%. However, subscription revenue increased 40% over the same period, from $385.3 million to $537.9 million.

Growth in its subscription revenues, not its legacy revenues, was the engine driving Rubrik to a successful IPO. The company started life as a software company selling its product on a perpetual license basis. However, after several years, it started shifting towards a subscription model in its financial year 2019. It has expanded its subscription (SaaS) offerings over time and told investors in its IPO filing that it expects its non-recurring revenues to “continue to decline. ,” which generally does not offer perpetual licenses today.

Rubric's transition to recurring revenue is nearing completion, with the company reporting that in its most recent quarter — the period ending January 31, 2024 — subscription-related top line accounted for 91% of total revenue. This was a 73% increase compared to the year-ago quarter.

The business model transition from licenses to SaaS has been costly and has weighed on the stock prices of other large security companies such as Splunk, said Brendan Burke, emerging technology analyst at PitchBook. “Yet in secondary markets Rubrik's shares traded at a 50% premium to the last VC round, indicating that the company could justify a high enough valuation to fund the move,” he said.

The shift to subscription revenue helped Rubrik boost its gross margins, which increased from 70% in fiscal 2023 to 77% in the recently completed fiscal 2024.

However, a growing recurring-revenue software business and improving gross margins did not address Rubrik's tight losses. The company's net losses increased from 46% of revenue in fiscal 2023 to 56% in fiscal 2024, totaling $354.2 million in the 12 months ended January 31, 2024.

However, despite Rubrik's steep profitability, its cash burn has been comparatively modest. The difference between its net losses and operating cash deficits cannot be resolved by the excision of extensive share-based compensation; Those are single-digit million annual expenses at the company. Instead, the early collection of rateable revenue has helped Rubrik expand its deferred revenue by hundreds of millions in recent years and limit its net operating cash flows over the same period.

A Silicon Valley story

Rubrik's potential IPO could prove a coup for Lightspeed Venture Partners, a well-known Silicon Valley venture capital shop. Bipul Sinha, co-founder and CEO of Rubrik for the past decade, is a former partner at Lightspeed. Venture capital firm Rubrics led the Series A and has participated in all of its successive funding rounds, according to Crunchbase. Investing in a former partner isn't unheard of in venture circles, with some firms even creating entrepreneur or entrepreneur-in-residence roles internally. But seeing Sinha's company come to market with 23.9% ownership in the hands of its former owner underscores how personal networks influence who raises capital in startup land.

As for Rubrik's planned IPO, Greylock is the other venture firm whose investor Ashim Chandana is on board and owns half of Lightspeed's stake, or 12.2% of Rubrik's voting stock, before selling the new shares. In public submission. Greylock headed the Rubrics Series B.

Other investors who led the lettered rounds at Rubrik did not meet the 5% threshold required to be included in the company's S-1 filing, but Enrique Salem from Bain Capital Ventures, who led the company's Series E, is also on its board. Other board members include Yvonne Wassenaar, former CEO of Puppet; Mark McLaughlin sitting on a snowflake board; and John Thompson, another Lightspeed denizen and former Microsoft board member. NBA player and investor Kevin Durant was previously announced as a board advisor at the company, but he was not named in its IPO filing.

The founders are the kind of Silicon Valley A-list loved by the VC community, demonstrating the often promiscuous relationships these tech companies have with each other through their personal networks. According to relevant third-party disclosures, Sinha co-founded another startup, Conflura, where he still sits on the board. In fiscal year 2022, Rubrick spent $124,640 with Conflura. Co-founder Arvind Jain, who remains a major shareholder but went on to found a new darling AI startup, Glean, is really well known from his days as an early Google employee. Rubrik reported in its S-1 filing that it spent $356,000 with Glein through April 2021.

Although the rubric states that the purchases of technology products and services from Conflura and Glein were “negotiated in the ordinary course of business,” they underscore the ties between several Silicon Valley operators. Those same connections help entrepreneurs replicate previous successes by buying and selling from friends and former colleagues. Rubrik S-1, while not implying anything untoward, reminds us that network effects in startup and venture circles are often predicated on ties and their geographic density in places like Northern California.

What's on the line?

There are more than 1,000 startups in the world today valued at $1 billion or more. Those still in a fighting position must find a way to exit and return capital to their backers. With the IPO market lagging far behind the pace needed to clear those decks, many private-market companies are waiting for a clear starting gun to pursue their own public offerings. If Rubrik can price and trade well in its own debut, it could also help other business-focused software companies that are still unprofitable go public. This is welcome news for both entrepreneurs and venture capitalists.

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