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The lesson from Squarespace’s debut: Profits aren’t always enough for investors

May 20, 2021, 2:16 PM UTC

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Squarespace is among the rare breed of companies that bootstrapped itself for several years, hit unicorn status, and even posted an annual profit by the time it was ready to go public.

On Wednesday, public market investors did not reward that profitability. 

The web hosting company opted for direct listing—a method of going public in which companies’ shares are priced by buyers and sellers on offering day, rather than in a range set by investment bankers after a longer road-show period. Shares sank at the open, giving the company a value of about $5.9 billion by the end of the day. That valued the company well below its last private round of funding in March, at $10 billion, when investors including D1 Capital Partners and Fidelity joined its cap table for the first time.

Founded in 2003, Squarespace didn’t take its first institutional check until 2010, when Accel invested in the business. Still, the company retained its bootstrapping DNA. In 2020, the company posted net income of $30.6 million.

So what gives? There’s certainly been jitteriness around tech valuations in recent months, as an economic rebound and rising interest rates amid vaccine rollouts have made shares look overpriced. Shares of Shopify, which Squarespace lists as a competitor, are down about 10% since the beginning of March. Meanwhile, while Squarespace has been growing, that growth wasn’t necessarily explosive. Revenue grew about 28% in 2020 to $621 million while net income did shrink by 47%. 

And there’s also the question of whether something about the direct listing itself, where there is no lock-up period and investors and employees can sell whenever, also had an impact on the stock price. It’s the typical supply-and-demand curve: When supply is high relative to demand, prices fall. Which makes me wonder, weirdly enough, if Squarespace could have been better served with a more traditional IPO, where the supply is set and underwriters have more control over first-day trading in the form of the greenshoe, which gives said bankers the right to buy shares at the offering price.

All in all, it’s a reminder that profits aren’t always enough when it comes to a public market debut.

At any rate, it’s not the company itself that is being hurt in this direct listing—at least for now. The company sold no shares on Wednesday. Instead, it’s those who acquired shares of Squarespace in its higher-valued March round of funding that might be feeling the pain.

EVERYBODY’S A UNICORN: I checked back to a Term Sheets from a comparable Thursday in 2019, before all this pandemic madness. There was just one unicorn in the mix, or at least only one that disclosed its new valuation—travel booking site GetYourGuide. In fact, there were only two new unicorns mentioned in that entire week. And remember, this was back when SoftBank was writing checks left and right. 

Today, there are eight Unicorns disclosed in our column, four of which are crossing the billion-dollar mark for the first time.

“Unicorn status used to be a badge of honor,” WorkLife VC’s Brianne Kimmel wrote in a tweet Wednesday. ”Now it’s a predictable company milestone.”

In April, I asked Brex CEO Henrique Dubugras if he believed this current wave of funding was sustainable, or if this was 2019 all over again. The corporate card startup had just raised $425 million from Tiger Global, the most active venture investor in recent months. So Dubugras does have a vested interest in things being different this time around.

Still, his reasoning holds some truth. Back then, he argues: “It was one investor. Now, it’s everyone.”

But with the blistering pace of dealmaking, that also means that if things do flail, more than one investor will feel the pain this time around. Squarespace’s IPO is currently case in point.

Lucinda Shen
Twitter: @shenlucinda
Email: lucinda.shen@fortune.com

VENTURE DEALS

- Trade Republic, a German stock-trading app, raised $900 million in Series C funding, valuing it at $5.3 billion. Sequoia led the round and was joined by investors including TCV, Thrive Capital, Accel, Founders Fund and Creandum.

- Figure Technologies, a San Francisco-based company using blockchain in financial services, raised $200 million in Series D funding, valuing it at $3.2 billion. 10T Holdings and Morgan Creek Digital co-led and were joined by DCM, Digital Currency Group, HCM Capital, Ribbit Capital, RPM Ventures, as well as partners at DST Global.

- Workrise, an Austin-based workforce management platform, raised $300 million in Series E funding. Baillie Gifford led the round and was joined by investors including Franklin Templeton, Founders Fund, Bedrock Capital, Andreessen Horowitz, Moore Strategic Ventures, 137 Ventures, and Brookfield Growth Partners. The deal values the company at $2.9 billion.

- Formlabs, a Somerville, Mass.-based 3D printing company, raised $150 million in Series E funding. SoftBank Vision Fund 2 led the round, valuing the company at $2 billion. 

- Cognite, a Norway-based industrial software company, raised $150 million. TCV led the round, valuing it at $1.6 billion.

- Pipe, a Miami-based fintech for getting revenue upfront, raised $250 million valuing it at $2 billion. Greenspring Associates led the round and was joined by investors including Morgan Stanley’s Counterpoint Global, CreditEase FinTech Investment Fund, Fin VC, 3L and Japan’s SBI Investment. 

- Sunbit, a Los Angeles-based buy now, pay later company, raised $130 million in Series D funding. Group 11 led the round and was joined by investors including Zeev Ventures, Migdal Insurance, Harel Group, AltaIR Capital, and More Investment House. The deal values the business at $1 billion.

- Asapp, a New York-based provider of call center automation software, raised $120 million in Series C funding. Fidelity and Dragoneer led the round and were joined by investors including John Doerr, March Capital, Emergence Capital, Euclidean Capital, HOF Capital, Telstra Ventures, and 40 North Ventures. The deal values the business at $1.6 billion.

Heydaya San Francisco-based e-commerce company, raised $70 million in Series B funding. General Catalyst led the round and was joined by investors including Khosla Ventures, and Arbor Ventures

- Heru, a Miami-based maker of a vision diagnostics wearable, raised $30 million in Series A funding. D1 Capital Partners led the round and was joined by investors including SoftBank Ventures Opportunity Fund, Maurice R. Ferre, M.D., Frederic H. Moll, M.D., and Krillion Ventures.

- Dooly, a Canadian maker of automation software on Salesforce, raised $80 million. Spark Capital led the round and was joined by investors including Greenspring, Tiger Global, Lachy Groom, boldstart ventures, BoxGroup and Addition.

- HiberCell, a New York City-based therapeutics company focused on preventing cancer relapse and metastasis, raised $67.4 million in Series B funding. Investors included Huizenga Capital Management, Monashee Investment Management, Tekla Capital Management, Hercules Capital, and Mount Sinai Innovation Partners.

- Privacy.com, a New York-based card issuing platform that rebranded as Lithic, raised $43 million in Series B funding. Bessemer Venture Partners led the round and was joined by investors including Index Ventures, Tusk Venture Partners, Rainfall Ventures, Teamworthy Ventures and Walkabout Ventures. 

- Salto, a Tel Aviv-based maker of a system for business apps, raised $42 million in Series B funding. Accel led the round and was joined by investors including Salesforce Ventures, Bessemer Venture Partners and Lightspeed Venture Partners. 

- Cynerio, a New York City-based cybersecurity company focused on healthcare, raised $30 million in Series B funding. ALIVE Israel HealthTech Fund led the round.

- Esper, a Seattle-based maker of a developer platform for devices, raised $30 million in Series B funding. Scale Venture Partners led the round and was joined by investors including Madrona Venture Group, Root Ventures, Ubiquity Ventures, and Haystack.

- Zap Energy, a Seattle-based fusion energy company, raised $27.5 million in Series B funding. Addition, led the round and was joined by investors including Energy Impact Partners, GA Capital and Fourth Realm, as well as existing investors Chevron Technology Ventures and LowerCarbon Capital. 

- TWAICE, a German battery analytics software company, raised $26 million in Series B funding. Energize Ventures led the round.

- ThinkCyte, a Tokyo-based developer of novel cell therapy, drug discovery and diagnostic platforms, raised $26 million (JPY 2.85 billion) in Series B funding. SPARX Group led the round.

- oneNav, a Palo Alto-based location accuracy company, raised $21 million in Series B funding. GV led the round and was joined by investors including Norwest Venture Partners and GSR Ventures.

- Boost Insurance, a New York City-based digital insurance platform, raised $20 million in Series B funding. RRE Ventures led the round. Investors also included Fin VC, Gaingels, Hack VC, Greycroft, Coatue, and Conversion Capital

- Maven, an Austin-based maker of a platform for creating courses, raised $20 million in Series A funding. Andreessen Horowitz led the round.

- 42Crunch, a London-based API security startup, has raised $17 million in a Series A round led by Energy Impact Partners. Adara Ventures also participated.

- Blackrock Neurotech, a Salt Lake City-based maker of a brain-control product in the same space as Neuralink, raised $10 million in funding. re.Mind Capital led the round and was joined by investors including Peter Thiel, Tim Sievers, and Sorenson Impact’s University Venture Fund II.

- Payslip, an Ireland-based payroll management software company, raised $10 million in Series A funding. MiddleGame Ventures and Mouro Capital led the round and was joined by investors including Frontline Ventures and Tribal.vc.

- Moxion Power, a Richmond, Calif.-based manufacturer of mobile energy storage systems, raised $10 million in Series A funding. Energy Impact Partners led the round and was joined by investors including Tamarack Global and Liquid 2 Ventures.

- Buildings IOT, a Concord, Calif.-based maker of software for buildings, raised $10 million. Keyframe Capital led the round.

- Britive, a Los Angeles-based data access platform, raised $10 million in Series A funding. Crosslink Capital led the round and was joined by investors including Upfront Ventures and One Way Ventures. 

- Wysa, a Boston-based mental health platform, raised $5.5 million in Series A funding. W Health Venture led the round and was joined by investors including Google Assistant Investment program, and existing investors pi Ventures and Kae Capital

- Waffle, a New York City-based consumer insurance solution, raised $5 million in seed funding. Verve Ventures led the round and was joined by investors including BetterLabs Ventures and Techstars

- Spokn, a New York City-based podcasting platform, raised $4 million in seed funding. Investors included NEA, Y Combinator, Reach Capital, Funders Club, Liquid2, Share Capital, SOMA Capital, Scribble VC and Hack VC.

- Polywork, a New York City-based professional social network, raised $3.5 million in seed funding. Caffeinated Capital led the round and was joined by investors including Steve Chen, Kevin Lin, Max Levchin, Joel Flory, Scott Belsky, and Brianne Kimmel. 

- Panther Global, a Tampa, Fla.-based company for hiring, raised $2.5 million in seed funding. Investors included Tribe Capital, Eric Ries, Naval Ravikant, and Carta Ventures. 

- Tibles, a New York City-based NFT marketplace, raised $1 million in seed funding. Dapper Labs led the round.

PRIVATE EQUITY

- KKR agreed to work with Equitix to take John Laing, a U.K.-based infrastructure investor, private in a $2.84 billion deal.

- Inter Milan, an Italian football club, is close to securing a 275 million euro ($336 million) deal to help their finances and hand a minority stake to U.S. investment firm Oaktree Capital Group, two sources close to the matter said on Wednesday.

- Accel-KKR acquired GPS Insight, a Scottsdale, Ariz.-based fleet management software company. Financial terms weren't disclosed.

- AE Industrial Partners acquired Cross-Fire & Security Co., a Brooklyn, N.Y.-based fire and life safety company. Financial terms weren't disclosed.

- Averhealth, backed by Five Arrows Capital Partners, acquired Aspenti, a Burlington, Va.-based healthcare company. Financial terms weren't disclosed.

- EyeSouth Partners, backed by Shore Capital Partners, invested in Retina Care Specialists, a South Florida-based provider of eye care services. Financial terms weren't disclosed.

- Mad Engine, backed by Platinum Equity, agreed to acquire a controlling stake in Fifth Sun, a Northern California-based manufacturer and distributor of graphic apparel for the retail clothing industry. Financial terms weren't disclosed.

- SFW Capital Partners completed a majority recapitalization of Pion, a Boston-based provider of quality control in the life sciences industry. Financial terms weren't disclosed.

- Urban Elevator, backed by Skydeck Capital, acquired Aventura Elevator, a Florida-based elevator contractor. Financial terms weren't disclosed.

EXITS

- Ro agreed to acquire Modern Fertility, a San Francisco-based women’s health business. The combination values the company at $225 million, per sources with knowledge of the matter. Forerunner Ventures backs the firm.

IPOS

- Oatly Group, a Norweigian maker of oat milk, raised roughly $1.4 billion in an IPO of 84.4 million shares (23% insider sold) priced at $17 apiece. Blackstone backs the firm.

- Procore, a maker of construction software, raised $634.5 million in an IPO of 9.47 million shares priced at $67 apiece. Iconiq, Bessemer, and Tiger Global are among its investors.

SPACS

- Memic Innovative Surgery, a Tel Aviv-based robot-assisted surgery company, is in talks to go public via merger with MedTech Acquisition, a blank check company, per Bloomberg.

F+FS

- Bain Capital Ventures, a San Francisco-based venture firm, raised $1.3 billion in new funds: Some $950 million for its ninth core fund and $350 million for co-investments in larger growth opportunities. 

- 83North, a venture capital firm with offices in Tel Aviv and London, raised $550 million for its sixth investment fund.

PEOPLE

- Apollo Global Management said co-founder Josh Harris will step down from day-to-day activities.

- CalSTRS named Cassandra Lichnock as its CEO.

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