What you need to know about Riskified’s IPO before investing with Robinhood

Riskified is expected to go public next week and list on the New York Stock Exchange under the ticker “RSKD.” It’s aiming to raise up to $350 million in new funding through the IPO.

The company has set aside more than half a million shares—up to 3% of the 17.5 million shares it plans to offer—for Robinhood investors. Those shares could be priced somewhere between $18 and $20, although these numbers may change over the next week.

Access to IPO shares is highly competitive, even for institutional investors. Robinhood started offering access earlier this year: Investors who indicate interest may be randomly selected to buy shares. Riskified is one of four companies whose shares are available for early access at the brokerage (including Robinhood itself). Clear Secure, FIGS, and F45 Training all sold retail investors early access to some of their shares in the past few months, with Clear and FIGS trading at about 40% and 84% above the initial offer price, respectively. But not every IPO is guaranteed to pop: F45 Training, which went public July 15, is currently trading at $15.30, $0.60 below its initial offer price.

Riskified’s software is already being used by retailers like Macy’s, but the tech company has yet to post a profit. Here’s what prospective investors need to know before they buy shares:

Business basics

Riskified uses machine learning software to identify online payment fraud for e-commerce companies. Think: stolen credit cards or a customer faking that their order never showed up. The software analyzes and collects a merchant’s transaction data to track behavior patterns and help evaluate the risk of shoppers behind online purchases. 

The tech company’s target market is e-commerce companies generating over $75 million in digital sales per year. Macy’s, Wayfair, and GoPro are some of its more well-known customers. It has several product offerings available to these merchants. The chargeback guarantee is Riskified’s core product, which automatically approves or denies online orders based on its machine learning models. Riskified absorbs any costs stemming from fraud for each transaction it approves. It also offers something called policy protect, in which Riskified uses purchase history across its network to identify customers that may be trying to take advantage of a company’s refund policies or other policies. This allows merchants to more accurately block transactions or deny claims.

To make money, Riskified takes a percentage of all the gross dollars that run through its risk management platform. The company posted $169.7 million in revenues in 2020—that’s up from $130.6 million the year prior. It has yet to make a profit, reporting a net loss of $11.3 million last year, down from $14.2 million in 2019. More earnings figures are available on the company’s prospectus.

Competition 

Riskified is operating in a “highly competitive and constantly changing” industry, it says in its IPO filing with the Securities Exchange Commission. Several other risk management and fraud detection competitors operate in the space, too, including MaxMind, Sift Science, or Signifyd. Some merchants also tackle fraud prevention on their own. 

Key people 

The company was founded by Eido Gal, the current Chief Executive Officer, and Assaf Feldman, Chief Technology Officer, in 2012. 

Before starting Riskified, Gal worked as an analyst at BillGuard and Paypal. Feldman was an algorithm engineer at BillGuard and head of research technologies at Kinetic Global Markets. Aglika Dotcheva is Chief Financial Officer at the company, and was formerly the associate director at New York University’s budget and financial planning office. 

Riskified has 615 employees, 447 of whom are based out of its headquarters in Tel Aviv, Israel, and 159 in New York City. The company also rents office space in Shanghai. A little more than one-third of its employees are in research and development. Riskified was named as one of Fortune’s best workplaces in New York in 2018.

As for who has already invested in the firm, General Atlantic and Fidelity Management & Research Company are current backers. The company raised $165 million in a funding round in 2019.

Risks worth noting

Riskified hasn’t posted a profit since it launched in 2012, and it’s operating under certain risks.

The economy has generally been doing well, and spending is up across sectors (with a few exceptions, like travel). Should this change, that could hurt transaction volumes, which is how Riskified makes its money. Its machine-learning capabilities also haven’t been tested during prolonged downturns.

Also important to note: Riskified depends on a select few major merchants for a significant portion of its revenue. In the last two years, five companies made up approximately half the company’s revenue. Should the company lose any of those clients, or be pressured by them to reduce its prices, that could impact future returns.

There’s always the matter of security as well, when companies are collecting and storing personally identifiable information. Should any of Riskified’s own security measures fail, that could cause “severe reputational damage” that could harm business, not to mention open the company up to additional liabilities like lawsuits or fines.

IPO plans

After its initial public offering, Riskified plans to use the funds for things like advertising and marketing, tech and new product development and expansion into other geographic markets, among other plans. It’s possible the company may acquire or invest in other businesses, products or technologies, as well, though it doesn’t currently have any agreements to do so.