How the Arm IPO is lining up for its owner—SoftBank

Earlier this week, Arm announced it would price its shares between $47-51 per share. That means the chipmaker is planning to raise up to about $4.9 billion and is eyeing a valuation of up to $55 billion, depending on how the investor roadshow plays out and where the final share pricing lands. This isn’t the valuation Arm was rumored to be aiming for earlier this year, but it would still be much more than the $32 billion SoftBank paid to take Arm private six years ago. 

“The valuation is still very high relative to other semiconductor companies,” says Brendan Burke, a senior emerging technology analyst at PitchBook. That’s a nod to Arm’s ubiquity in the device market (its chips power 99% of the world’s smartphones), as well as the developments Arm has made in A.I. analytics, such as object identification or word detection. But the lower-than-estimated pricing suggests investors may be scrutinizing where Arm will land in the broader generative A.I. boom. (Arm said in its investor roadshow presentation that an increasing need to train large language models would be good for business and emphasized its work with NVIDIA to develop a new type of processor for data centers. But the company has also disclosed in SEC filings that new kinds of A.I. algorithms may pose a risk to Arm’s business.) Companies like Apple or Google see an opportunity here–as they have expressed interest in scooping up $735 million worth of Arm’s shares, according to Arm’s SEC filings.

This is a massive IPO, whatever way you look at it. But just how good a deal is this for SoftBank, which owns the chipmaker and will still hold more than 90% of it post-IPO? To answer that question, it’s worth comparing it to the deal SoftBank was trying to close for Arm three years ago. That’s why I’m sitting at my desk doing a little back-of-the-napkin math as I eat some chicken tortilla soup.

Let’s look at the deal that almost was: A.I. computing company NVIDIA agreed to acquire Arm from SoftBank for about $40 billion three years ago. As we all know, regulatory challenges ended up dooming that deal, though NVIDIA still partners with Arm (and NVIDIA CEO Jensen Huang made appearances in Arm’s roadshow video). If you look at the acquisition figure alone—$40 billion—it looks like SoftBank actually might make it out better with an Arm IPO. That’s until you look at the terms.

NVIDIA had agreed to pay SoftBank $21.5 billion in NVIDIA common stock, plus $12 billion in cash, for Arm. There were also some other components to the deal, including an up-to $5 billion earn-out, granted Arm met specific targets, and $1.5 billion in equity to Arm employees. All of that rounded out to a $40 billion deal valuation.

Here’s the breakdown of what, theoretically, could have ended up in SoftBank’s pocket:

$12 billion (cash)
$21.5 billion (common stock)
$5 billion (earn-out cash or common stock, subject to hurdles)
TOTAL: $38.5 billion

While it’s fun to get all wrapped up in the big number here, the key is the performance of NVIDIA shares post-close. And, in hindsight, SoftBank could have really made out on that front if the deal had gone through and it chose to hold onto those shares for a bit. 

NVIDIA shares were trading at more than $485 a pop by market close Tuesday, up from nearly $129 per share the day the NVIDIA-Arm deal was announced. That means they are now worth 277% more than they were the day the transaction was announced. Here’s a chart, because this is pretty insane:

There’s a lot of reasons for NVIDIA’s explosive three years. An obvious one would be the generative A.I. boom, as NVIDIA is the main infrastructure supplier for A.I. systems. The company has repeatedly surpassed earnings expectations this year. 

The point of all of this is that, theoretically, if the NVIDIA-Arm deal had won regulatory approval and if SoftBank had held onto a decent chunk of 44.3 million NVIDIA shares for three years, those shares would be worth 277% more. Here’s my napkin math:

$12 billion (cash)
$59.6 billion (common stock)
$5 billion (let’s assume Arm met the hurdles and SoftBank took cash)
TOTAL: $76.6 billion

SoftBank seems poised to do really well from the Arm IPO. But not that well. 

At the same time, SoftBank will likely be able to use NVIDIA’s enormous success in the public markets in its favor, according to Burke. And SoftBank could try to sell investors on the A.I. computing exposure they may have missed out on with NVIDIA’s run-up, according to Burke.

“I think that’s part of the timing behind the listing,” he says.

Demo Day…Yesterday Y Combinator kicked off presentations for its 2023 summer batch Demo Day with an enthusiastic (and rather dramatic) nod to San Francisco: “We believe putting the most eminent founders of our generation together makes YC in San Francisco just like Rome or Athens in antiquity,” YC’s new president and CEO Garry Tan said in an introduction to Demo Day as he pointed out that this batch was 100% back in person. Tan said that YC is aiming to do next year’s Demo Day in-person “in some form,” which I imagine will be welcomed by investors, as I got an error message the first 10 minutes I was trying to get into the Zoom, saying that “too many people are accessing this website at the same time.” 

See you tomorrow,

Jessica Mathews
Twitter: @jessicakmathews
Email: jessica.mathews@fortune.com
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Joe Abrams curated the deals section of today’s newsletter.

VENTURE DEALS

- Ascend Elements, a Westborough, Mass.-based manufacturer of sustainable battery materials for electric vehicles, raised $460 million in Series D funding. Decarbonization Partners, Temasek, and Qatar Investments led the round and were joined by Tenaska, Alliance Resource Partners, and others. The company also disclosed it had raised $82 million in funding earlier this year.

- Boston Metal, a Boston, Mass.-based global metals technology startup, raised $262 million in Series C funding. ArcelorMittal SA led the round and was joined by Aramco Ventures, M&G Investments, Goehring & Rozencwajg, and others.

- d-Matrix, a Santa Clara, Calif.-based designer of A.I. chips for data centers, raised $110 million in Series B funding. Temasek led the round and was joined by existing investors Playground Global, M12, Nautilus Venture Partners, Entrada Ventures, and others.

- Mujin, a Tokyo, Japan-based industrial robot developer, raised $85 million in Series C funding. SBI Investment Company led the round and was joined by Pegasus Tech Ventures, Accenture, and others. 

- Arduino, a Monza, Italy-based technology developer that designs and manufactures advanced devices and software for engineers, students, and hobbyists, raised an additional $22 million in Series B funding. CDP Venture Capital and Anzu Partners co-led the round and were joined by Arm. 

- Brine Fi, a Dubai, U.A.E.-based crypto trading exchange, raised $16.5 million in Series A funding. Pantera Capital led the round and was joined by Elevation Capital, Starkware Ltd, Spartan Group, Goodwater Capital, Upsparks Ventures, Protofund Ventures, and angel investors. 

- Noetik, a San Francisco-based A.I. drug discovery company, raised $14 million in seed funding. DCVC led the round and was joined by Zetta Venture Partners, 11.2 Capital, Catalio Capital Management, Epic Ventures, Intermountain Ventures, and others. 

- SkinnyDipped, a Seattle, Wash.-based healthy snack company, raised $12 million in Series A funding. David Grutman led the round and was joined by Amy Schumer, Mark Wahlberg, Becky G, Post Malone, Tan France, Odell Beckham Jr., and others. 

- Rejuvenation Technologies, a Mountain View, Calif.-based biotech startup developing anti-aging products through mRNA therapeutics, raised $10.6 million in seed funding. Khosla Ventures led the round and was joined by Shanda Ventures, Asymmetry Ventures, Merchant Adventures, Longevity Tech Fund, and Y Combinator.

- Opna, a London, U.K.-based climate financing platform that helps companies manage carbon removal and reduction projects, raised $6.5 million in seed funding. Atomico led the round and was joined by Pale Blue Dot, MCJ Collective, Angelinvest, Tiny VC, and angel investors. 

- Pynt, a Tel Aviv, Israel-based API security platform provider, raised $6 million in seed funding. Joule Ventures led the round and was joined by Dallas VC and Honeystone Ventures. 

- Socket, a British Virgin Islands-based company establishing communication between the chains in multichain blockchain programs, raised $5 million in funding. Coinbase Ventures and Framework Ventures led the round.

- Bandana, a New York City-based job site for hourly jobs, raised $3.8 million in seed funding. General Catalyst and Craft Ventures led the round and were joined by Triple Impact Capital, Sarah Smith Fund, and angel investors. 

- Automat, a San Francisco-based automation software company and Google Chrome add-on, raised $3.75 million in seed funding. Initialized led the round and was joined by Khosla Ventures, Y Combinator, Schox, Goodwater, and others. 

- Loops, a Washington, D.C. and New York City-based developer creating an email-sending tool for SaaS companies, raised $3.2 million in funding. Altman Capital, SV Angel, Liquid2, Soma, Box Group, and others participated in the round.

- Givzey, a Boston, Mass.-based nonprofit fundraising solution designed for giving donations in split payments, raised $2.1 million in seed funding. Oyster Fund, York IE, CJ Orr and The Orr Group, and members of Tiger 21 Indianapolis Group and Launchpad Venture Group participated in the round.

PRIVATE EQUITY

- Bridgepoint Group agreed to acquire Energy Capital Partners, a Summit, N.J.-based ​​equity and credit investor across energy transition, electrification, and decarbonization infrastructure assets, for £835 million ($1.04 billion), including 235 million in newly-issued Bridgepoint shares, £233 million ($291.4 million) in cash, and £179 million ($223.9 million) in Energy Capital Partners' existing debt. 

- Grant Avenue Capital recapitalized CREO, a Durham, N.C.-based IT consulting and advisory services provider for life science and healthcare organizations. Financial terms were not disclosed. 

- ICG Group, a portfolio company of H.I.G. Capital, acquired TripleA Networks, a Gelderland, Netherlands-based tower solutions provider. Financial terms were not disclosed.

- Neptune Retail Solutions, a portfolio company of Charlesbank Capital Partners, acquired Quotient Technology, a Salt Lake City, Utah-based digital promotions and media technology company for advertisers, retailers, and consumers. Financial terms were not disclosed. 

- Ridgemont Equity Partners recapitalized smartShift, a Boston, Mass.-based cloud computing software developer. Financial terms were not disclosed. 

- Rocket Software, a portfolio company of Bain Capital, acquired B.O.S., a Munich, Germany-based software company that provides data integration solutions. Financial terms were not disclosed. 

- SPA, a portfolio company of Arlington Capital Partners, acquired PRKK, a Stuart, Fla.-based professional engineering, intelligence, and operations services provider for space and intelligence companies. Financial terms were not disclosed. 

- Staple Street Capital agreed to acquire Delaware Valley Floral Group, a Sewell, N.J.-based flower and floral supplies supplier. Financial terms were not disclosed. 

- Thoma Bravo agreed to take private NextGen Healthcare, an Irvine, Calif.-based healthcare solutions provider. Financial terms were not disclosed.

EXITS

- TJC acquired an investment in Soteria Flexibles, a Carol Stream, Ill.-based manufacturer of customized flexible plastic packaging, from Ardian. Financial terms were not disclosed. 

OTHER

- Nestle agreed to acquire Kopenhagen, a Brazilian chocolate brand, for about 3 billion reais ($602.8 million), per Reuters.

FUNDS + FUNDS OF FUNDS

- 500 Global, a Pleasant Hill, Calif.-based venture capital firm, raised $100 million for its third fund focused on business and A.I.-enabled technology companies in Southeast Asia. It raised another $43 million for a growth investment vehicle.

PEOPLE

- Baleon Capital, a Miam, Fla.-based venture capital firm, hired Kevin Scoby as principal. Formerly, he was with Paragon Biosciences.

- Emergence Capital, a San Francisco-based venture capital firm, hired Camille Ricketts as operating partner. Formerly, she was with Notion. 

Correction, Sept. 8, 2023: The online version of this newsletter has been corrected to reflect that 500 Global raised $143 million across two investment vehicles.