INSUBCONTINENT EXCLUSIVE:
On the heels of Bill.com’s debut, Chicago-based social media software company Sprout Socialpriced its IPO last night at $17 per share, in
the middle of its proposed $16 to $18 per-share range
Selling 8.8 million shares, Sprout raised just under $150 million in its debut.Underwriters have the option to purchase an additional 1.3
million shares if they so choose.The IPO is a good result for the company’s investors (Lightbank, New Enterprise Associates, Goldman Sachs
and Future Fund), but also for Chicago, a growing startup scene that doesn’t often get its due in the public mind.At $17 per share, not
including the possible underwriter option, Sprout Social is worth about $814 million
That’s just a hair over its final private valuation set during its $40.5 million Series D in December of 2018
That particular investment valued Sprout at $800.5 million, according to Crunchbase data.Sprout’s debut is interesting for a few reasons
First, the company raised just a little over $110 million while private, and will generate over $100 million in trailing GAAP revenue this
In effect, Sprout Social used less than $110 million to build up over $100 million in annual recurring revenue (ARR) — the firm reached
the $100 million ARR mark between Q2 and Q3 of 2019
That’s a remarkably efficient result for the unicorn era.And the company is interesting, as it gives us a look at how investors value
slower-growth SaaS companies
As we’ve written, Sprout Social grew by a little over 30% in the first three quarters of 2019
That’s a healthy rate, but not as fast as, say, Bill.com
(Bill.com’s strong market response puts its own growth rate in context.)Thinking very loosely, Sprout Social closed Q3 2019 with ARR of
Worth $814 million now, we can surmise that Sprout priced at an ARR multiple of about 7.75x
That’s a useful benchmark for private companies that sell software: If you want a higher multiple when you go public, you’ll have to
grow a little faster.All the same, the IPO is a win for Chicago, and a win for the company’s investors
We’ll update this piece later with how the stock performs, once it begins to trade.
