ServiceTitan, a software provider for trade businesses, filed for its initial public offering (IPO) on November 18th. The move is potentially positive news for the sluggish IPO market. Funding and acquisitions have been a focus, and a successful ServiceTitan IPO could encourage other companies to go public.
However, the timing might be driven by a clause in ServiceTitan's 2022 Series H funding round. This clause set a May 2024 deadline for the IPO. Missing the deadline triggers a "compounding IPO ratchet," increasing the valuation needed to avoid diluting existing shares. Cash management matters for startups, and this situation highlights the potential consequences of such agreements.
The ratchet protects investors by adjusting share numbers if the IPO price is lower than their initial investment. ServiceTitan's ratchet compounds quarterly at an annual rate of 11%. The initial hurdle was $84.57 per share, but now it's closer to $90, and continues to rise. Current valuations are estimated between $70 and $81.59, falling short of the hurdle. Competition among startups can influence valuations, and ServiceTitan's case demonstrates the complexities of late-stage funding.
The final outcome depends on the IPO pricing. ServiceTitan declined to comment.
Founded in 2012, the company has raised over $1.5 billion from investors like Iconiq, Bessemer, and Coatue. ServiceTitan reported $685 million in revenue and a net loss of $183 million for the year ending July 31, 2024.