Dec
16
2019
--

OneConnect’s drastic IPO value cut underscores the risk of high-growth, high-burn companies

OneConnect’s U.S.-listed IPO flew under our radar last week, which won’t do. The company’s public offering is both interesting and important, so let’s take a few minutes this morning to understand what we missed and why we care.

The now-public company sells financial technology that banks in China and select foreign countries can use to bring their services into the modern era. OneConnect charges mostly for usage of its products, driving over three-quarters of its revenue from transactions, including API calls.

After pricing its shares at $10 apiece, the SoftBank Vision Fund-backed company wrapped last week worth the same: $10 per share.

One one hand, OneConnect is merely another China-based IPO listing domestically here in the United States, making it merely one member of a crowd. So, why do we care about its listing?

A few reasons. We care because the listing is another liquidity event for SoftBank and its Vision Fund. As the Japanese conglomerate revs up its second Vision Fund cycle (Vision Fund 2, more here), returns and proof of its ability to pick winners and fuel them with capital are key. OneConnect’s success as a public company, therefore, matters.

And for us market observers, the debut is doubly exciting from a financial perspective. No, OneConnect doesn’t make money (very much the opposite). What’s curious about the company is that it brought huge losses to sale when it was pitching its equity. Which, in a post-WeWork world, are supposed to be out of style. Let’s see how well it priced.

What’s it worth?

OneConnect targeted a $9 to $10 per-share IPO price. That makes its final, $10 per-share pricing the top of its range. That said, given how narrow its range was, the result doesn’t look like much of a coup for the company. That’s doubly true when we recall that OneConnect lowered its IPO price range from $12 to $14 per share (a more standard price band) to the lower figures. So, the company managed to price at the top of its expectations, but only after those were cut to size.

When it all wrapped, OneConnect was worth about $3.7 billion at its IPO price, according to math from The New York Times. TechCrunch’s own calculations value the firm at a slightly richer $3.8 billion. Regardless, the figure was a disappointment.

When OneConnect raised from SoftBank’s Vision Fund in early 2018, $650 million was invested at a $6.8 billion pre-money valuation, according to Crunchbase data. That put a $7.45 billion post-money price tag on the Ping An-sourced business. To see the company forced to cut its IPO valuation so far is difficult for OneConnect itself, its parent Ping An and its backer SoftBank.

Why so little?

I promised to be brief when we started, so let’s stay curt: OneConnect’s business was worth far less than expected because while it posted impressive revenue gains, the company’s deep unprofitability made it less palatable than expected to public investors.

OneConnect managed to post revenue growth of more than 70% in the first three quarters of 2019, expanding top line to $217.5 million in the period. However, during that time it generated just $70.9 million in gross profit, the sum it could use to cover its operating costs. The company’s cost structure, however, was far larger than its gross profit.

Over the same nine-month period, OneConnect’s sales and marketing costs alone outstripped its total gross profit. All told, OneConnect posted operating costs of $227.6 million in the first three quarters of 2019, leading to an operating loss of $156.6 million in the period.

The company will, therefore, burn lots of cash as it grows; OneConnect is still deep in its investment motion, and far from the sort of near-profitability that we hear is in vogue. In a sense, OneConnect bears the narrative out. It had to endure a sharp valuation reduction to get out. You can see the market’s changed mood in that fact alone.

Photo by Roberto Júnior on Unsplash

Aug
20
2019
--

H2O.ai announces $72.5M Series D led by Goldman Sachs

H2O.ai‘s mission is to democratize AI by providing a set of tools that frees companies from relying on teams of data scientists. Today it got a bushel of money to help. The company announced a $72.5 million Series D round led by Goldman Sachs and Ping An Global Voyager Fund.

Previous investors Wells Fargo, Nvidia and Nexus Venture Partners also participated. Under the terms of the deal, Jade Mandel from Goldman Sachs will be joining the H2O.ai board. Today’s investment brings the total raised to $147 million.

It’s worth noting that Goldman Sachs isn’t just an investor. It’s also a customer. Company CEO and co-founder Sri Ambati says the fact that customers Wells Fargo and Goldman Sachs have led the last two rounds is a validation for him and his company. “Customers have risen up from the ranks for two consecutive rounds for us. Last time the Series C was led by Wells Fargo where we were their platform of choice. Today’s round was led by Goldman Sachs, which has been a strong customer for us and strong supporters of our technology,” Ambati told TechCrunch.

The company’s main product, H2O Driverless AI, introduced in 2017, gets its name from the fact it provides a way for people who aren’t AI experts to still take advantage of AI without a team of data scientists. “Driverless AI is automatic machine learning, which brings the power of a world-class data scientists in the hands of everyone. lt builds models automatically using machine learning algorithms of every kind,” Ambati explained.

They introduced a new recipe concept today, which provides all of the AI ingredients and instructions for building models for different business requirements. H2O.ai’s team of data scientists has created and open-sourced 100 recipes for things like credit risk scoring, anomaly detection and property valuation.

The company has been growing since its Series C round in 2017, when it had 70 employees. Today it has 175 and has tripled the number of customers since the prior round, although Ambati didn’t discuss an exact number. The company has its roots in open source and has 20,000 users of its open-source products, according to Ambati.

He didn’t want to discuss valuation and wouldn’t say when the company might go public, saying it’s early days for AI and they are working hard to build a company for the long haul.

Powered by WordPress | Theme: Aeros 2.0 by TheBuckmaker.com