Airtasker IPO Raises Valuation Questions
The Airtasker IPO is shaping up to be interesting. It’s one of my favourite niche topics – private market valuation meets public market investors. My perception of Airtasker is that there has been a mismatch between perceived growth potential of the business (as measured by valuation) and its actual performance. That disconnect was arrested painfully in 2019, but I’d argue the correction is ongoing.
Airtasker Historical Valuation:
2019: $250m (this is a prime opportunity for a “how 2019 started / how it’s going now” meme)
The use of EV as a metric for the float is interesting, but what you’re seeing here is essentially the same valuation that the company held two years ago despite ~18 months of growth in the interim. For that matter, three years of growth since 2017 has led to a ~15% increase in shareholder value, assuming the EV = the market cap. The business could have shrunk if there is debt involved, or it could be larger if Airtasker has a fair bit of net cash (why EV?). Either way, it’s clear this business has been optimistically priced for a long time and the valuation has been steadily correcting itself in the background.
IPO pricing of 10x revenues (according to AFR) is well below the spicy multiples seen elsewhere and substantially below the failed raise in 2019 that must have been at more like 30-40x revenues. Airtasker did well when it raised equity in 2017, and investors then likely overpaid. (your regular reminder that it takes two to make a market, and both sides are self-interested)
It’s pretty widely known that Airtasker cut its headcount by a quarter in the past 2 years or so; it needed to cut costs after it was hit with the R&D claim from the tax office. Rumour suggests that the inability to get away the $75m raise in early 2019 exaggerated the impact.
I only trust what I’ve seen in the news, but looking at this from the outside, my perception is that this float is being driven by backers rather than by Airtasker seeking the optimal time to sell its equity. Ordinarily I would question if the dire financials necessitate a float, but the fact that (according to AFR) Airtasker is only raising $15m and the rest of the ~$80m IPO proceeds are to departing shareholders, it seems likely this is driven by its backers. It’s either backers wanting an exit, or Airtasker wanting backers off the register – hard to say but my money’s on the former. It does not make any sense for Airtasker to get rid of backers that have demonstrated the willingness to invest millions at optimistic valuations; as a result I conclude that shareholders want out.
Seven West Ventures originally invested $22m in Airtasker in 2016. At the current valuation it looks like Seven has roughly doubled its money since 2016. Not bad, but given the business has grown revenues fivefold, it’s probably not a great result (better than those that invested later, though).
I basically think when you see a business in the process of repricing itself like this and going public reluctantly, you have a few of the ingredients in place for a poor IPO. Looking from the outside; every investor since 2017 has made barely any money or potentially lost money.
There are two other things which may or may not have a bearing on the IPO.
- Airtasker is one of the leading Australian startup/VC investments. Are there any implications for private valuations following this IPO, or is this situation unusual?
- There’s a vicious rumour doing the rounds that Airtasker muffed its cap table and now a lot of employee options are worthless at the current IPO price. Edit: A read of the prospectus shows that ex-employees and consultants had some of their out of the money options cancelled during the IPO process.
So. Airtasker. I’ve written about private markets before, and I’m wondering if any of that is going to be on display here. My preliminary judgement right now is a No to the IPO but a Maybe to a post-IPO purchase if the IPO fizzles, which feels like a distinct possibility. I have some thoughts on the business model, specifically the size of the target market (small), the value prop to users, and the gradation from a generalised marketplace to a specialised marketplace (e.g. Uber), but that’s a story for another time.
Right now I’m in the market for an Airtasker roadshow prezzo. Cheers.
I have no position in or relationship with Airtasker or any of its shareholders or parties involved in the IPO. This is a disclosure and not a recommendation.