February by D’Ornano + Co.: exploring the crack in tech valuations, why Samsara is succeeding, and the momentum in European (and French) tech
This is our monthly newsletter dedicated to Tech x Investments.
Let me start by stating that we are following very closely what is happening in Ukraine and I personally feel great sadness and concern for the Ukrainian people. This war is also a major crisis for Europe and we at D’Ornano + Co. hope peace will prevail as soon as possible.
The current situation, combined with rising inflation and many other operational issues which companies are facing, of which the difficulty to attract and retain talented workforces, is impacting tech valuations, at least on public stocks, and we expect the trend to trickle down to private companies in the near term, though it should not affect all tech companies nor all tech verticals.
Still European Tech has experienced a record year in 2021 as explored in the Pitchbook Annual European VC valuations Report, with the entry of non-traditional investors in the market and the massive funding from US firms.
The paint on our recent 2022 predictions for European tech is barely dry, but it’s already time for an update. Several projections made by Raphaëlle are already coming into focus in a year that is proving to be even more volatile than most of us would have guessed just two months ago. In this article, Raphaëlle goes back on her prediction around valuations and discusses the cracks in valuations, giving founders practical advice to navigate in the current context.
This month’s spotlight is on Samsara
The Samsara IPO is one of the latest significant Tech IPOs of 2021, in the field of AI + Machine Learning which has undergone a record 2021 year in terms of exits. Here are some quick thoughts on the Company and considerations on its business model and key unit economics.
Samsara Inc. (the “Company”), a vertical AI company headquartered in San Francisco, enables companies with physical operations to connect to Internet of Things (“IoT”) data through its cloud-based platform to gain insights and help improve operations. Founded in 2015, the Company was valued $11,5bn in its initial public offering on the NY Stock Exchange on December 15, 2021;
Prior to IPO, the Company had previously completed 6 rounds of funding, the latest being a $700m Series F venture funding from Dragoneer Investment Group, Warburg Pincus and General Atlantic on May 15, 2020. The history of Samsara’s funding highlights the challenges of scaling IoT companies during the COVID-19 period, its latest round having required layoffs affecting around 20% of its workforce, with the pandemic leading to halted growth in Industrial IoT funding in FY20. Per Pitchbook analysis, Samsara has been able to raise repeated large rounds of funding only years after founding in part due to the involvement of Andreesen Horowitz in founding the Company and leading fundraising;
Per its S-1, Samsara has a mission to increase the safety, efficiency and sustainability of the global operations which power the world. The Company does this with its connected operations cloud which includes applications like video-based safety, vehicle telematics, apps and driver workflows, equipment monitoring and site visibility;
The platform is based on AI and machine learning, workflow & analytics, alerts, developer APIs and privacy and security. As in AI business models, the value of the platform rises as more customers deploy Samsara technologies, because with scaling data, the Company can derive more profound insights, leading to those improvements on safety, efficiency and sustainability of operations that the Company seeks to deliver. Here the Company claims that it collects more than 2 trillion data points annually from IoT devices!
There are several structural points that demonstrate the solidity of the Company’s business model and positioning in our view:
The Company estimates that its total addressable market is $55 billion, growing to $97 billion by 2024. The connected fleet opportunity represented by the telematics market is a major chunk of that (i.e. a $33 billion market in 2021). In regard to the current weight of video-based safety and vehicle telematics in its ARR (>80%), it seems that the challenge for the Company is to prove that its software can expand outside of fleet management before the Company is treated as a high-growth SaaS vendor by public markets;
o The Company derives c.98% of its revenues from subscriptions. Subscriptions are priced on a per asset, per application basis, which is vanilla in Industrial IoT;
o The Company’s business model is proving popular with larger customers, as Samsara indicated that 45% of its ARR comes from contracts worth more than $100,000. Only 7% of its revenue comes from customers contracts worth less than $5,000 in ARR, demonstrating that the Company plays an Enterprise playbook;
o Last, the Company benefits from strong use cases across a wide range of industries.
Looking at the numbers:
o The Company has incurred strong growth in revenues, with LTM revenue of $379M and a growth rate of 76% which makes the Company a top performer here;
o The Company’s gross margins migrated from 57% in Q1 2019 to 72% in Q3 2021 due to additional applications layered on top of existing hardware and workforce reductions resulting from the COVID-19 pandemic. This is a high figure for an AI based Company, though we can note that gross margins have held steady for the last 4 quarters at IPO filing date;
o The Company’s GAAP operating margin is not good, and though it has strongly improved over the last year (notably through a reduction in marketing spend), stands at (36)%.
France is a booming unicorn industry| Business Insider
The article explores how France has become a unicorn factory in the recent years, with over 25 unicorns minted in just 6 years.
European VC valuations continue their charge| PitchBook
European VC valuations continued to break records in 2021 across all stages as investors competed fiercely to participate in outsized rounds. Pitchbook explores the key trends in 2021 in this report.
As a lot of companies that were propelled by the pandemic but are struggling now, the article explores the case of Peloton and the actual size of its addressable market. It might not be the only company in this case.
Shares
Less than a year after its creation, the social trading platform and network Shares has raised €34 million in a record Series A round. This financing round was led by NY-based VC Valar Ventures LLC, with Singular, Rocket Capital and Global Founders Capital also participating in the fundraising.
Inova Software
We advised Inova Software, the leading provider of partnering technology solutions for the biopharma industry, on the acquisition of IN-PART. This UK-based company is a digital matchmaking platform that connects the worlds of university research and industry R&D. With this acquisition, Inova hopes to accelerate its strategic growth and provide collaborative digital spaces for innovative partnering in the life sciences.
Padoa
D’Ornano + Co advised Five Arrows Principal Investments (Rothschild & Co) on padoa’s LBO, a Parisian occupational health software firm, as it has secured €80 million in a new funding round to support further investments in research and development projects.
Sofacto
We supported PSG-backed billwerk in its acquisition of Sofacto. Both companies are providers of subscription management and recurring billing software solutions. This acquisition will increase billwerk’s product offering by integrating the Salesforce ecosystem into the group’s existing suite of software solutions as well as helping billwerk to build its presence in France, in addition to its already strong positions in the DACH and Nordic regions.
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