Candygram 12.03.2024

We've seen a few decent deals go out the door—Pony AI $PONY is priced at $13, and Brazilian Potash $GRO is priced at $15. Both deals have failed to hold price.

Pony AI is another player in autonomous mobility, which has been a tough place for investors. This isn't one for the "AI Fraud Parade," but they must demonstrate more success to grow into their $5B valuation. Based on their approach and position in China, there are some reasons to be optimistic. We have taken a small position.

Elsewhere on the recent AI deal docket, we note that the recent IPO of Nebius $NBIS has been performing well and just received $700M in fresh capital from Nvidia, Accel, and Orbis Capital at $21/share. See our post for more detail: A Surprise $4B AI IPO.

The next big deal expected is ServiceTitan $TTAN seeking to raise close to $500M at a $5.5B valuation. (a few more details on this one below).

We only have a follow-on from Strawberry Fields REIT $STRW in active marketing. Investors have wanted exposure to the "aging population" theme, and it's been a mixed bag. Some assisted living and skilled nursing providers have run afoul of regulators with underhanded and aggressive admission and coding practices.

Strawberry Fields is one step removed from a REIT and offers a lower-risk way to get exposure to the sector. It has a strong operating history, and while it is a roll-up, it has been run conservatively. The current yield is only 4.4%, but they have room to raise the dividend. There have been a handful of these mid-market deals that could be worth owning in 2025. They are a step above the "underground" names but still small enough to be off the radar.

There's also an underground deal with Fast Track Group $FTRK, another small company based in Singapore. At first glance, this one is non-sensical.

The "Chinese Teledoc $TDOC" is again planning an IPO in Hong Kong. WeDoctor is backed by Tencent $. They plan to raise $500M. They tried to do an IPO in 2021 but got caught up in the Chinese crackdown on the technology sector and foreign listings. HK listings have been showing signs of life, with Midea (appliances) raising $4B recently.

Databricks will delay its IPO until 2025 or even 2026 with a current private raise/tender offer of $5-8B. Company revenues are coming in at $2.5B for the current fiscal year, with valuation talk of $55-61B. For comparison, Snowflake $SNOW has a value of ~$55B on revenues of $3.6B.

Shotgun Weddings

We've noted that over 1,000 "stranded unicorns" have limited prospects for follow-on financing or acquisition interest. Recent discussions suggest that company managements are beginning to "accept reality" and move forward even if it will mean an outcome that is lower (potentially much lower) than their prior private round. See Purgatory for more on that.

ServiceTitan is an example of what we will see more of. I continue to scratch my head when I see a company like this with revenues over $600M but still losing money! They have managed to tap the private markets repeatedly. Still, the last round (H) had a ticking time bomb in the form of an antidilution provision that "ratchets" higher over time, translating into more shares for Series H holders.

Unfortunately, most investors and employees in these companies are largely unaware of these provisions, which could further reduce the size of whatever "payday" they may yet enjoy.

These provisions can also spark a movement for these companies to go public now while the market remains at all-time highs.

So far, M&A has remained subdued, but it's gearing up for a new, more business-friendly administration that will include a less aggressive FTC and SEC.

We'll cover a few more names this month and update our 2024 IPO and Spinoff valuation and performance tables. 2025 is setting up to be a year to remember in capital markets!