Here are some financial metrics for three Seattle area companies. They look very different, but all are valued around $500M. Can you guess what each of them are?
Company A is a high margin, unprofitable business growing at a good (but not great) pace. It should reach $100M in revenue in a couple years, and it is currently valued at ~7x revenue. Definitely looks like a tech company with that gross margin, but the multiple looks a bit low for SaaS.
. Definitely a tech company, but 90% of revenues come from transaction fees, so their multiple is lower than a SaaS company. Here’s the investor deck
from the SPAC that is taking them public.
Company B is worth $500M+ but has no revenue, so half of the value comes from the $285M of cash on the balance sheet. The (estimated) gross margins and cash burn make it look like a tech company, but normally startups can’t raise this much money without some revenue progress.
Answer: Athira Pharma
. Biotech funding is so different than tech. Drug companies need much more money and take a lot more dilution. Athira raised $200M+ in an IPO last month, just three months after raising an $85M Series B. They also only have 25 employees, which explains the low burn rate.
Company C. Ok, so what the heck is this company that makes $24B in revenue but is somehow only worth $560M? That is insane!
Answer: Rite Aid
. So last week Rite Aid acquired Bartell’s for $95M
, and my first reaction was, “Holy crap, that’s a 2020 seed round
.” Bartell’s has 67 stores that did $550M in sales last year
(which means if they were a software company, they could be worth $70B
), so that led me to look at what’s going on with pharmacy valuations.
Obviously, Rite Aid has been heavily impacted by COVID, but the short story is they trade at ~6.5X Enterprise Value/EBITDA, and they will generate ~$500M of EBITDA this year. They also have ~$3B of debt, so that’s why their market cap (i.e., equity value) is only ~$500M.
Pretty interesting seeing three totally different companies with similar equity values here in Seattle (I’m loosely counting Rite Aid as a Seattle company now). It really puts early stage startup valuations into perspective, and it’s a good reminder that eventually companies need to make money!