Sramana Mitra: What happens next? Stuart Robertson: I jumped into telecom for seven years. At that time, telecom was going to be deregulated. They were hiring all these marketers. My first job out of...

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Stuart built Sharebuilder 401k. The company got acquired. Recently, he has bought the business back. Read on to understand the nuances. Sramana Mitra: Let’s start at the very beginning of your...

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The COVID-19 crisis has led to a rapid shift to working from home and a surge in the use of digital collaboration tools in the enterprise. Enterprise communication platform Slack (NYSE: WORK) last...

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Sramana Mitra: How did your numbers track of the money that you sent to artisans as you went along? Roberto Milk: It took us 10 years to get to $25 million. It took us another four years to get to...

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This report from CB Insights analyzes the trends, themes, and challenges in 2020 as artificial intelligence moves from hype state to practical usage. For this week’s posts, click on the...

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Sramana Mitra: When 9/11 hit, you were still operating with just that $6 million in funding? Roberto Milk: We had funding from National Geographic as well. Sramana Mitra: What was the cash portion of...

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Sramana Mitra: This is before any venture capital. You’re still working with your $1.5 million angel round. Roberto Milk: No. In April of 2000, we did our first venture capital round. Sramana Mitra:...

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I’m publishing this series on LinkedIn called Colors to explore a topic that I care deeply about: the Renaissance Mind. I am just as passionate about entrepreneurship, technology, and business, as I...

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Welcome to The Exchange, an upcoming weekly newsletter featuring TechCrunch and Extra Crunch reporting on startups, money, and markets. You can sign up for it here to receive it regularly when it launches on July 25th. You This email address is being protected from spambots. You need JavaScript enabled to view it., or talk to me about it on Twitter. Let’s go!

Ahead of parsing Q2 venture capital data, we got a look this week into the VC world’s take on making deals over Zoom. A few months ago it was an open question whether VCs would simply stop making new investments if they couldn’t chop it up in person with founders. That, it turns out, was mostly wrong.

This week we learned that most VCs are open to making remote deals happen, even if 40% of VCs have actually done so. This raises a worrying question: If only 40% of VCs have actually made a fully remote deal, how many deals happened in Q2?

Judging from my inbox over the past few months, it’s been an active period. But we can’t lean on anecdata for this topic; The Exchange will parse Q2 VC data next week, hopefully, provided that we can scrape together the data points we need to feel confident in our take. More soon.

Private markets

As TechCrunch reported Friday, some startups are delaying raising capital for a few quarters. They can do this by limiting expenses. The question for startups that are doing this is what shape they’ll be in when they do surface to hunt for fresh funds; can they still grow at an attractive pace while trying to extend their runway through burn conservation?

But there’s another option besides waiting to raise a new round, and not raising at all. Startups can raise an extension to their preceding deal! Perhaps I am noticing something that isn’t a trend, or not a trend yet, but there have been a number of startups recently raised extensions lately that caught my eye. For example, this week MariaDB raised a $25 million Series C extension, for example. Also this week Sayari put together $2.5 million in a Series B extension. And CALA put together $3 million in a Seed extension. Finally, across the pond Machine Labs put together one million pounds in another Seed extension this week.

I don’t know yet how to numerically drill into the available venture data to tell if we’re really seeing an extension wave, but This email address is being protected from spambots. You need JavaScript enabled to view it. if you have any notes to share. And, to be completely clear, the above rounds could easily be merely random and un-thematic, so please don’t read into them more deeply than that they were announced in the last few days and match something that we’re watching.

Public markets

On the public markets front, the news is all good. Tech stocks are up in general, and software stocks set some new record highs this week. It’s nearly impossible to recall how scary the world was back in March and April in today’s halcyon stock market run, but it was only a few months back that stocks were falling sharply.

The return-to-form has helped a number of companies go public this year like Vroom, Accolade, Agora, and others. This week was another busy period for startups, former startups, and other companies looking to go out.

In quick fashion to save time, this week we got to see GoHealth’s first IPO range, nCino’s second (more on the two companies’ finances here), learned that Palantir is going public (it’s financial history as best we can tell is here), and even got an IPO filing (S-1) from Rackspace, as it looks towards the public markets yet again.

The Exchange explores startups, markets and money. You can read it every morning on Extra Crunch, and now you can receive it in your inbox. Sign up for The Exchange newsletter, which drops every Friday starting July 25.

The IPO waters are so warm that Lemonade is still up more than 100% from its IPO price. So long as growth companies that are miles from making money can command rich valuations, expect companies to keep running through the public market’s door.

There’s fun stuff on the horizon. Coinbase might file later this year, or in early 2021. And the Airbnb IPO is probably coming within four or five quarters. Gear up to read some SEC filings.

Funding rounds worth noting

The coolest funding round of the week was obviously the one that I wrote about, namely the $2.2 million that MonkeyLearn put together from a pair of lead investors. But other companies raised money, and among them the following investments stood out:

Sony poured a quarter of a billion dollars into the maker of Fortnite, for a 1.4% stake. This rounds stands out for how small a piece of Epic Games that Sony got its hands on. It feels reminiscent of the recent investment deluge into Jio.TruePill raised $25 million in a Series B. In the modern world it seems batty to me that I have to get off my ass, go to Walgreens or CVS, wait in line, and then ask someone to please sell me Claritin D. What an enormous waste of time. TruePill, which does pharma delivery, can’t get here fast enough. Also, investors in TruePill are probably fully aware that Amazon spent $1 billion on PillPack just a few year ago.From the slightly off-the-wall category, this headline from TechCrunch: “UK’s Farewill raises $25M for its new-approach online will writing, funerals and other death services.” Farewill is a startup name that is so bad it probably works; I won’t forget it any time soon, even though I don’t live in the U.K.! And this deal goes to show how big the internet really is. There’s so much demand for digital services that a company with Farewill’s particular focus can put together enough revenue growth to command a $25 million Series B.Finally, TechCrunch’s Ron Miller covered a $50 million investment into OwnBackup. What matters about this deal was how Ron spoke about it: “OwnBackup has made a name for itself primarily as a backup and disaster-recovery system for the Salesforce ecosystem, and today the company announced a $50 million investment.” What to take from that? That Salesforce’s ecosystem is maybe bigger than we thought.

That’s The Exchange for the week. Keep your eye on SaaS valuations, the latest S-1 filings, and the latest fundings. Chat Monday.

If you’re an angel who invested in a startup that was meant to go public in 2014, you might be getting a little bit impatient. High-risk, high-reward investing has lost its shine in this environment: the stock market is a mess these days, and you want your cash back.

Enter recapitalization events, where startups restructure their entire cap table to squeeze out old investors, bring on new ones and shift the way equity and debt is managed. For investors, it’s a killer way to enter a company on friendlier terms than normal (read: desperation), and a nice way to get liquidity on a startup you’re betting on.

For founders, it’s rarely good news, as departing investors is not a metric they’re going to add to the pitch deck. As one investor said on background, the spur of coronavirus-related recapitalization events shows “hella dilution for desperate times.”

That’s what makes Workhuman’s transparency with its recent recapitalization event all the more enticing.

Last year, the human-resources platform brought in $580 million in revenue from customers like LinkedIn, Cisco, J&J and other clients. In April, business grew 40%. Co-founder and CEO Eric Mosley says business has grown five times in size since the company pulled back from its 2014 plans to IPO. Workhuman hasn’t raised a single venture round since 2004 (and doesn’t plan to any time soon).

Being conservative has paid off; although Workhuman has operated for nearly two decades, Mosley says he thinks the company is still at the “tip of the iceberg.” The company recently had a recapitalization event to sell the stakes of its earliest investors, who cut a $200,000 check more than 20 years ago.

After going private in 2016 after accepting a $32 per share, or $4.3 billion, price from Apollo Global Management, Rackspace is looking once again to the public markets. First going public in 2008, Rackspace is taking second aim at a public offering around 12 years after its initial debut.

The company describes its business as a “multicloud technology services” vendor, helping its customers “design, build and operate” cloud environments. That Rackspace is highlighting a services focus is useful context to understand its financial profile, as we’ll see in a moment.

But first, some basics. The company’s S-1 filing denotes a $100 million placeholder figure for how much the company may raise in its public offering. That figure will change, but does tell us that firm is likely to target a share sale that will net it closer to $100 million than $500 million, another popular placeholder figure.

Rackspace will list on the Nasdaq with the ticker symbol “RXT.” Goldman, Citi, J.P. Morgan, RBC Capital Markets and other banks are helping underwrite its (second) debut.

Financial performance

Similar to other companies that went private, only later to debut once again as a public company, Rackspace has oceans of debt.

The company’s balance sheet reported cash and equivalents of $125.2 million as of March 31, 2020. On the other side of the ledger, Rackspace has debts of $3.99 billion, made up of a $2.82 billion term loan facility, and $1.12 billion in senior notes that cost the firm an 8.625% coupon, among other debts. The term loan costs a lower 4% rate, and stems from the initial transaction to take Rackspace private ($2 billion), and another $800 million that was later taken on “in connection with the Datapipe Acquisition.”

The senior notes, originally worth a total of $1,200 million or $1.20 billion, also came from the acquisition of the company during its 2016 transaction; private equity’s ability to buy companies with borrowed money, later taking them public again and using those proceeds to limit the resulting debt profile while maintaining financial control is lucrative, if a bit cheeky.

Rackspace intends to use IPO proceeds to lower its debt-load, including both its term loan and senior notes. Precisely how much Rackspace can put against its debts will depend on its IPO pricing.

Those debts take a company that is comfortably profitable on an operating basis and make it deeply unprofitable on a net basis. Observe:

Image Credits: SEC

Looking at the far-right column, we can see a company with material revenues, though slim gross margins for a putatively tech company. It generated $21.5 million in Q1 2020 operating profit from its $652.7 million in revenue from the quarter. However, interest expenses of $72 million in the quarter helped lead Rackspace to a deep $48.2 million net loss.

Not all is lost, however, as Rackspace does have positive operating cash flow in the same three-month period. Still, the company’s multi-billion-dollar debt load is still steep, and burdensome.

Returning to our discussion of Rackspace’s business, recall that it said that it sells “multicloud technology services,” which tells us that its gross margins will be service-focused, which is to say that they won’t be software-level. And they are not. In Q1 2020 Rackspace had gross margins of 38.2%, down from 41.3% in the year-ago Q1. That trend is worrisome.

The company’s growth profile is also slightly uneven. From 2017 to 2018, Rackspace saw its revenue expand from $2.14 billion to $2.45 billion, growth of 14.4%. The company shrank slightly in 2019, falling from $2.45 billion in revenue in 2018 to $2.44 billion the next year. Given the economy that year, and the importance of cloud in 2019, the results are a little surprising.

Rackspace did grow in Q1 2020, however. The firm’s $652.7 million in first-quarter top-line easily bested in its Q1 2019 result of $606.9 million. The company grew 7.6% in Q1 2020. That’s not much, especially during a period in which its gross margins eroded, but the return-to-growth is likely welcome all the same.

TechCrunch did not see Q2 2020 results in its S-1 today while reading the document, so we presume that the firm will re-file shortly to include more recent financial results; it would be hard for the company to debut at an attractive price in the COVID-19 era without sharing Q2 figures, we reckon.

How to value Rackspace is a puzzle. The company is tech-ish, which means it will find some interest. But its slow growth rate, heavy debts and lackluster margins make it hard to pin a fair multiple onto. More when we have it.

Fringe is a new company pitching employers on a service offering lifestyle benefits for their employees in addition to, or instead of, more traditional benefits packages.

“We didn’t think it made sense that employees need to be sick, disabled, dead or 65+ to benefit from their benefits,” wrote Fringe chief executive Jordan Peace, in an email.

The Richmond, Virginia-based company was founded by five college friends from Virginia Tech rounded up by Peace and Jason Murray, who serves as the company’s head of Strategy and Finance. The two men previously owned a financial planning firm called Greenhouse Money, which worked with small businesses to set up benefits packages and retirement accounts.

During that time, the two men had a revelation… employees at these small and medium-sized businesses didn’t just want retirement or healthcare benefits, they wanted perks that were more applicable to their day-to-day lives. Because Murray and Peace couldn’t find a company that offered a flexible benefits package on things like Netflix, Amazon or Hulu subscriptions, Uber rides, Grubhub orders or Instacart deliveries, they built one themselves.

As they grew their business they brought in college friends, including Isaiah Goodall as the vice president of partnerships, Chris Luhrman as the vice president of operations and Andrew Dunlap as the head of product.

Peace and Murray first launched the business in 2018 and now count over 100 delivery services, exercise apps, cleaning services and other apps of convenience among their offerings.

For their part, employers pay $5 per employee covered per month and set up a monthly stipend (that may or may not be subtracted from a total benefits package) of somewhere between $50 and $200 that employees can spend on subscription services.

It’s a pitch to employers that Peace says is especially compelling as office culture changes in the wake of massive office closures and work-from-home orders from major U.S. companies as a response to the COVID-19 epidemic.

“In-office perks and even most ‘off-site’ perks (gyms, massage spas, etc.) are all null and void,” wrote Peace. “Even post-COVID, it’s highly likely that many of these aspects of office culture will bear less significance with many CEOs vowing to allow ‘WFH forever.’ This means companies need a way to package their office culture and ship them home. Fringe is perfectly positioned for this and determined to be the first name that comes to mind to provide a solution.”

As expected, fintech company nCino has raised its IPO price range. The North Carolina-based banking software firm now expects to sell its shares for between $28 and $29 per share, far more than its initial price range of $22 to $24 per share.

At its $28 to $29 per-share price interval, nCino is worth $2.50 billion to $2.59 billion, sharply more than its preceding $1.96 billion to $2.14 billion range.

The valuation makes more sense for the company, given its growth rate, revenue scale and how the market is currently valuing similar companies. As TechCrunch wrote earlier this week, concerning the SaaS company’s scale and value (emphasis ours):

Annualizing the company’s Q1 (the April 30, 2020 period) revenue results, nCino’s $178.9 million run rate would give it a revenue multiple of 11x to 12x at its expected IPO prices, a somewhat modest result by current standards.

Indeed, as nCino grew about 50% from Q1 2019 to Q1 2020, it feels light. The firm’s GAAP losses are slim compared to revenue as well for a SaaS business, though the company’s operating cash burn did grow from $4.6 million in its fiscal year ending January 31, 2019 to $9 million in its next fiscal year. Its numbers are mostly good, with some less-than-perfect results. Still, given its growth rate, an 11x-12x revenue multiple feels modest; that figure rises, of course, if we use a trailing revenue figure instead of our annualized number.

It would not be a shock, then, if nCino targets a higher price interval for its shares before it formally prices.

With its new IPO price range, nCino’s implied revenue multiple is now 14x to 14.5x, figures that seem far closer to present-day norms.

Now the question for nCino, which is expected to price and trade next week, is whether it can price above its raised range. Given some recent historical precedent, a $1 per-share price beat above its raised interval would not be a shock.

nCino is one of two companies we’re currently tracking on its way to the public markets. The other is GoHealth, which is expected to go public around the same time. Expect next week to be chock-full of IPO news. Heading into earnings season no less!

Entrepreneurs are invited to the 494th FREE online 1Mby1M mentoring roundtable on Thursday, July 16, 2020, at 8 a.m. PDT/11 a.m. EDT/5 p.m. CEST/8:30 p.m. India IST. If you are a serious...

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Sramana Mitra: What was the trajectory of the revenue growth? How did you do year after year? Paul Johnson: 2011 was when we first started doing this. In our first year, which was not a full year, we...

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