UiPath’s IPO Will Be a Down Round

It’s never a good look when a private company fetches a lower valuation during a funding round, which is known as a “down round.” Getting a reduced valuation has poor optics because it suggests that investors have less confidence in the company’s future prospects.

It’s not the end of the world, particularly during periods of market volatility that can impact various factors that serve as valuation inputs.

UiPath, a startup based in New York City that specializes in process automation for enterprise organizations, is preparing to go public and its IPO is expected to be a down round.

Helping the enterprise automate mundane tasks

UiPath had filed its initial S-1 Registration Statement with the SEC last month, opening its books to the public for the first time. In an updated version filed this week, the company detailed the expected pricing range for the deal as $43 to $50.

Based on the 516.5 million shares (for both Class A and Class B combined) expected to be outstanding after the offering, that would imply a market cap of $22.2 billion to $25.8 billion. That would be a meaningful haircut from the $35 billion post-money valuation that UiPath secured in its Series F funding round on February 1, just two and a half months ago.

The Series F was led by existing investors including Alkeon Capital and Coatue Management, with other institutional investors like Sequoia Capital and Tiger Global buying more shares.

UiPath’s pitch to large companies is to leverage artificial intelligence (AI) and machine learning to automate low-level tasks generally considered mundane. Doing so allows management to focus on more important efforts such as scaling operations or growing revenue, ideally amplifying productivity across the organization. 

The company’s value proposition appeals to large companies across a plethora of industries. Prominent customers include Chevron (NYSE: CVX), Chipotle Mexican Grill (NYSE: CMG), CVS Health (NYSE: CVS), and Toyota Motors (NYSE: TM), among others. At the end of January, UiPath had nearly 8,000 paying customers, including 8 of the Fortune 10 and a majority of the Fortune 500.

Growth has been robust, with revenue skyrocketing by 81% last fiscal year to $607.6 million. The company’s annualized renewal run-rate (ARR), which UiPath considers its most important operating metric, jumped 65% to $580.5 million. 

UiPath utilizes a land-and-expand strategy, which is common in enterprise software. After experiencing the benefits of the platform, customers often increase their spending and expand deployments within the organization.

The number of customers with an ARR of $100,000 or more has more than tripled over the past two years to approximately 1,000, while the number of customers with an ARR of $1 million or more has more than quadrupled to 89. UiPath’s dollar-based net retention rate, which measures increased spending among existing customers, was 145% last fiscal year.

IPOs may price above or below the expected range before public trading on the secondary market commences. At the midpoint of the range, UiPath expects to raise net proceeds of roughly $293.9 million. Shares will trade under the ticker symbol “PATH.”

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Evan Niu, CFA owns shares of Chipotle Mexican Grill. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. The Motley Fool recommends CVS Health. Millennial Money is part of The Motley Fool network. Millennial Money has a disclosure policy.

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