Coupa: Another growing SaaS category leader taken private: who's next?

The stock market is no place for unprofitable growth stories right now, at least according to private equity.

What's Coupa you might ask?

- It's a SaaS company

- Fairly dominant in their sector

- Growing 30% y/y

- Stock down 62% YTD

- Purchase price a 77% premium over current stock

- But -38% net loss from operations per year

- Being taken private by Thoma Bravo

So the price is essentially level the beat down.

You might even say Coupa is a leader in SaaS B2B eCommerce - i.e. procurement and procure-to-pay :-)

Who else does this remind you of? Oh yeah, Avalara who was just taken private by Vista Equity Partners earlier this year.

Almost the identical situation.

BigCommerce has been coasting in this market for several years now, and is the most likely next shoe to drop here.

Shopify just crossed into -25% operating loss territory last quarter, but that is in striking distance of being able to change, especially since Shopify just got a Wall Street veteran CFO a few moments ago.

If you have:

- been public for some time

- consistently south of -25% net operating loss

- Beaten down 50%+ in the past year

- Growing > 25%+

then private equity thinks you are undervalued. What does that also mean?

Private equity expects the stock market to continue to punish these companies in the next 12 months, and could return them to the public markets in 3-4 years.

How about private companies? What does this mean for them?

* Any unprofitable growing private company will likely not reach the public markets because their Series D+ rounds are being devalued

* Any private company with greater than negative 15% net operating loss has some decisions to make to return to "default alive".

(I think high growth and above -15% will be rewarded handsomely).

This does not mean that the economy will be terrible in 2023. However, it does mean there are still existential risks out there (Ukraine, China) beyond the interest rate/inflation tick-tock which dominates the daily discussion.

If you're a venture-backed private company and want to think like private equity, then being able to survive more than 24 months of runway is the new benchmark.

That is, if you want to control your own destiny and decide on your own when it is appropriate to raise capital again.

All others may start heading for the exits.