Rubrik's IPO filing hints at thaw in tech IPO market

Rubrik, a data network security company that raised more than $500 million during its privatization, filed for an IPO after the close of business on Monday. Rubrik's choice to go public now, following the IPOs of Reddit and Astera Labs, could indicate that the IPO market for tech companies is heating up.

As a private market company, Rubrik last raised money in 2019 where it closed a $261 million round at a $3.6 billion post-investment valuation, according to Crunchbase. The company's IPO is likely to be priced much higher than its last round. In recent months, buyers in the secondary market have bid for shares of the company valued at $6.6 billion. Caplight, a secondary data platform, estimates the company's valuation to hover around $6.3 billion.

Rubrik Bubbles sells a cloud-based data protection platform for businesses. According to Rubrik's IPO filing, as of January, the company had more than 1,700 customers with carriers valued at $100,000 a year, and nearly 100 customers who paid Rubrik more than $1 million a year.

Rubrik's journey

Rubrik began as a medium-growth software company and reported a net loss of $354 million in its most recent fiscal year.

From FY2023 to FY2024, which ends in January, the company's revenues grew from $599.8 million to $627.9 million, a slightly lower increase than 5%. However, subscription revenues grew by 40% over the same period, from $385.3 million to $537.9 million.

Subscription revenue growth, rather than traditional revenue growth, was the engine that drove Rubrik's successful IPO. The company started out as a software company selling products under perpetual license. However, a few years later, the company began to shift to a subscription model in fiscal 2019. Over time, the company expanded its subscription (SaaS) offerings and told investors in its IPO filing that it expects its non-recurring revenues to "continue to decline" because it does not currently offer perpetual licenses in general.

Rubrik Bubbles' recurring revenue transformation is nearing completion, with the company reporting that in the most recent quarter (ending Jan. 31, 2024), subscription-related revenues accounted for $91% of total revenues. that's up from $73% in the same period a year ago.

The change in曏 subscription revenue helped Rubrik improve gross margins from 70% in FY2023 to 77% in the recently ended FY2024.

However, growth in the recurring revenue software business and improved gross margins did not address Rubrik's heavy losses. For the 12 months ended January 31, 2024, the company's net loss increased from 46% of revenue in fiscal 2023 to 56% in fiscal 2024, totaling approximately $354.2 million.

However, despite the steep losses, Rubrik's cash consumption was relatively low. The difference between its net loss and operating cash deficit was not solved by cutting expansionary share-based compensation; these are single-digit multi-million dollar annual expenses for the company. Instead, Rubrik has increased its deferred revenue by hundreds of millions of dollars in recent years by taking its pro rata share of revenue up front, limiting its net operating cash outflow over the same period.

Silicon Valley Story

Rubrik's potential initial public offering could be a coup for Lightspeed Venture Partners, a leading Silicon Valley venture capital firm. Bipul Sinha, Rubrik's co-founder and chief executive officer, is a former name partner of Lightspeed Venture Partners for the past decade. The venture capital firm led Rubrik's Series A financing and, according to Crunchbase, has participated in all of Rubrik's subsequent financings. Investing in ex-partners is nothing new in the VC world, with some firms even creating in-house positions for founders or entrepreneurs-in-residence. But Sinha's company went public with 23.9% in the hands of his former employer, underscoring the impact of networking on startup financing.

Greylock, the other venture capital firm most closely associated with Rubrik's IPO program, is the investor Asheem Chandna, a member of the Board of Directors, who owns approximately half of Lightspeed, or 12.2% of Rubrik's voting stock, prior to the public offering of new shares.Greylock led the investment in Greylock led Rubrik's Series B financing.

Other investors who participated in Rubrik's fundraising did not meet the 5% threshold for mandatory inclusion in the company's S-1 filing, but Enrique Salem of Bain Capital Ventures, which led the company's Series E round of financing, joined the company's board of directors. Other board members include Yvonne Wassenaar, former chief executive officer of Puppet; Snowflake board member Mark McLaughlin; and John Thompson, another Lightspeed member and former Microsoft board member. Previously, NBA player and investor Kevin Durant was announced as an advisor to the company's board of directors, but he was not mentioned in the IPO documents.

The fact that these founders are all Silicon Valley A-listers beloved by the venture capital community demonstrates the often incestuous nature of the relationships these tech companies have with other companies through their personal networks. The relevant third-party disclosure documents note that Sinha has co-founded another startup called Confluera, of which he is still a board member. In FY2022, Rubrik spent $124,640 on Confluera. Co-founder Arvain Jain is still a major shareholder in the company, but he has started an AI startup, new favorite Glean, on which Rubrik has spent $356,000 since April 2021, according to the company in its S-1 filing.

While Rubrik notes that its purchases of technology products and services from Confluera and Glean were "negotiated in the normal course of business," it also highlights the connections that exist between many Silicon Valley operators. While Rubrik's S-1 doesn't suggest any impropriety, it is a reminder that the effectiveness of networking in the startup and venture capital worlds often depends on relationships and their geographic proximity in places like Northern California.

What's the problem?

Currently, there are more than 1,000 startups around the world with valuations of $1 billion or more. Those companies that remain in a state of limbo need to find a way to exit and return capital to their backers. With the IPO market long behind the pace needed to clean up these companies, many private market companies are waiting for a clear shotgun to pursue their own public offerings. If Rubrik can price and trade well in its IPO, it could help other still-unprofitable enterprise-focused software companies try to go public as well. That's good news for founders and venture capitalists alike.