Olo raises IPO range as DigitalOcean sees possible $5B debut valuation

It’s a busy day in IPO-land: Olo has raised its IPO range and DigitalOcean is giving us a first look at what it may be worth when it debuts.

That Olo raised its IPO price is not a huge surprise, given the software company’s rapid growth and profits. In the case of DigitalOcean, we have more work to do as its approach to growth is a bit different.

Let’s explore both companies’ pricing intervals through our usual lens of revenue multiples, market comps and general SaaS sass. We’ll do this in alphabetical order, which puts the cloud infra company up first.

DigitalOcean’s IPO price range

According to its S-1/A filing, DigitalOcean expects its IPO to price between $44 and $47 per share. The price range is a coup for the company’s private investors, who as recently as the company’s 2020 Series C paid about $10.59 each for the company’s shares. Andreessen Horowitz is going to do very well, having led the company’s Series A at a per-share price of just more than $2. IA Ventures, which led DigitalOcean’s seed round, according to Crunchbase, paid just $0.26 per share back in the 2012-2013 time frame. That’s going to convert well.

In valuation terms, the company’s simple share count post-IPO will be 105,303,340, or 107,778,340 if its underwriters purchase their option. At $44 to $47 per share, DigitalOcean is worth $4.72 billion to $5.07 billion, including shares designated for its underwriters.

The company’s fully diluted valuation is higher. At midpoint, Renaissance Capital estimates DigitalOcean’s diluted valuation is $5.6 billion. That works out to a little under $5.8 billion at $47 per share.

Taking a look at DigitalOcean’s Q4 2020 revenue of $87.5 million, the company closed last year on a run rate of $350 million. Or a revenue multiple of 14.5x at the upper end of its nondiluted valuation, and around 16.5x at the upper bound of its diluted worth.

Those seem somewhat aggressive, given that the company’s growth is linear — slowing in percentage terms, and the fact that DigitalOcean only grew around 26% from Q4 2019 to Q4 2020. Toss in gross margins of 56% and it appears that the market is welcoming DigitalOcean with some grace.

Anaplan and PagerDuty are around the same growth rate and multiple, if you wanted to snag some market comps for your own research. But on the whole, the DigitalOcean pricing seems not cheap, which is hardly too surprising given the IPO climate’s recent buoyancy.

Olo’s raised IPO price range

Olo’s raised price range is not a surprise. Extra Crunch wrote the following after its first IPO price interval was announced:

Biting my tongue a bit, if we saw a higher price range from the company before its debut, I would not fall over in shock.

Consider our tongues unbitten.

The new Olo price range raises its expected IPO value from $16 to $18 per share to $20 to $22. Still selling 18 million shares, the gross raise of the Olo IPO runs from $360 million to $396 million. The company’s underwriting banks have 2.7 million shares that they may purchase.

Olo will have 142,012,926 shares outstanding following its debut, or 144,712,926 inclusive of its greenshoe. Its simple IPO valuation range, including the underwriters’ shares, runs from $2.89 billion to $3.18 billion. And if our math pencils out, the company could be worth as much as $4.2 billion on a fully diluted basis, though most market observers are sticking to a nondiluted valuation for the company, interestingly enough.

For a unicorn that closed its 2020 at a run rate of around $122.2 million, all those numbers represent strong multiples. Especially as the company’s impressive GAAP profits dried up in the final quarter of 2020, after two consecutive quarters in the black. Still, during Q4 2020, the company grew by more than 100% compared to the year-ago quarter, while its net loss scooted up by about $1 million.

Oh no.

Olo features blended gross margins in the 80s, which is very good, and it has generated operating cash flow for years. The company is healthy and growing rapidly. And it will soon be flush with IPO funds. This is a no-brainer IPO, the only real question remaining being whether retail investors will want to pay a higher multiple for its revenues than the larger capital pools that will get IPO allocation.

The company is expected to price tomorrow after the market closes, and trade Wednesday. We’ll be watching.


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