Klaviyo could be the rare startup to defend a late-stage 2021 valuation

As the IPO market slowly comes back to life, it’s becoming easier to understand just how far off the mark some startup valuations were back in 2021. Instacart had an impossible $39 billion valuation during the heyday of startup investments, but the delivery company is now nibbling its way toward the $10 billion mark as it heads to the public markets.

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Normally, any startup going public with a price tag in excess of $9 billion would warrant ample celebrations on the part of its builders and backers. But with a peak valuation nearly four times higher around its neck, the narrative surrounding Instacart’s IPO is more mixed.

Not all valuation metrics from that era are so far off, though, provided the company in question has had a few years to grow into its prior price and is a standout performer in its niche.

Klaviyo appears to be one such company. The Boston-based email marketing firm looked a bit light from the nondiluted valuation perspective when it revealed its initial IPO price range yesterday, but if you calculate its fully diluted valuation at the midpoint of its $25 to $27 per share price range, Klaviyo lands at a pretty strong $8 billion. That’s a bit above $27 per share, if you want to run the math yourself.

That’s pretty damn close to its $9.5 billion post-money valuation, which it earned back in May 2021 when it raised $320 million, per Crunchbase.

So if Klaviyo were to raise its price range before going public, or at least price a little above its initial pricing interval, we could very well see the company pull off an IPO that’s on par with its last private valuation.

If flat is the new up in the world of venture capital, going public with a price tag that’s in line with a bubble-era late-stage valuation is nothing less than a gobsmacking win. Investors funneled a mountain of capital into late-stage startups back in those golden days, expecting public-market multiples to remain hot. They did not, as we now know, and the resulting repricing has been brutal. Perhaps Klaviyo can show others a way out?

Let’s do a little math on the Klaviyo IPO price range and see if we should expect the unicorn to get even closer to its final private price. Here’s hoping we’ll uncover a little bit of good news for startups everywhere.

A flat exit? In this economy?!

Here’s a quick look at Klaviyo’s financials. We have more notes here, but this is what you need to know for now:

Klaviyo is growing quickly: Revenue rose about 63% to $472.7 million in 2022 from $290.6 million in 2021. More recently, the company’s revenue rose 54% to $320.7 million in the first half of 2023, up from $208.3 million a year earlier.

The company is profitable: Net loss narrowed to $49.2 million in 2022 from $79.4 million a year earlier. And that quick growth coupled with smaller losses helped Klaviyo’s net margins improve rapidly to –10% in 2022 from –27% in 2021. Things have been even better recently. The company turned a profit of $15.2 million in H1 2023, compared to a loss of $24.6 million in the same period a year earlier. It also swung to an operating profit, so the company appears to be on a sustainable path to profitability.

As a result of these factors, Klaviyo is set to earn a revenue multiple to top the charts. Annualizing the company’s H1 2023 revenue, it gets run-rate revenue of $641.4 million. At an $8 billion valuation, that puts the company’s worth at around 12.5x its current annualized revenue. Using its second-quarter top line in that calculation gives us a slightly smaller figure (12.2x), but it’s directionally similar.

With a 12x forward multiple, Klaviyo will join a small club of about a dozen public software companies that are priced similarly. Shopify is worth around 11.7x its own forward revenue, while Snowflake is worth 19.1x revenue, per Bessemer data. (Bessemer data uses enterprise value instead of market cap, but we’re making broad comparisons, so we do not need to redo all the math.)

All of that tells us that the valuation Klaviyo is targeting is not an impossible ask. In fact, it might be a bit light.

Klaviyo is growing faster than every company on the public markets with a revenue multiple above 12x, per Bessemer data. The closest, in terms of revenue growth, is Zscaler, by the by. And when you consider that Klaviyo generates lots of free cash flow, unlike some slower-growing companies with better revenue multiples on the public markets, you begin to wonder if we will see a higher target price attached to its IPO.

If that happens, its valuation would only get closer to that $9.5 billion price tag from 2021.

And because we can, let’s compare all these numbers with how the company was doing back when Klaviyo earned the $9.5 billion valuation: In the June 2021 quarter, the company had revenue of $67 million, which gave it run-rate revenue of $268 million. Against a $9.5 billion valuation, that makes for a multiple of around 35x, which wasn’t all that crazy for the time.

So, is the lesson here that many of the late-stage startups with colossal valuations will be able to defend them when they go public in the near future? Nope. Just that it is possible, provided you did not go completely insane when pricing that last private round and have managed to post stellar results since. Easy enough, right?