Klaviyo is a marketing automation software company. Its SaaS platform allows businesses to market to customers via SMS text and email. It’s been a private company since it was founded in 2012 and has raised over $770 million in funding. In 2021, Klaviyo raised $320 million at a $9.5 billion valuation. Friday it filed its draft S-1 IPO filing to become a public company.

Here are a few things I noticed in the S-1:

• SaaS platform that “enables business users of any skill level to harness their data in order to send the right message at the right time across email, SMS, and push notifications, more accurately measure and predict performance, and deploy the specific actions and campaigns that drive the highest impact” (page 1)
• 1,548 employees (page 22)
• 77.5% of annual recurring revenue (ARR) derived from customers who use Shopify’s platform (page 24)
• Transitioning from majority month-to-month SMB customers to enterprise customers with longer contractual revenue agreements (page 28)
• Federal and state net operating loss carryforwards of $199.2 million and $118.6 million, respectively (page 39)
• Customer counts (page 77):
  -2014: surpassed 100 customers 
  -2016: surpassed 1,000 customers
  -2018: surpassed 10,000 customers
  -2023: surpassed 130,000 customers
• 1,458 customers each generating over $50,000 ARR (page 78)
• Dollar-based net revenue retention rate of 119% as of June 30, 2023 (page 79)
• Sold 2.9 million shares for ~$100 million to Shopify on July 28, 2022 (page 156)
• Fees paid to Shopify per revenue sharing agreements (page 157):
  -2020: $5.2 million
  -2021: $7.8 million
  -2022: $16.2 million
• 7-year collaboration agreement signed July 28, 2022, with Shopify: Klaviyo is recommended email provider for all “Shopify Plus Merchants” (page 157)
• Shopify issued warrants to purchase an additional 15.7 million shares at $0.01 per share, or $157,000 total—25% vested when collaboration agreement signed, 25% vests when IPO is completed, remainder vests quarterly (page 157)
• Equity ownership (page 164):
  -Andrew Bialecki (CEO/Co-founder/Chairman): 38.1%
  -Ed Hallen (CPO/Co-founder): 13.9%
  -Summit Partners: 22.9%
  -Shopify: 11.3%
  -Accomplice Fund: 5.7%
• Cash, cash equivalents, restricted cash as of June 30, 2023: $439 million (page F-3)
• Accumulated deficit as of June 30, 2023: $2.2 billion (page F-3)
• Revenue (page F-4):
  -2021: $290 million
  -2022: $472 million
  -2023 (through June 30): $320 million
• Net profit/loss before tax provisions (page F-4):
  -2021: $79 million loss
  -2022: $49 million loss
  -2023 (through June 30): $16 million profit
• Free cash flow (pages F-7, F-22, and 94)
  -2021: $36.7 million consumed
  -2022: $41.7 million consumed
  -2023 (through June 30): $53.4 million generated

This is a draft S-1, so some information is missing and will be added before it’s finalized.

Klaviyo is growing quickly, has become free cash flow positive, and is generating a profit. The company fortunes are heavily tied to Shopify. The concentration risk related to Shopify could affect public market investors’ appetite for Klaviyo. I’m curious to see how receptive public market investors are to this IPO and what valuation public markets settle on for Klaviyo.

Instacart is a well-known grocery marketplace and delivery company. It’s been a private company since it was founded in 2012 and has raised almost $3 billion in funding since inception. It recently filed its draft S-1 IPO filing to become a public company.

Instacart is a high-profile tech company that’s raised a large amount of venture capital, so I was curious about its S-1. Here are a few things that caught my attention:

• “Grow the pie” core value focuses on growing their partners’ businesses so entire ecosystem benefits from network effects (pages v and 15)
• Began as a marketplace but now focuses on “powering the future of grocery through technology” (page 2)
• Estimates grocery retailers have spent $14.2 billion on enterprise IT—~1% of their revenue (page 5)
• In addition to being a marketplace, Instacart Enterprise Platform is an end-to-end solution that includes these solutions (page 8):
  -eCommerce allows retailers to have online storefronts
  -Fulfillment API and staffing helps retailers fulfill online orders
  -Connected Stores helps retailers unify online and in-store
  -Ads enable brands to advertise on retailer-owned storefronts and apps
• 3,486 full-time employees (page 54)
• Revenue is made up of transaction revenue (retailer fees, customer fees, etc.), advertising revenue, and fees paid to use Instacart’s technology (page 105)
• Gross transaction volume (page 121)
  -2019: $5.1 billion
  -2020: $20.7 billion
  -2021: $24.9 billion
  -2022: $28.8 billion
  -2023 (through June 30): $14.9 billion
• 590% revenue growth and 4x gross transaction volume growth year-over-year in 2020 due to COVID-19 (pages 131 and 132)
• Gets 74% of online grocery orders that exceed $75 and 56% of orders for less than $75 (pages 134 and 135)
• Cash, cash equivalents, and marketable securities of $1.9 billion (page F-4)
• Revenue (page F-5)
  -2020: $1.4 billion
  -2021: $1.8 billion
  -2022: $2.5 billion
  -2023 (through June 30): $1.4 billion
• Net profit/loss before tax provisions (page F-5)
  -2020: $70 million loss
  -2021: $72 million loss
  -2022: $71 million profit
  -2023 (through June 30): $306 million profit
• Net cash provided by operating activities (page F-12)
  -2020: $91 million consumed
  -2021: $204 million consumed
  -2022: $277 million generated
  -2023 (through June 30): $242 million generated
• PepsiCo, Inc. is purchasing $175 million of stock via a private placement (pages F-66 and 313)

This is a draft S-1, so some information, such as equity ownership, is missing and will be added before it’s finalized.

Instacart has built a massive business that benefited tremendously from COVID tailwinds. In the last eighteen months, it appears to have focused on profitability. Growth appears to be slowing.

In early 2021, the company raised $265 million at a $39 billion valuation. In late 2022, it reportedly was internally valued at $13 billion. I’m curious to see how Instacart is received by public market investors and how they value the business.

This is my one-hundred-seventy-eighth weekly reflection. Here are my takeaways from this week:

• Determining value – I’ve noticed a trait common to successful entrepreneurs who happen to be investors—I call them “investor entrepreneurs.” They can confidently value what they’re investing in—often in a way that differs from the rest of the market. When buying anything, they make sure to pay significantly less than what they’ve determined it’s worth, regardless of what others are doing and regardless of the asset type (real estate, start-ups, public companies, etc.).
• IPOs – I noticed, this week and last, an uptick in the number of tech-related firms planning to go public. Instacart, Klaviyo, and Arm are a few examples. I’m curious to see how the market receives these companies. I’m also curious to review their IPO filings to find out if they’re generating or burning cash.
• Emulate what you admire – Habitually emulating the positive qualities you admire in others is a life hack that compounds. Everyone can do it, but most people won’t.

Week one hundred seventy-eight was another week of learning. Looking forward to next week!

OnlyFans is a social media company that’s surged in popularity since the pandemic. The company has a less-than-stellar reputation because of the type of content creators post on the site. I’ve never used the site and don’t know a lot about it, but I read an article about the financials that caught my attention.

The parent company, Fenix International Limited, is based in the UK, so its financial statements are public. I looked at its latest financial report covering 2022 and noted the following:

• Creators on the platform grew 47% to 2.16 million
• Fans (i.e., users) on the platform grew 27% to 187.9 million
• $1.09 billion in total annual revenue
• ~67% of annual revenue is generated in the US
• ~48% of revenue is subscription
• ~52% of revenue is transactional (take rates from purchases)
• Net profit (after taxes) of ~37% or $403 million
• Dividend of $338 million paid in 2022
• Dividend of $310 million paid in 2021

Bloomberg says the company is owned by a single individual, to whom all dividends are paid.

Again, I don’t know anything about the platform and haven’t used it, but its financial performance is something to take note of. The revenue, net profit, and dividend figures surprised me.

I’ve been learning about successful entrepreneurs who happen to be investors—I call them “investor entrepreneurs.” I heard about Stanley Druckenmiller and have been learning about his journey as an investor.

Druckenmiller is a hedge fund manager, which I’m less familiar with. I’m still learning about that investing style and about hedge funds, but one thing has stood out to me from learning about Druckenmiller: there are many creative ways to deploy capital and achieve outsize returns. There’s no set path that all investors must follow. Some investors like to invest in what others might consider unorthodox ways, and they can still be successful. 

I’m excited to continue to learn more about Druckenmiller, his approach, and why he was successful. 

I’ve been chatting with several founders who put off raising in 2022 and earlier this year in hopes that fundraising conditions would improve. They’re now at the end of their runway—they must raise new capital. It’s a tough spot to be in, and I suspect it may be more common than not for early-stage founders who raised in 2020 or 2021. 

Summer vacation season is over, and public markets rebounded through July (August has been a down month so far). The optimal window before year end in which these founders can raise capital opens in September and closes around Thanksgiving. This two-and-a-half-month window could be make or break for many early-stage start-ups this year.

I’m curious to see how many early-stage founders begin fundraising in September and how the number of investments completed in this year’s window compares to last year.

I was chatting with a kid interested in entrepreneurship recently. He wants to start some sort of business and asked me where to begin. That’s a broad question, so I shared my story.

When I was a teenager, I was obsessed with fixing up cars and spent tons of time learning about it. What are the best parts? Who makes them? How do you buy them? How are they installed? I was more knowledgeable than most people. My friends ended up paying me to help them fix up their cars. And that morphed into a large business years later.

I ended by advising him to find a problem he’s obsessed with and keep feeding his obsession. Eventually, the obsession will lead to figuring out how to solve the problem. Others will think his obsession is odd at first. But once he masters the problem and solves it, they’ll think he’s a genius. They may even end up being his customers.

I recently watched COIN: A Founder’s Story. It’s a documentary about Coinbase CEO Brian Armstrong and his journey from software developer to CEO of a publicly traded company worth tens of billions of dollars.

Coinbase wasn’t a smooth ride. Its trajectory was far from up and to the right. The journey was full of twists, turns, and obstacles (many of which persist today). The documentary covers all of this. Some of it was new to me: specifically, how Coinbase found product–market fit, the tension between Armstrong and his cofounder Fred Ehrsam, and how Armstrong evolved as a leader as the company grew.

Anyone interested in hearing about the early days of Coinbase and Armstrong’s journey as a founder should check out the documentary here.

I’m friends with an entrepreneur running an automotive service business focused on consumers. He’s been at it several years and is thinking about possibly selling the business one day. He would need to grow revenue and increase margins to make it attractive for acquisition. He has various ideas about how to do this, but his current model creates obstacles:

• Consumers need his service only once every five to ten years, so he must acquire new customers every month.
• Consumers view his service as an expense (i.e., its cost exceeds its perceived value) and negotiate hard, which negatively impacts margins.
• Managing relationships with consumers is a constant pain point for his staff and requires that he run at elevated staff levels, reducing margins.
• Each consumer has a different car, which adds operational complexity to servicing vehicles and reduces throughput.

He recently shared an idea he’s experimenting with. The automotive service he offers is something fleet owners can use too. Instead of continuing to focus on consumers (B2C), he may switch to targeting businesses (B2B). Here’s what he learned from some customer discovery:

• Small fleet owners are growing in his area.
• Each vehicle in a fleet needs to be serviced annually, so he could expect monthly repeat business.
• Down vehicles reduce revenue, so fleet owners view his service as helping them generate revenue (i.e., its perceived value exceeds its cost), which positively impacts margins.
• Working with repeat fleet owners simplifies relationship management, reducing the burden on his team and making it possible to operate with a smaller team, thereby increasing margins.
• Fleet owners buy the same vehicles, which simplifies operations and increases throughput.

Through trial and error, this entrepreneur has learned a valuable lesson: why some businesses are better suited to focusing on other businesses (not consumers) as their core customers.

It’s early, but I suspect this entrepreneur will pivot his business from B2C to B2B and finally reach the scale and profitability that’s eluded him thus far.

This is my one-hundred-seventy-seventh weekly reflection. Here are my takeaways from this week:

• Pricing – Determining the pricing model for the first version of your product is hard. I recently spent time with an early-stage founder on this. Pricing should give customers an incentive to use the solution more, not look for an alternative. It should also capture as much of the value you create for customers as possible. Finding the right approach requires balancing these two factors, as well as others, and is easier said than done.
• Better decisions – Making decisions that align with the long-term future you aspire to is difficult for some people. I underestimated just how difficult it is for some people. Suzy Welch’s 10-10-10 method is simple and has resonated with a few people I shared it with.  
• Independence – I’m not a fan of dependence. Needing to be in the driver’s seat of my own life led me to entrepreneurship, and it continues to be important to me. This week reinforced this feeling.  

Week one hundred seventy-seven was another week of learning. Looking forward to next week!