Saturday, May 17, 2014
Analyzing Zendesk's Financing History
Since Zendesk just completed a successful IPO, I prepared this chart to understand Zendesk's financing history. The chart compares Zendesk's financing history (as shown by the price per share of the newly issued preferred stock -- the red triangles) against the company's performance (as shown by annual revenues -- the green boxes).
Zendesk's company performance is amazing! The company's revenues are growing exponentially.
Normally, we would expect a similar curve for the price per share of preferred stock. The Late Stage Investors (Series C and Series D) clearly identified a great company. The company has most likely met or exceeded expectations at the time of the Series C and D financing. But, in hindsight, the valuation multiple was too high. The cause is obvious -- the public market valuation multiples for high growth software companies have declined by 50% in the last 60 days (drop in Valuation Multiples). That's why i mentioned in a prior blog post that the late stage investors are truly experts in pricing (Late Stage Investors Resembling Sherlock Holmes).
Investing in hindsight is so easy.