Aussie tech star Rokt’s valuation leaps by $750m as Nasdaq looms – AFR Feature
Bruce Buchanan Rokt 1 1382x1536 1 E1633330528183

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(AFR Feature – Dec 12, 2022)

E-commerce marketing technology company Rokt has joined an exclusive group of growth-stage private tech companies globally that have managed to increase their valuations significantly in 2022, despite the toughest capital raising conditions in recent memory.

In a positive sign for its 2023 initial public offering aspirations, early Rokt employees and investors sold a tranche of shares to local VC fund Square Peg Capital and one of the world’s largest investment firms, Wellington Management, in a secondary round that valued the business at $US2.4 billion ($3.5 billion).

The share sale comes a few weeks shy of 12 months since it closed its mega $458 million capital raise last year, which at the time valued the business at $2.75 billion.

Rokt chief executive Bruce Buchanan said the $750 million valuation bump was recognition of the company exceeding its growth forecasts for 2022, and its long track record of profitability.

“In a market where most of the tech sector is down 50 per cent to 80 per cent, the fact we’re up 25 per cent to 30 per cent is the really amazing thing,” he said.

“The business and revenue has continued to go from strength to strength, we’ve out-achieved our budget, and we’ll do $US350 million to $US355 million in revenue this year and our growth rate has accelerated year-on-year.

“On top of that is the fact we’re profitable, and we’re the master of our own destiny. In times when cash gets more and more expensive and investors are looking for businesses that are profitable, that’s valued more highly.”

While the valuation increase pleased Mr Buchanan, he admitted the jump would have been higher if the tech market was not depressed.

Tomxbruce2 Afr Article
Bruce Buchanan – Rokt Founder – photo originally published by the Financial Review

Funding Landscape

New figures from Cut Through Venture indicate $638 million was raised by local start-ups in November across 44 deals, down from $1.3 billion in November 2021.

While start-up funding remains depressed on 2021 levels, the amount of capital raised still comfortably exceeds 2020.

The figures from Cut Through, which is working with Folklore Ventures on a State of Australian Start-up Funding report due to be released in February, indicated that climate-clean tech was the most popular investment category, with five deals in the month, followed by hardware-robotics and food-beverage.

Rokt, which Mr Buchanan founded in 2012 after leaving Jetstar, provides transaction marketing software, which uses artificial intelligence to present customers with offers for complementary products and services after the online checkout.

Its technology has led to more than 5 billion transactions globally and is used by brands such as Uber and AMC Theatres – which it won as clients in the past year – as well as Hulu, PayPal, HelloFresh and Disney.

It is headquartered in New York, but its research and development hub remains in Sydney.

Rokt has a year-end of January 31 and the business expects to finish the year with about $US280 million in the bank.

With plenty of cash and being profitable, Mr Buchanan said Rokt typically had a strong secondary component to all of its capital raisings in the past few years.

“We haven’t really needed capital,” he said.

“Our employees own 22 per cent of the business and a lot have been with us for eight, nine, 10 years, and they’ll do it when they have kids going to college, or they’re buying a house.

“This round was more dominated by early investors who needed liquidity for fund end-of-life issues. There are some early investors who have been able to continue to double down, but for others there’s been a 20-fold improvement [in valuation] since the Series A nine years ago, so if someone had bought 5 per cent or 10 per cent of Rokt back then, they may need to rebalance [their portfolio] now.”

Profitable ‘for a very long time’

The new investment from Square Peg makes it the sixth time since 2013 the VC fund has invested in Rokt.

Square Peg partner Paul Bassat said this reflected the fund’s enthusiasm and belief in the company.

“The fact this round is being priced at a premium to last year’s round makes Rokt a pretty rare outlier,” Mr Bassat said.

“The business has been profitable for a very long time, long before it was trendy or popular. It talks to the quality of the business model and how well it’s run.

“They also don’t rely on third-party data, but first-party data, so they’re not impacted by Apple’s app tracking changes. It’s a whole combination of things [that led to the valuation increase] … but what excites us is we think this is a business that could be five to six times larger in the next 10 years.”

Rokt is targeting a Nasdaq IPO in November 2023, but Mr Buchanan said if the IPO market remains closed, he would be open to delaying it a few months and waiting for conditions to improve.

Square Peg, Mr Bassat estimated, owns about 12 per cent of the company, making it the second-largest external investor, behind TDM Growth Partners.

The fund owns its Rokt shares across a variety of funds, and Mr Bassat expects Square Peg will sell shares from its earlier funds as part of the IPO, but remain on the register for the next five to seven years.

“That’ll be about a 15-year period where we have a relationship with the company. While investors like us are early-stage, it shows there are chances to build relationships over an extended period of time,” he said.

In the past year, Rokt has added 1000 new enterprise customers to its platform and launched a product for small- and medium-sized businesses.

Next year it expects to generate upwards of $US500 million in revenue, will roll out new products and expand into more countries.

The company’s biggest issue, Mr Buchanan said, was hiring fast enough, which he says is getting easier because of the lay-offs from other tech companies.

“Next year we want to attract the talent to set ourselves up for not just 2023, but 2024, 2025 and 2026,” he said.

“The hardest positions for us to hire are senior leadership talent – we’re looking to build muscle to grow into the following year. The other big area we call RPD – Rokt product development, data scientists, PhDs doing machine learning and senior engineering talent.

“We look at downturns and ask ourselves how we can emerge from them in a stronger position…we have lots of firepower for hiring and project investments.”

This article was published by Yolanda Redrup on December 6, 2022 in the Financial Review

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