The mother of all software IPOs

Matein Khalid
Freshworks is going to be the mother of all software IPOs on Nasdaq now that it has filed its S1 with the SEC. In fact, the Mommy and Pappy of the new breed of software 2.0 CRM deals incubated is among the hottest puppies I have seen midwifed by the Silicon Valley VC cognoscenti. These include the VC Gods of Mount Olympus – Sand Hill Road and Bangalore’s Technopolis. Freshworks VC’s include such colossi as Sequoia, Tiger Global and Accel Partners.

This will only be a $100 million IPO and the grapevine tells me the float will be razor thin, so none of the insiders are selling and the rollercoaster could trade at a 80 to 100% premium when it breaks syndicate. Yet I passionately believe that Freshworks (FRSH) has a place in the “Back to the Future” segment of my portfolio as I sense a potential winner of the Gorilla Game.

JPM, MS and Bank Am are the underwriters of the deal but don’t hold your breath for a primary IPO allocation as it will be multiple times covered and I will not be surprised to see a $11 billion valuation in its first trading day.

Girish and his South Indian uber engineers will be uncorking some expensive champagne bottles in their glass aerie or at least treating their Yankee colleagues with the subliminal joys of a Saravana Bhavan super-dooper masala dosa meal with optional culinary yummies. Svāgata to the market guys and Manju’s Kannada/Tamil skills will be put to good use as he jets to the Bay Area in our next deal hunting trip in December.

Rule No. 1 in Valley investing: Bonding helps you win a 10X deal while bonds only kill your wealth in the long run as Uncle J has embraced inflation.

Freshworks was founded a decade ago by Rathna Girish and Shan in a Chennai warehouse. It is a testament to the genius of the Accel deal team that they realized that this little Tamil Nadu startup had the requisite CRM software intellectual capital to take on industry colossi Salesforce.com, Oracle, SAP and Zen Desk. The fate of this company, like my beloved Udemy (stay tuned for big news guys) is decided in the boardrooms of its VC financiers as the Big Three alone own 64% of the voting stock while the founder/CEO owns 7%.

True, the valuation is nosebleed for a company that is still not profitable and is valued at 3X its Series H private market round two years ago back in the pre-COVID Stone Age in November 2019. These metrics do not dampen my obsessive interest in FRSH.

I once hired Litto Thomas when he was a timid little bababoy in 2002 but now I do my ragas to the Equity Maestro of Dubai who will help me decide our strategy on this puppy. All I know is that FRSH has 52,000 clients for its CRM/HRM software now including the Klarna Bank I had profiled last September. Klarna Bank was $11 billion in Sep 2020 and its $46 billion in the pre-IPO market now.

As Amitabh Bachchan challenges the world kaun banega crorepati? Knowledge is power, not PowerPoint.

Matein Khalid is Chief Investment Officer at Asas Capital