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Suppose you have found a business that aims to sell a new type of processed food. You work hard for a little less than 10 years, perfect your product and you start generating revenue. In 2016, the company achieved a turnover of $ 16 million, and then growth begins to accelerate. Two years later, this figure has increased eightfold to $ 88 million.
Even if you're still a small business, the losses are limited and the natural operational impact of scaling a packaged product means that profitability is within reach.
So, of course, you decide to list your shares on the market. The date chosen is May 2nd. Your first investors have supported you and deserve to be rewarded for their perseverance. Under the terms of the offer, they and you can sell your badets 180 days after registration, October 29th.
Without any fault on your part, your company turns out to be one of the only listed companies to offer a product that feeds the spirit of pbadive eco-activism. This product is a vegetable protein. And your business is called Beyond Meat.
Investors are going gaga for your stock. The stock price is $ 25, but they open the first trading day in April at $ 46. Three months later, they receive $ 230.
We are in the middle of the summer and, just 90 days ago, you sold 8.75 million shares to raise $ 240.6 million. The money has clearly remained on the table: the number of shares you can now sell for the same amount in cash barely exceeds 1 million.
In addition, the valuation of society, by any rational measure, is now extreme. A market capitalization of $ 13 billion means that the company trades at 54 times the estimated revenue for 2019. Your peers are valued at a turnover equal to 1 to 2 times, but with much lower growth forecasts.
The situation is a dilemma: your 5% stake is now worth a little more than half a billion dollars, but you can not sell any shares until the end of October. In addition, an exuberant valuation means that the issuance of shares to add to the proceeds of the IPO is obvious, even if it dilutes new shareholders in the hope of making it profitable wealth equity.
So, after publishing your second quarter results – like Beyond Meat on Monday night – you are acting rationally and are announcing a new stock offering. 250,000 shares will be sold in order to raise $ 56.5 million. Not only that, but it was agreed that you, CEO and founder Ethan Brown, will be able to sell just over 1% of your 3,177,922 shares. You earn about $ 8 million at current prices.
The block has also been lifted for your main investor, venture capital firm Kleiner Perkins, and some of your fellow directors. None of them are completely profitable, making it a little further away from the table. The rest may be sold after the October deadline, subject to applicable safety laws.
Alphaville normally looked aside for executives who were retiring from a company shortly after a public offer. But selling 1% of your shares, enough to buy an upmarket family home in a nice neighborhood of Los Angeles, the hometown of Beyond Meat, does not seem so obvious.
The increase in equity no longer. Of course, those who bought the shares at a valuation of 54 times the sales could be angry, but then what? It's their fault. When stocks are too expensive and you need money to grow, it is prudent to sell stocks to collect additional cash. Just like buying back your shares when you think they are undervalued.
Unsurprisingly, Beyond Meat shares declined 12% to $ 195 before market. But really, should investors have expected something else in these circumstances?
Related links:
It's nut bread, Beyond Meat will it break down? – FT Alphaville
Beyond the meat is beyond reason, when is the accident? – FT Alphaville
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