nCino’s decision to pursue an initial public offering likely positions the banking software company for greater opportunities than would be available to it as a private entity.
So say two observers who have followed the Wilmington-based company’s moves with interest. The most recent was nCino’s SEC filing July 7 disclosing the details of its intended IPO, including a share price of $22-$24 each. If all purchase options are exercised and the shares sell for $24 each, the company could potentially raise about $210 million.
“As companies grow, they require more cash. They need money for facilities, equipment, research and development,” Adam Jones, an economist at University of North Carolina Wilmington, said Wednesday. “Where can they get money? They can fund their growth through borrowing from a bank, they can issue bonds, they can take on an equity partner or they can go public and let the shareholders be their partners.”
For a company as large as nCino, with reported revenues of more than $138 million in its most recent fiscal year, selling shares to the public is the most viable option to fund its anticipated growth, Jones said.
Private investments have fueled nCino’s growth thus far in its eight-year existence: investments totaling $80 million from several sources last October brought to about $205 million the amount the fintech has raised since 2014.
And now those private investors may be looking to see some returns, said Peter Heckmann, managing director of equity research for D.A. Davidson & Co.
“nCino probably does need some growth capital,” he added, saying that the IPO would allow the company’s earlier investors to sell some or all of their private shares at that time, or later in the open market. “Now there’s a public market for that stock; it’s easier to sell.”
Heckmann and his colleague Rishi Jaluria, a senior research analyst at D.A. Davidson, say that nCino is one of five or six fintech companies that are well-known nationally, and Heckmann agrees that the company meets the business definition of a unicorn: a privately held startup valued at over $1 billion. They believe nCino’s financials are “quite solid.”
“nCino has been generating strong growth, with over 40% organic revenue growth . . . on top of a relatively scaled revenue base of about $180M total revenue run-rate,” Jaluria wrote in an analysis after nCino announced its IPO intentions. “The most impressive number from the S-1 is nCino's 147% subscription revenue retention rate in fiscal 2019 (Jan), highlighting the rate of expansions within existing customers.”
It’s a good sign that earlier nCino funding rounds have drawn “big institutional investors” such as Fidelity, Wellington and T. Rowe Price, Heckmann continued.
“Those investors provide growth capital [early], and when the company goes public, they are already familiar with the company and may decide to buy more shares and take more risk.”
Other benefits to a company of going public include the opportunity to increase its brand profile, ability to accelerate growth and, with stock options, gain an attractive recruiting tool, Heckmann said. Capital from the sale of public stock can also give a company “liquid public currency” to pursue acquisitions.
Jaluria’s research also hints that nCino itself could be considering a merger.
“We would not be surprised if the S-1 is part of a ‘dual-track’ process (where a company explores an IPO and M&A simultaneously),” Jaluria's analysis stated. “We still see a chance for Salesforce (which owns about 13% of the company) to buy nCino and believe it would be a good fit alongside [Salesforce’s] recent acquisition of Vlocity.”
nCino’s Bank Operating System is built on the Salesforce platform.