Next up on the IPO block is Netskope. Netskope is a cyber security company that provides a cloud-native platform for securing data, networks, and applications. The company helps organizations adopt a modern "zero trust" security approach, ensuring secure access for users from any where to web, cloud, and private applications.

Let’s take a look to see how the returns are for investors and employees. Please note that we will be using a opening day IPO price of $19 for this analysis. The range was listed on news articles at $17-$19 and it looks like they've gone out on the upper end of that range. Most employees/investors will have a 6-month lockup period, so their actual returns may vary depending on how the market views the company. These are certainly only preliminary numbers, as we’ve learned from Circle and Coreweave, a lot can happen in the lockup period.

Below is a graph of Netskope’s preferred and common stock pricing over time taken from the S1 they filed. Please note that we only include rounds and data point priced from 2018 onwards.  

Preferred Stock: How did the Investors do?

Series A (50.25x, Nov 2012), Series B (25.16x, May 2013), Series C (13.07x, May 2014 Series D (8.47x, July 2015), Series E (7.19x, April 2017). These investors all did awesome, ranging from a 7.19x for the Series E to about a 50x for the Series A. We decided to include the dates here so you can get a feel of just how long this company has been private for. Even the late-stage round of Series E had to wait eight years for liquidity, although their 7.19x is still handedly beating the S&P 500 which had a 2.77x in that same time period.

Series F (3.49x), this a good return here, beating the S&P which had a 2.50x return in the same time period, although I’m guessing they didn’t imagine this was going to take seven years to get liquid.  

Series G (2.27x), they are getting a decent return, but certainly nothing to write home about. These investors are just beating the S&P 500 which had a 2.04x.

Series H (0.93x), this is a tough one, going to be returning less than their money back after over 4 years. The S&P kicked these investors’ butts with a 1.52x return, though we will have to see where things settle at the end of lockup.

Common Stock: How did the Employees do?

Employees time! Below are the strike prices (the price employees pay to exercise their options) we could find at certain dates according to the S1. We also put the company size (Emp #) at each strike price data so you can get a feel for how many people were getting each strike price. This also includes the cost to exercise 1,000 shares, and what those shares are worth today. All exercise costs assume $0 in taxes, which is unfortunately rarely the case, but this allows us to compare these gross amounts apples to apples - as if they are being exercised and sold today. Typically, there will be either short or long-term capital gains associated with the sale (on top of AMT or income tax at the time of exercise).

As you can see from the graph above employee discounts were awesome here. Employees who started in in August of 2018 received a 12.75x and even those who just started earlier this year are getting a 1.53x which isn’t bad for such a quick timeframe.

Another important note is that we were only able to find these specific values within the S1, and it appears that at least another 600 employees were at the company before that first August 2018 date, so a significant amount of people most likely got even better returns than a 12.75x as well.

If you refer to the first graph we posted, you can get a feeling for just how significant a discount employees were receiving compared to the investors. For those who started in 2019, their stock was priced at more than half of what the Series F investors paid in. This is significant especially considering it was already a later stage startup at that point.

Key Takeaways:

1.     Overall, the returns for Netskope were strong and the vast majority of investors and almost all the employees are probably going to be happy with this outcome. However, once again the investors who came in the early 2020s are getting a poor return as the prices were just so exuberant then.

2.     This company took longer than most to get to an IPO. It was originally founded all the way back in 2012, so for many people this will have been a long time coming. The insane pricing of the Series H may have contributed to a delay as well, as the company tried to grow into that high price point over the past couple years.

3.    As usual, employees did awesome here. They all received great discounts compared to what the investors paid and I’m sure there will be many happy people coming on the lockup date.

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 Written by Sam Stroud, Investor at ESO Fund

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