Rubrik’s IPO filing hints at thawing public markets for tech companies

Rubrik, a data cybersecurity company that raised more than a half-billion dollars while private, filed to go public after the bell on Monday. Following quickly on the heels of debuts from Reddit and Astera Labs, the choice by Rubrik to pursue a public offering now could indicate that the IPO market is warming for tech companies.

As a private-market company, Rubrik last raised a lettered round in 2019 when it closed $261 million at a $3.3 billion post-money valuation, according to Crunchbase data. The company could have luck pricing its IPO shares significantly higher than its last primary round. Buyers on the secondary market have bid for shares valuing the company at $6.6 billion in recent months. Secondary data platform Caplight estimates the company’s valuation hovers around $6.3 billion.

Rubrik sells its cloud-based data protection platform to enterprises. As of January, the company had over 1,700 customers with an annual contract value of $100,000 and nearly 100 customers who paid Rubrik over $1 million a year, according to its IPO filing.

Inside Rubrik’s growth

Rubrik initially presents as a moderately growing software business with net losses that stretched to $354 million in its most recent fiscal year.

From its fiscal 2023 to its fiscal 2024, which concluded at the end of January this year, the company’s revenue grew from $599.8 million to $627.9 million, or just under 5%. However, subscription revenue grew 40% over the same period, rising from $385.3 million to $537.9 million.

The growth in its subscription revenue, and not its legacy revenues, is the engine that could propel Rubrik to a successful IPO. The company began life as a software company that sold its product on a perpetual license basis. However, after several years, it began to shift toward a subscription model in its fiscal 2019. It expanded its subscription (SaaS) offerings over time and told investors in its IPO filing that it anticipates that its non-recurring revenues will “continue to decrease,” as it doesn’t generally offer perpetual licenses today.

Rubrik’s transformation to recurring revenues is nearing its completion, with the company reporting that in its most recent quarter — the period ending January 31, 2024 — subscription-related top line comprised 91% of its total revenue. That was up from 73% in the year-ago quarter.

The business model transition from licenses to SaaS can be costly and has weighed on stock prices of other large security companies like Splunk, said Brendan Burke, emerging technology analyst at PitchBook. “Yet Rubrik shares have traded at a 50% premium to the last VC round in secondary markets, suggesting the company will be able to justify a sufficiently high valuation to fund this shift,” he said.

The shift to subscription revenue has helped Rubrik boost its gross margins, which rose from 70% in its fiscal 2023 to 77% in its recently completed fiscal 2024.

However, a growing recurring-revenue software business and improving gross margins have not solved Rubrik’s stiff losses. The company’s net losses grew from 46% of revenue in its fiscal 2023 to 56% in its fiscal 2024, totaling some $354.2 million in the 12 months ending January 31, 2024.

However, despite Rubrik’s steep unprofitability, its cash burn has been comparatively modest. The difference between its net losses and operating cash deficits is not resolved through the excision of expansive share-based compensation; those are single-digit million yearly expenses at the company. Instead, upfront collection of ratable revenue helped Rubrik expand its deferred revenue by hundreds of millions in recent years and limited its net operating cash outflows over the same period.

A Silicon Valley story

Rubrik’s potential IPO could prove a coup for Lightspeed Venture Partners, a well-known Silicon Valley venture capital shop. Bipul Sinha, Rubrik’s co-founder and CEO for the last decade, is a former partner at Lightspeed. The venture capital firm led Rubrik’s Series A, and, per Crunchbase, took part in all its successive funding rounds. Investing in a former partner is not unheard of in venture circles, with some firms even building out founder or entrepreneur-in-residence roles internally. But to see Sinha’s company come to market with 23.9% ownership in the hands of his former employer underscores how personal networks can affect who raises capital in startup land.

Greylock is the other venture firm with the most on the line when it comes to Rubrik’s planned IPO, with its investor Asheem Chandna on the board and ownership of around half of Lightspeed’s stake, or 12.2% of Rubrik’s voting stock, before new shares are sold in the public offering. Greylock led Rubrik’s Series B.

Other investors that led lettered rounds in Rubrik did not meet the 5% threshold required for mandatory inclusion in the company’s S-1 filing, but Enrique Salem from Bain Capital Ventures, which led the company’s Series E, is also present on its board. Other board members include Yvonne Wassenaar, the former CEO of Puppet; Mark McLaughlin, who sits on Snowflake’s board; and John Thompson, another Lightspeed denizen and former Microsoft board member. NBA player and investor Kevin Durant was previously announced as a board adviser at the company, though he is not mentioned in its IPO filing.

The founders are the kind of Silicon Valley A-list that the VC community loves, demonstrating the often incestuous relationships that these tech companies can have with each other through their personal networks. The related third-party disclosures point out that Sinha co-founded another startup called Confluera, where he still sits on the board. In its fiscal 2022, Rubrik spent $124,640 with Confluera. Co-founder Arvind Jain, who remains a major shareholder but has gone to found a new darling AI startup, Glean, is also really well known from his days as an early Google employee. Rubrik reports in its S-1 filing that it spent $356,000 with Glean since April 2021.

While Rubrik notes that its purchases of technology products and services from Confluera and Glean were “negotiated in the ordinary course of business,” they underscore the connections that exist between many Silicon Valley operators. Those same connections can help founders repeat prior successes by buying from and selling to friends and former colleagues. The Rubrik S-1, while not indicating anything untoward, is a reminder that network effects in startup and venture circles are often predicated on relationships and their geographic density in places like Northern California.

What’s on the line

There are more than 1,000 startups in the world today with a valuation of $1 billion or more. Those that are still in fighting shape need to find a way to exit and return capital to their backers. With the IPO market long behind the needed pace to clear those decks, many private-market companies are waiting for a clear starting gun to pursue their own public offerings. If Rubrik can price and trade well in its own debut, it could help other, enterprise-focused software companies that are still unprofitable to also take a shot at going public. That would be welcome news for both founders and venture capitalists alike.