Let's all stare at OneStream's IPO filing

Welcome to Cautious Optimism, a newsletter on tech, business, and power. Modestly upbeat.

Today is July 16th, 2024, and we’re looking at AI regulation and a technology IPO set to debut next week.

The Rundown

• 📈 Trending Up: Uber rivals … AI in Excel … Stripe’s ability to stay private … sexism in venture … divorced dad energy … U.S. retail sales compared to expectations … Google for AI …

• 📉 Trending Down: Capital raised by all-women founding teams … Byju’s, heading for insolvency proceedings … the ability to acquire not acquire smaller AI companies … on both sides of the Atlantic … Kaspersky …

• 🤔 What Else?

  • AI Regulation: We’re watching a natural experiment play out in AI. China’s AI regulations appear so hard to meet that the country will struggle to produce an LLM worth a damn outside of its own borders — while Europe is trying a layered, mostly-measured approach to AI regulation that seeks to segment the industry into several risk ‘tiers,’ when its products reach consumers and customers.

  • The WSJ details how hard it is to build an LLM that won’t say something banned in China. In essence, getting modern AI technology to nest neatly inside a censorship regime of digital deletion designed for the Web 2.0 days will hamstring China’s ability to push the leading edge of AI forward.

  • The FT digs deeply into the grit of the EU’s AI regulatory push. There’s some concern that the rules — as they are understood today — could make it harder to build tech companies and services at the cutting edge. The risk is that the bloc could fall behind in a key economic area at a time when growth in the EU is already slow, to put it mildly. One official argued to the paper that the AI rule set does not cover every little thing, and “excludes research and development, internal company development of new technologies and any system that is not high risk.”

  • The United States, in contrast, cannot legislate its way out of a paper bag, leaving states to come up with their own rules. That’s one way to do it. Of several.

Via Preet Patel

Inside OneStream’s IPO filing

OneStream. You haven’t heard of it. I had not heard of it. But the financial and corporate planning software company will provide the market with a heat-check for SaaS at a time when the domestic political landscape is a mess and we’re facing a massive IPO shortage.

It’s so bad out there that Sequoia is resorting to PE-style fund-shifting tactics to help some of its own backers get cash back from their 2009 and 2011 investments into the venture firm’s funds that backed Stripe. That is not what you see in a healthy market for public-market debuts.

This morning, we’ll discuss how OneStream reached the public markets, its current financial health, price range, and what hope—if any—its upcoming listing may offer software unicorns desperate for an exit. To work!

OneStream in brief

OneStream is not a traditional software startup. In its own words, it was initially “bootstrapped” with “no external investments at all.” That changed when it sold a majority of its shares to KKR in 2019, noting at the time that it had just announced “137 percent year-over-year growth in software sales in 2018 and record profitability.”

The KKR deal pushed OneStream’s valuation to the billion-dollar threshold at the time.

When I sorted all that out, I got worried. What if KKR had taken a software company with a history of rapid growth and profitability, loaded it up with debt, and then pushed it toward the public markets while it bled cash?

Good news! That didn’t happen!

OneStream today

If you want a look inside what OneStream sells, Clouded Judgement has what you need here.

According to its most recent S-1 filing, OneStream generated between $116.5 million and $117.5 million in total revenue in the second quarter, up 35 to 36% compared to its year-ago results. For a software company at scale, that’s an attractive growth pace. So good, in fact, that only a handful of other public software companies are growing at the same pace or better.

The company’s growth has not been cheap, however. OneStream’s profitability evaporated under KKR’s tutelage, with the company posting net losses ranging from $7 million and $22 million from Q1 2022 to Q2 2023. Following, OneStream pumped in two quarters with single-digit millions worth of net income only to slip back into GAAP losses in the first and second quarters of this year.