HOMEGROWN classifieds startup Carousell aims to provide its investors an exit by 2024, its regulatory filings indicate.
Based on its latest fundraise and what it has told investors in the filing, the company could be trying for a valuation of at least US$1.13 billion.
But the final number, and how soon an exit happens, will depend on whether the startup can ramp up its topline. With US$15.7 million in revenue last year, Carousell likely has some way to go.
Last week, early investors of the eight-year-old startup saw partial returns from the US$80 million deal with a consortium led by South Korea's Naver Corp.
Will Carousell's backers reap even sweeter returns by its 12-year mark? The outcome is important to the tech ecosystem, as it may shape how investors feel about South-east Asian startups' exit potential.
According to a filing by Carousell Pte Ltd, the startup will "use its reasonable best efforts to provide an exit" to all preference shareholders within five years from the closing date of its investment agreement with classifieds giant OLX in April 2019.
Carousell's preference shareholders include early backers Rakuten Ventures and Sequoia India, as well as later investors Telenor Group, OLX and most recently, the consortium comprising Naver, the Mirae Asset-Naver Asia Growth Fund and NH Investment & Securities.
According to Carousell's filing, its exit options include an initial public offering (IPO), trade sale, secondary sale or share buyback. The exit price is defined as at least 1.25 times the subscription price paid per share.
Going by Carousell's latest valuation of about US$900 million, this could imply an exit valuation of US$1.13 billion at the very minimum.
When asked about Carousell's exit target, a company spokesperson did not respond directly but said that the firm is "grateful for the support of our investors who believe in our long-term mission, and are privileged to be in a financial position to be heads-down focused on serving our community".
Even though Carousell has shied away from publicly discussing its exit plans, the startup certainly seems to be on the path towards one.
Only a portion of the US$80 million Naver deal appears to have involved newly-issued shares. According to regulatory filings up to Sept 18, Naver and two other vehicles, Mirae Asset-Naver Asia Growth Investment and New Horizon Investment I, bought about US$23 million in new shares, paying US$12.75 apiece for ordinary shares and US$15.94 apiece for "sub-class C" preference shares.
Naver and two other vehicles then bought over 4.3 million ordinary and preference shares from earlier investors.
The sellers included Rakuten, Sequoia India, 500 Startups, Golden Gate Ventures, Quest Ventures, angel investor Darius Cheung, as well as Carousell co-founders Quek Siu Rui, Marcus Tan and Lucas Ngoo.
According to intelligence platform VentureCap Insights, Carousell's Series A shares were issued at US$1.13 apiece, and Series B shares at US$11.05 apiece.
This would imply a 12 times return on Series A shares, assuming that the Naver consortium bought these shares at a 15 per cent discount to the latest issue price. Any Series B shares sold would provide a more subdued 1.2 times return per share.
Angel investor Mr Cheung told BT that the Naver deal was "a good outcome for investors and bodes very well for the whole ecosystem".
He believes that this is only the start of more good news ahead. "I only sold a portion of my shares; there is still a lot more room to grow for Carousell," Mr Cheung said.
Likewise, Carousell views the transaction as a plus for early backers and employees. None of the shareholders cashed out completely, the spokesperson noted.
In addition, the company also rewarded employees via the Naver deal, by conducting a buyback of employee stock options.
"A few million dollars were allocated for eligible employees who have contributed to the building of the company. In fact they were prioritised in this deal, with founders taking less than half of what has been allocated to employees," the spokesperson said.
The partial liquidity is being viewed positively by the ecosystem, but what it means for Carousell's eventual exit still remains to be seen.
As with any business, the outcome will rest on its core financial performance. The key aspect to watch will be whether it can turn around losses to attract a buyer or appeal to the public market.
For FY2019 ended December, Carousell more than doubled its revenue to US$15.7 million, regulatory filings show. This was mainly thanks to its advertising strategy.
"Direct media services and programmatic advertising are our most promising forms of advertising with proven revenue streams... and have room for continued exponential growth," Carousell's spokesperson said.
However, Carousell also deepened its net loss to US$39.4 million, from the US$25 million loss a year earlier. The main drag was US$28.8 million in staff costs, up from US$17.7 million a year ago.
Carousell may have to cut its labour spend, or increase its revenue substantially to cover the expense.
Mr Cheung thinks that the heavy staff costs is still a "worthwhile investment" relative to Carousell's growth potential.
"The pandemic has accelerated their strategy, because of the increased adoption of e-commerce... With their size, there's no lack of exit options, whether it's buyers or doing an IPO," he said.
It will be worth watching how Carousell's financials shape up in the coming years, and which buyers, or public market investors, are ready to bite.
- Garage is BT's startup vertical.
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