Justworks IPO: Why investors exuded confidence in HR tech startup?

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Justworks IPO: Why investors exuded confidence in HR tech startup?

 Justworks IPO: Why investors exuded confidence in HR tech startup?
Image source: Den Rise,Shutterstock

Highlights

  • Founder & CEO Isaac Oates is a “long-term mercenary”, but “short-term missionary”, says Bain Capital’s Matt Harris.

  • In 2015, Justworks raised US$13 million in a Series B fund round led by Bain Capital.

  • Justworks’ revenue jumped more than 32% in the 12 months ended May 31, 2021.

Even before Justworks came into prominence or crossed monthly revenue of US$100,000, investors like Matt Harris of Bain Capital felt confident in betting for the HR technology company.

For Harris, his investment decision simply boiled down to the founder and his team as he succinctly puts it: Founder & CEO Isaac Oates is a “long-term mercenary” but “short-term missionary”.

According to him, Oates is a “systems thinker” whose business model is supported by a strong structure that can answer specific questions and capture the future of the business.

In 2015, Justworks raised US$13 million in a Series B fund round led by Bain Capital, which catapulted Harris into the driver’s seat as a fellow board member with Oates. The duo had since been working closely together.

Oates explains what he looks for in an investor. People, he said, react differently when the chips are down, but those who show “value and integrity” in difficult times are the real ones.

Justworks’ recent filing for an IPO has further raised expectations, setting the stage for a blockbuster market debut next year.

The New York-based company said it plans to list on NASDAQ under the ticker symbol JW, although it did not provide details on the number of shares on offer.

Its other prominent investors include Redpoint, Index Ventures, Thrive Capital, etc., jointly contributing around US$176 million in equity investment.

Justworks IPO

The firm plans to raise around US$100 million in an IPO of its Class A common stock, according to its S-1 registration statement with the US Securities and Exchange Commission (SEC).

According to the company, Class A common stock shareholders will receive one vote per share, while the Class B shareholders would receive 10 votes per share.

Oates said that he first considered putting in a dual-class stock in 2017, which would give the company a “high-vote, low-vote structure”, according to techcrunch.com.

Its lead underwriters for the offering are Goldman Sachs, J.P. Morgan, and BofA Securities.

Justworks provides HR-related software and services to small and medium-sized businesses in the US. Its SaaS platform aid businesses with their HR, payroll, compliance, and benefits management.

The company is led by its founder and CEO, Isaac Oates, who previously worked as VP of Etsy. Justworks targets businesses with less than 100 employees. According to the company, its sales and marketing expenses have significantly reduced vis-a-vis revenue – the percentage of the total revenue.

Its competitors include TriNet, Automatic Data Processing, Paychex, and Paycom Software.

Justworks plans to use the proceeds for working capital, operating and capital expenditures, businesses investments, product, and technology development, etc.

Also Read: Gardiner Healthcare IPO: How to buy the stock?

 Justworks revenue jumped more than 32% in the fiscal year ended May 31, 2021

Source: Pixabay

Also Read: Why Red Cat Holdings (RCAT) stocks jumped Wednesday?

Financial Performance

Justworks saw strong top-line revenue growth in recent quarters. Its gross profit has been growing while the gross margin has been stable.

Its revenue jumped more than 32% in the fiscal year ended May 31, 2021. It also reported low operating losses. It had US$110 million in cash and US$471.6 million in liabilities as of Aug 31, 2021. The free cash flow in the 12 months ended Aug 31, 2021, was US$203 million, its filings showed.

Bottomline

According to an industry report, the global HR market was worth US$14.5 billion in 2017. It is expected to grow to US$22.5 billion in 2022, with increasing demand for cloud-based HR processes. The North American market saw the fastest growth in HCM software adoption.

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