Gusto, a human resource management software unicorn worth close to $10 billion, has raised additional capital to extend the 2021-era Series E investment round.
This funding transaction consisted of the original capital of $175 million, a tranche of secondary shares, and a tender offer.
It is not entirely clear how much capital Gusto raised to extend its Series E; nevertheless, according to all indications, the amount is somewhere in the neighborhood of $55 million.
The fact that Gusto is currently raising funds as an extension of its Series E, which implies that it added the capital at a flat value to its 2021 raise, should not be interpreted as a bad sign in any way.
Since the second half of 2021, the market for startup investments has undergone a dramatic shift, with the public value of technology companies have been on a downward trend for nearly two quarters at this point. As a result, businesses that raised capital the previous year are now facing a new reality regarding the expectations of investors.
As a result of the extension, Gusto now has a much better chance of having sufficient cash to get it through the current hard patch and possibly even going public once the IPO window opens again.
Because it is unclear how long of a wait that will prove to be, it is appropriate to engage in the act of taking on extra funds.
The extension was carried out with Gusto’s secondary offering (also of undetermined value) to accommodate the high investor demand for the Series E.
The corporation is not the only one that has increased the size of its most recent financing.
It is not sure how many rounds of this nature we will witness, nor is it clear how many of these rounds we will be able to identify.
Extensions are a bit quieter in terms of filing, and from a public relations point of view; companies that trumpeted huge rounds last year that they extend in the present downturn may not want to broadcast that they are selling more shares at a dated price. Extensions are a bit quieter in terms of filing and from a public relations point of view.
If that turns out to be accurate, then what they do next will be incorrect.
The cost of transparency is one challenge that later-stage private companies face compared to their public counterparts, and it is one of the reasons why.
To put it another way, prospective clients can verify the financial health of publicly traded companies.
It is more challenging to gain access to private businesses.
In today’s volatile market, if a unicorn shared that it raised another chunk of capital at a flat price this year, it would alleviate market fears about the company’s ability to remain financially viable.