Cricut & Recursion IPOs, Neighbor Funding, and More (The Week-in-Review, Mar. 20—26, 2021)
The top business news in Utah this week: A less than stellar IPO for Cricut; Recursion Pharmaceuticals files to “go public;” a $53 million funding round for Neighbor.com; and a lot more
Apparently my concerns about the Cricut Initial Public Offering were well-founded as the first day of trading for the new public company was, to put it gently, less than stellar.
Yesterday (March 25, 2021) shares of Cricut began trading at 11:40am ET on the Nasdaq Global Select Market at an opening price of $15.80/share, over 20% under the initial offering price of $20/share set by the company and its underwriters.
Just four minutes later, the price dropped even further to $14.97/share, over 25% under the initial offering price.
By the end of the trading day, however, the price of Cricut’s shares had rebounded somewhat to close at $17.91/share. Nonetheless, the day’s end price was still down some 11% from the pegged offering price.
{NOTE: Cricut had initially suggested an offering price range of $20 to $22 per share for its IPO. So with the final offering price set at $20/share, the underwriters subtly indicated that they were less than enthusiastic than they might have been for the public offering.}
For the record,Yahoo Finance reported that 7.45 million shares of Cricut traded hands on Thursday, nearly half of its 15.25 million Class A shares outstanding.
Before related costs/fees, Cricut garnered $265 million in its IPO. As is customary, Cricut’s underwriters have a 30-day right to purchase additional CricutClass A shares at the $20 offering price (minus underwriting discounts and commissions). In this case, that’s up to 2.3 million additional Cricut shares.
However, part of the calculus that Goldman Sachs, Morgan Stanley and the other underwriters will need to calculate is this:
Will making such a purchase of Cricut shares under current conditions be a near-term win for them, individually or collectively.
So what happened? Why wasn’t yesterday a rip-roaring opening day on Wall Street for Cricut’s stock — especially in light of the fact that it was generally an up day on the Street?
A Cricut IPO Timeline and A Surprise Bombshell
Here’s a quick timeline on the path to Cricut’s IPO.
Feb. 9, 2021: Cricut announces its plans to go public in a “confidential” S-1 filing with the U.S. Securities and Exchange Commission (SEC)
Feb. 16, 2021: Deseret Business Watch publishes its first report on the Cricut IPO
Mar. 16, 2021: Cricut announces price range of $20—$22 per share for its stock and begins its roadshow
Mar. 22, 2021: Cricut files its third amended S-1 prospectus with the SEC
Mar. 23, 2021: Deseret Business Watch publishes an in-depth Feature Story on the Cricut IPO, including reporting that companies owned by the Ross Perot family are the secret investors behind Cricut that hold a controlling interest of over 61% in the soon-to-be publicly traded firm
Mar. 24, 2021: Cricut announces an offering price of $20/share (NASDAQ:CRCT), at the low end of the originally expected price range
Mar. 25, 2021: CricutClass A shares begin trading on Wall Street and close the day at $17.91/share, 11% below the final offering price
In addition, something else happened on March 12th (during Cricut’s “Quiet Period” after it had hired its underwriters and filed its first Form S-1 with the SEC), something I had missed previously, yet something significantly perceived as negative in the marketplace.
This bombshell? Cricut announced online that its customers would be limited to 20 uploads on Cricut’s free Design Space app unless they were paid subscribers to one of the company’s Access plans.
The reaction in the Cricut community and in various online forums and news media was swift and unforgiving:
Hackaday.com: Cricut Decides to Charge Rent for People to Fully Use the Cutting Machines They Already Own
Gizmodo: Cricut Now Wants Users to Pay Extra for Unlimited Use of the Cutting Machines They Already Own
The Verge: Cricut is limiting the use of its crafting machines with a monthly subscription
TechDirt.com:Cricut Hastily Walks Back Plan To Charge Cutting Machine Owners $10/Month To Fully Use Their Purchases
Change.org Petition #1: Cricut Design Space Update Petition (over 63,000 signers)
Change.org Petition #2: Cricut Listen Up(over 51,000 signers)
This YouTube video from Jennifer Moore’s Sewing Report is probably as good of a summary as any on the Internet about the brouhaha Cricut created for itself with its March 12th announcement.
And a quick scan of the 460+ Comments on Jennifer’s video shows nearly universal shock and disdain for Cricut following this announcement.
Four days later (March 16th), Cricut backtracked, as noted in this online letter from the company’s CEO, Ashish Arora.
{NOTE: As someone with over 35 years of public relations and marketing experience, I must say that I am baffled that the company could have so badly misjudged the reaction such a decision would receive in the marketplace, especially from such a passionate set of customers. Nevertheless, such mistakes seem to happen regularly.}
My Take: They Made a “Material” Mistake
After more than 35 years of providing public relations and investor relations services to publicly traded companies (and companies planning to “go public”), you learn a fair amount about the laws and regulations that govern what companies can and cannot do, as well as the parameters that guide such companies.
One such parameter is the concept of “Materiality.”
On Wall Street (and among attorneys that provide legal counsel to publicly traded companies), Materiality can be defined simply in this way:
If an average investor would make a buying or selling decision about a stock (or a financial security) if he/she knew certain news or information, then such news is considered to be Material News / Information.
Additionally, it’s important to understand that there are also regulations prohibiting the “Selective Disclosure” of any Material News or Information by a publicly traded company.
Although I am not an attorney, it is clear to me that requiring Cricut owners to have a paid subscription to be able to fully realize the full benefit of Cricut’s Connected-Machines qualifies as Material News, especially since Cricut has some 4.3 million customers and currently its least expensive paid subscription is ~$10/month.
Now whether or not Cricut should have made such an announcement during its Quiet Period is a different question and something for the attorneys at the SEC to sort out.
But given the rapid and overwhelmingly negative response by Cricut owners to the company’s March 12th announcement, it’s also obvious to me that the company made a major Material Mistake when it made this announcement.
However, let’s also be clear about something else:
Because the Perot family’s Petrus Trust Company, LTA (and its affiliates) controls over 61% of Cricut post-IPO, no decision about any Material matters at Cricut will be made without the full knowledge and approval of its Board of Directors. And I’m quite confident that also includes deciding to implement a new program limiting customer use of Cricut machines without a paid subscription.
I believe that this fact, plus the dual class structure of Cricut stock, coupled with the bungling of the March 12th announcement, led to enough uncertainty in the market that the opening day performance of CRCT was less than stellar.
How will Cricut shares perform in the future? I have no idea.
Nevertheless, I do believe that the company is interestingly positioned for future success IF it can avoid stubbing its toes as it moves forward.
Other News Items of Note from This Week
Unfortunately, because I have dedicated so much space to the Cricut IPO, we do not have a lot of space remaining to dedicate to other Utah business news items from this past week. Nonetheless, here are an additional nine Noteworthy News Items that I think you might find worthwhile if not also intriguing.
Case in point —
Recursion Pharmaceuticals Plans IPO
Salt Lake City-based Recursion Pharmaceuticals filed plans with the SEC this week to raise $100 million in an IPO. Recursion is a fascinating company that uses customized technology systems such as Artificial Intelligence coupled with robotics to evaluate the potential success or failure of certain new drug candidates. Here’s a link to the Recursion S-1 Filing; I plan to provide a more complete look at Recursion and its IPO next week.
Neighbor.com Raises $53 Million in Series B Round of Funding
Three or four years ago I remember sitting in the audience of a BYU-sponsored Investor Day event and thinking to myself, “There is no way anyone will invest in this company.” Boy was I wrong! That company was Neighbor.com, and this week Neighbor announced it just closed a $53 million Series B round of funding. Way to go guys!
Wadsworth Construction Lands $123 Million I-215 / I-80 Bridge Construction Projects
The bad news is that construction work is NOT DONE on the two interstate highways in the State of Deseret. The good news is that Draper-based Ralph L. Wadsworth Construction Company has won a $123 million contract from the Utah Department of Transportation for significant work on bridges on I-215 and I-80. Here’s a link to the news release announcing the contract.
Fortem Technologies Lands $15 Million Investment from Toshiba, its New Strategic Partner
One of the most intriguing next-generation drone companies on the planet is Pleasant Grove-based Fortem Technologies because of its unique approach to neutralizing what its systems define as being rogue drones. This week the massive Japanese keiretsu, Toshiba, announced it has invested $15 million into Fortem. As a result of this investment, Toshiba and Fortem have entered into a “Strategic Alliance” that will see Fortem’s technology integrated into Toshiba’s drone security systems, an alliance that will also see Toshiba expand its radar-based security solutions business. Based upon my read of the news release, do not be surprised if Toshiba acquires Fortem within the next three to five years.
Two Utah Cities Rank in the Top 25 of PC Magazine’s “Best Work From Home Cities for 2021” Report
In case you missed it, Kaysville, Utah (No. 4) and Price, Utah (No. 22) both ranked in the Top 25 of the “Best Work From Home Cities for 2021” report published recently by PC Magazine. Bravo!
Utah Joins 13-State Lawsuit to Overturn Biden Executive Order Halting New Oil & Gas Leases
Midweek this week, the Associated Press announced that Utah had joined 12 other states in suing the Biden Administration in an attempt to overturn the January 27 Executive Order halting all new leases for oil and gas exploration on federal lands. This was first reported by Deseret Business Watch in its January 25th issue titled Biden, Cox, Huntsman, Utah’s Economy, and More.
HandsFree Labs Closes $3 Million Funding Round from the Scott Frazier-led Frazier Group
Vineyard-based HandsFree Labs announced this week it has landed a $3 million round of funding from Lehi-based Frazier Group. Led by and founded by Scott Frazier, one of the most active individual investors in Utah, Frazier Group has invested over $250 million through over 50 direct investments in Late Seed, Bridge, and Series A rounds of funding, along with Limited Partner positions in over 20 venture funds.
Tour of Utah Cancelled for 2021
Some discouraging news hit our radar this week from the sports/recreation world for Utah. Specifically, the Larry H. Miller Tour of Utah has now been cancelled for 2021, the second consecutive year the tour has been called off. As noted in this Cycling News story, plans are underway, however, to see the Tour of Utah return in 2022.
Panguitch to Open Innovation Hub
Last of all, 1,800-resident Panguitch, Utah announced this week it is opening an Innovation Hub with a goal of retaining and attracting employees and businesses in this south-central region of Utah. Here’s a link to the KUER story about this news.
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About the Author
David Politis is a Marketing Mercenary, which is a fancy way of saying that organizations and individuals hire him to solve their marketing problems. To learn more, please feel free to visit David’s LinkedIn Profile or the website for his business: The David Politis Company. If you have a story idea for him (or would just like to connect), you can reach him at me@davidpolitis.com.