Circle makes hasty return with US$1.3bn follow-on
Circle Internet, the USDC stablecoin maker, returned with a US$1.3bn follow-on stock sale just 71 days after going public, having been released from the IPO lockup agreement and among the quickest-ever first-time follow-ons.
“This is bad,” one hedge fund manager told IFR. “We are not in the deal, and I don’t know why long-only investors would be interested at this price. In my experience, early lockup releases tend to cap the price of a stock.”
JP Morgan, joined by Citigroup and Goldman Sachs, priced 10m Circle shares late on Thursday at US$130, well above the US$31 price Circle went public at through the sale of 39.1m shares in early June.
Circle, which sold 19.9m shares on the IPO, sold 2m shares on the follow-on and selling shareholders the remaining 8m shares.
The new stock sale imposes a 30-day lockup with a performance trigger. The performance trigger would allow the sale of 10m secondary shares if Circle shares trade at a 15% premium to the US$130 follow-on offer price, or US$149.50, over a 10-day period after 30 days.
That lockup agreement is in addition to the IPO lockup, which allows sales at the earlier of two days after Circle’s second quarterly earnings report as a public company or 180 days.
That opens the possibility of cascading stock sales in late September and another in November, based on IFR calculations and securities filings.
Circle shares tumbled 14.7% over the two days it was marketing this stock sale to US$139.23, and the US$130 offer price was set at a further 6.6% discount, taking the file-to-offer concession to 20.7%.
If there is additional stock for sale it is hardly surprising investors would extract concessions, but that is the same for all IPOs with significant backing from VCs or private equity firms.
Remarkable speed
Circle reported second-quarter earnings (its first quarter as a public company) ahead of the market open on Tuesday, launched the follow-on sale of 10m shares that evening, and marketed that deal for the requisite two days required by newly public companies.
The Q2 results were spectacular.
Circle generated US$126m of adjusted Ebitda, grew revenue by 53% to US$658m, and increased the value of USDC stablecoin in circulation by 90% to US$61.3bn. Management guided toward a multi-year 40% CAGR in USDC stablecoin.
JP Morgan granted early release from the IPO lockup on the back of those results and performance of Circle shares.
Early-stage backers led by IDG Capital and General Catalyst and Circle co-founders Jeremy Allaire and Sean Neville disposed of 8m shares – these same sellers would be allowed to sell again in 30 days on a pro rata basis, subject to the 15% performance trigger.
Circle sits at the centre of a stablecoin revolution, is in high demand, and employees, VCs, and management are allowed to profit from innovation. The sooner the move to full free-float, the sooner overhangs from secondary selling are removed, and new investors able to assess fundamental merits.
Similar performance-based triggers were used by Datadog, Instacart and Klaviyo on their IPOs.