‘Decisive Moment’: With Public Debut of Toast and Ginkgo, Boston Remakes Its Startup Scene

Restaurant payment firm Toast went public in an IPO that raised $ 870 million on Wednesday and valued the company at around $ 20 billion. By the end of the first day of trading, the stock had jumped 56%, bringing Toast’s value to more than $ 31 billion. The company is a leader among Boston fintech startups looking to digitize commerce and accelerate all kinds of money transactions. Toast’s triumph is an astonishing rebound after a storm of pandemic shutdowns in the restaurant industry – its main customers – that forced the company to halve its workforce in April 2020.

And last Friday, life sciences company Ginkgo Bioworks listed its shares on the New York Stock Exchange by merging with a special purpose acquisition company, raised $ 1.6 billion in revenue and closed the day. for some $ 20 billion. Founded by four MIT graduates and a professor in 2008, the startup is at the center of the nascent field of synthetic biology, attempting to program DNA like computer software and spark a revolution in fields such as drug design, cosmetics and agriculture.

The Ginkgo Bioworks logo hung on the New York Stock Exchange building.Courtney Crow / NYSE

The pair join other recently completed or planned public listings in the city: payment and customer service software provider EngageSmart, medical robot maker Vicarious Surgical, and medical data and analysis provider Definitive Healthcare. Taken together, the companies represent a larger increase in energy and investment in the local tech economy.

“There had been this embarrassing fact that every combined Boston IPO did not match Airbnb,” said Josh Lerner, a professor at Harvard Business School, referring to the famous California firm’s $ 50 billion worth. when it goes public in 2020. “Now it’s hard not to see this as a change that will spawn a whole set of entrepreneurs who will follow along and do fabulous things, and hopefully do them here. “

Ginkgo and Toast had the highest initial market valuations ever for Boston startups, according to Dealogic data, surpassing the previous record of $ 10.7 billion set by internet company Genuity in 2000. And they have. surpassed the larger of the more recent lists, such as Moderna, which went public in 2018 at a valuation of almost $ 8 billion, and DraftKings, which merged last year with a blank check company – led by the same team of investors that organized the merger of SPAC with Ginkgo – in a deal valued at $ 2.7 billion.

IPO is no guarantee of future success. The latest generation of Boston businesses are hoping to avoid Genuity’s fate – it went bankrupt in two years. Far better would be to follow in the footsteps of Moderna, which reached a stratospheric value of $ 178 billion thanks to its COVID-19 vaccine, or DraftKings, which is now worth $ 21 billion as its gaming platform online is growing.

“This is a turning point for Boston in many ways,” said Jeff Bussgang, co-founder and general partner of venture capital firm Flybridge Capital Partners. “Ginkgo is one of those anchor platform companies that could spawn a lot of really interesting companies… Toast is seen as a model across the country.”

One of the reasons for the new wave of public listings is simple: booming financial markets have left investors with a ton of money and a risk appetite to bet on startups, which have the potential for the kind of big score that has made legends of early funders from companies like Google and Amazon. Worldwide, IPO activity is at a level not seen in over 20 years. And Massachusetts startups raised more private money in the first half of 2021 than in any previous year.

“This is a great time to raise funds,” said Linda Edelman, professor and chair of the management department at Bentley University at Waltham. The booming stock market and multitude of IPOs are generating more and more wealth for pension and endowment funds, mutual funds and hedge funds, which keeps the cycle going. “They are not looking to withdraw money. They are looking to make more investments, ”she said.

Proceeds from the deals made between the two companies this week will go to more hires and expanded offices. After its debut, Ginkgo announced that it would occupy the 228,000 square feet of a new life sciences campus under construction in the Seaport district. The original plan was to take 150,000 square feet in the Marcus Partners development, with construction scheduled to begin next year.

Not all successful Boston businesses try to go it alone. In April, Nuance Communications was sold to Microsoft for $ 20 billion and Turbonomic was swallowed up by IBM for nearly $ 2 billion. But both companies are expected to maintain operations in the region, keep jobs and continue to fuel the local ecosystem.

Historically, some observers have attempted to explain the lack of big tech companies in Boston by pointing to a supposedly cautious cultural view of the Yankees, as opposed to the freer and riskier view of Californians. But the theory is belied by the growing clusters of Boston startups in many areas.

“Entrepreneurship is a business where success breeds success,” said Lerner, a professor at Harvard. “It’s clearly a virtuous circle. . . and one or two winners can turn out to be liquidity events for many local people.

An example: the founders of Toast first worked together at the software developer Endeca, which Oracle acquired in 2011. They then set out on their own, with the aim of digitize the order taking and invoice payment process to the restaurant. New Hampshire entrepreneur Steve Papa, who founded Endeca, was one of Toast’s early investors and remains one of the biggest shareholders after the IPO.

In addition to fueling the startup scene, the new stock quotes are also creating tremendous personal wealth for many involved, at least on paper.

The five founders of Ginkgo Bioworks – bio-engineers or computer scientists by training – are now billionaires thanks to their stakes in the company, according to documents filed with the Securities and Exchange Commission. And other employees collectively own an additional 10%, giving them a shared stake of around $ 2 billion.

At Toast, the founders own different amounts of shares, but based on the day one closing price, Stephen Fredette, Aman Narang, and Jonathan Grimm are each worth over $ 1 billion. Definitive Healthcare CEO and Founder Jason Krantz owns shares worth nearly $ 1 billion. And executives at Vicarious Surgical and EngageSmart own shares worth more than $ 100 million, according to SEC documents.

The new billionaire club also includes a tech executive, which the company went public with in 2014. The share value of HubSpot’s co-founder and chief technology officer, Dharmesh Shah, exceeded $ 1 billion for the first time. this month, when former CEO Brian Halligan’s attendance is worth about half.

Newly opened companies typically limit share sales for a few months, although stock market wealth should soon start seeping into local real estate, arts, and events. Philanthropy could also benefit when entrepreneurs focus on improving their communities.

“The desire of these newly created millionaires and billionaires to give back to the community should be positive,” said Shannon Saccocia, director of investments at Boston Private. “There could also be negative impacts, as we already have a fairly high cost of living in some neighborhoods that could increase with the success of some of these businesses bringing their workforce to the Boston area.”

But it may take some time to see these effects.

“This is a great conversation for the employees of Ginkgo and for all of us,” said co-founder, CEO and new billionaire Jason Kelly. “We started to think about some things, but we are trying to get through the IPO first. It’s in our heads. “

Toast has already pledged to invest 1% of the company’s capital in a non-profit organization called Toast.org, which will focus on addressing issues of food insecurity, food waste and supporting the restaurant community.

“It’s a starting point,” said Fredette, co-president of the company. With their personal wealth, the founders will also seek to “balance national and local investments,” he added. “Boston is our home, so we absolutely want to make an impact here. “

Aaron Pressman can be contacted at [email protected] Follow him on twitter @ampressman.

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