Latch Goes Public, Raises ~$500 Million At $1.56 Billion Valuation

By Isabella Cheng, Published Jan 25, 2021, 01:32pm EST (Info+)

Unprecedented for access control, Latch is going public, raising ~$500 million which gives Latch a $1.56 billion valuation despite doing less than $20 million in revenue last year.

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In this report, IPVM examines Latch's plans, including:

  • Unprecedented Deal in Access Control
  • Merger with Tishman Speyer SPAC
  • Current Offerings
  • Financial Performance
  • Market for Growth
  • Users Locked-In with Latch
  • Expansion Plans

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Lock-In ****** ****** ** *********

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***** *** ****** ** ***** ********* is **** ****, ****-** ***** ******* that.

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Significant ****** *** ******

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Comments (43)

Isabella, good work! Interesting news!

I am not excited about a tech company putting an unprecedented amount of money to lock people in.

I am happy that they will be publicly traded which means the public (and IPVM) will be able to analyze and review their financials multiple times per year. Here is the RSS feed for SEC filings for TS Innovations Acquisitions Corp, the SPAC Latch is merging with to go public.

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Just so I'm not crazy, this says Latch expects to grow hardware revenues by over 33X in five years?

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I presume they mean more hardware than door locks and intercoms, but future LatchOS hardware like cameras, lighting controllers, thermostats, and other IoT items.

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Yes, I don't think there are any comparables in the history of electronic access control for this that's why it seems crazy. They plan to get there by nearly tripling this year, then more than tripling the following year, then doubling that they year after, etc., as shown below:

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Money, backing, and lock-in gives them a shot at this.

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Netflix is raising their price as more GenXYZ cut the cord.

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How is Netflix comparable?

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How to increase profit quickly. The pandemic increased demand and now they are capitalizing on it.

Get people on a subscription and keep the break even amount just more than maintaining the subscription.

I could just go back to cable, or replace the locks.

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50X revenue?!?!?!?!

That's Insane!

It's time for me to get into the access control business.

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Correction: It's actually 55+ multiple, 1 billion divided by $18 million.

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even crazier

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It's a little bit of a self-fulfilling prophecy. If you raise 10x what anyone else raises, you have a very good shot of building a radically larger business than your competitors.

The race to lock customers in for the next decade or two is on! Wish I was joking about this.

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One other thing to add about going public, Latch and its supporters are obviously excited today (and no doubt it's positive for them).

The downside is what happens if they don't hit their numbers as a public company. It could get ugly fast. To be clear, they have the advantage of all the money and backing they have, so there's a lot of reasons to succeed, but being public means these amazing projections are going to be scrutinized by investors and held against them if they miss.

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The valuation and the profit model are indicative of the times we live in of a deflationary global economy. Best case scenario the 500mm that is invested gains at a paltry 5% CAGR through 10 years. And this is like a minute possibility from actually occuring. There's no way from being in this industry this long that they will return an actual 1.5bb valuation in 10 years based on cashflow and revenue. What a joke. This is the worst on paper deal since Nest was acquired for 3.6bb by Google and what a disaster that was financially.

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There's no way from being in this industry this long that they will return an actual 1.5bb valuation in 10 years based on cashflow and revenue.

You are probably right and I would think Latch's investors would likely agree. To play devil's advocate, though, the point is not about making the money back in 10 years. It is about how big and profitable Latch might be in 10 years (in financial terms, the terminal value of a DCF model).

If in 10 years, Latch is a $1 to $2 billion annual company, with significant operating cash flow (keep in mind at that point it hopes to be mostly a software subscription business), the company would be worth $10 billion or more, purely on ongoing cash generation (20% CAGR). I think that's what they are aiming for.

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The VCs are at the wheel!

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Better?

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Although to be fair, Chamath is very much NOT an a-hole.

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They're starry eyed apple engineers.

They act like the features are brand new to the access world, the only real feature they are bringing to the table is integration with mail carrier software. They aren't doing anything new, and their vertical is narrow. Multi-Tenet. You're going to jump that much on one vertical? And only allowing your product to go in through channel partners...? get outta here.

I'd put money on their cameras OEM'ing PRC parts...

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In my opinion what these guys have going for them is slick software that integrates super easily with people's devices. Over the last few years I have switched my devices to models that have slick interfaces and I never get any issues now.

First thing I do when checking out a new product from a supplier is checking their app and see what rating it has. If it doesn't work on iOS/Android/Web UI then I won't touch it.

People want something that's easy to use and that's what these guys have going for them.

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"People want something that's easy to use and that's what these guys have going for them."

I totally agree, and while they do have a slick product; there are other slick products. I think this could turn out to be a value add to the industry, but the behavior they're displaying with coming in and acting like some apple engineer gods have finally graced access control with their presence is a bit bitter, with no proof of time in the industry.

Also, I have more and more of a problem with channel partners, I understand that they think it's a safety check to make sure their customers are having the locking hardware installed properly, but this show's inexperience to the industry also IMHO. Sure you can always find bad installs; but you're not going to have a sea of inexperienced technicians trying to tackle an access control lock install if they know nothing. Thus, this decision pigeon-hole's their product even more, and with numbers like they've predicted, I assume you would need to be more available.

Finally, this channel partner move is kind of a stab to the industry on top of the other things I've mentioned; Like they are going to waltz in, take millions from this industry and only divvy it out to a select few? Then be on their way to their next VC idea in 3-5 years. While us techs and business owners put our time and effort into this because we care about the actual security of people and communities. Maybe I'll come to get over these PERSONAL opinions, I know, I know... but it feels like some out-of-town douchebag just walked into the bar already half drunk and just hit on your gorgeous girlfriend, like "Okay, easy buddy. Why don't you take a walk.."

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just walked into the bar already half drunk and just hit on your gorgeous girlfriend, like "Okay, easy buddy. Why don't you take a walk.."

The material difference in the analogy is the other guy has $500 million from his dad investors.

My serious point here is that the money itself is a differentiator, it means they can put on a full court press that others cannot do.

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Doesn’t matter what industry you’re in but every now and then something like this will happen, new players come in and change the game.

Don’t be salty, learn to adapt.

There is potentially big money to be made just sub contracting from companies like these, some people like it, takes a lot of admin load off you and you can hire cheap labour and just basically oversee their work, or just have limited experienced people doing the fit off.

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Don’t be salty, learn to adapt. There is potentially big money to be made just sub contracting from companies like these,

Latch makes billions and you make hundreds of dollars!

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Don’t be salty, learn to adapt.

I agree with your sentiment and I'm quite adaptable; but you're looking at the tree not at the forest. Bigger is not always better even if your admin load goes down. A couple of these companies and the industry becomes less adaptable to the future, more restrictive and if you came up with a product or a solution that was considered a threat to this company, they'll pulverize you in the courts.

The health of the industry is as important as the health of my business. It takes balancing that scale, and Latch weighs a lot.

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More info, LinkedIn shows Latch's employee count fell in the Spring and was roughly flat the rest of 2020:

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It looks like the valuation was based on booked revenue, which would make a bit more sense. They must have landed a sizable account that they were able to bring to the table to get a valuation at that amount.

Although booked revenue isn't super accurate, it's like Shark Tank, it gets a little spicier when they go in and the founders have a 500K PO from Walmart, it's not exactly revenue but the sharks smell the drops of blood in the water.

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They must have landed a sizable account

Tishman Speyer is a huge real estate management company that uses Latch and sponsored / put together the deal.

That said, this valuation is high but really that high compared to other lock-in SaaS valuations. Verkada was probably in the 50x range last year, to give a sense of comparison.

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If that's true, then it feels eerily like the networking boom in 1999. I know of a couple companies who went public with minimal revenue solely because of a couple of large carriers (e.g. Qwest, Global Crossing) that committed to their product. Of course, the lead technical people at those carriers had stock options in the companies. More than a small conflict of interest there.

In addition, since they will become part of a larger consortium (SPAC), there will likely be plenty of opportunities to incestuously inflate their revenue, as one division buys products (or leases real estate) from another.

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In addition, since they will become part of a larger consortium (SPAC), there will likely be plenty of opportunities to incestuously inflate their revenue, as one division buys products (or leases real estate) from another

#8, interesting as I've seen that before, first hand when I worked for an integrator that was part of a larger company that included an access control and video manufacturer.

So, it went like this. We sell a $500K integration job, at 30 points. We buy product from our parents' manufacturer for $200K. The manufacturer books a $200K order at 80 points. A single sale by our group for $500K now becomes a $700K sale, with total margin of a little more than 44 points.

Looked awesome on paper.

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Reminds me a bit about Object Video story, though it was less significant.

Clue: they failed miserably.

Aggressive fund raising and sale strategy does not always work.

From a European based point of view, I'm quite shocked that the Northern America market seems to be switching more and more to VSAAS and locked in solution, as I don't see this happening (yet) here...

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Reminds me a bit about Object Video story

There are 2 really important differences (and advantages) for Latch over Object Video:

(1) OV had significant product performance products, i.e., analytics did not work well (lots of false alarms) in 2000s. Latch is using much more mature technology.

(2) Latch is an end-to-end SaaS, OV was a perpetual license add on. The business model of end-to-end SaaS is much stronger than what OV did.

To be clear, obviously, I think Latch has risks but I also think it is far, far better positioned than OV.

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Yep, definitely a better case here business wise, just saying raising big is not a guarantee of succcess.

From a product standpoint one could argue here that we are dealing here with commodity products, not a technological breakthrough, so expecting so huge development is weird. It's as if a newcomer in the smartphone market was trying to raise 1b$ for its development, it would be unlikely thay they would manage to present such figures imho...

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Still trying to figure out, how do you blow through $78m in expenses and come up with what essentially amounts to a glorified hotel room access control device? One of your subscribers summarized this neatly. These are starry eyed engineers from a different consumer segment trying to reinvent the wheel. The other aspect of this roll out doesn't address how easy it will be to bypass any of the security measures in place. When you go after such an offering in the B2C market it is inevitable, you will take on convenience at the expense of security (both physical and cyber). As you said John, remains to be seen if this company can reach critical mass and become profitable in 10 years from now.

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2021: The rise of the proprietary SaaS lock-in model. The same customers that were angry in the 90’s/ early 2000’s with proprietary systems are now rushing back to be raked over the coals. The lemmings can’t run to the cliff fast enough.

I think the most disheartening thing is for integrators that try to do best for their customers and integrators are constantly worked down on price, competing with over saturated markets and Amazon/CDW, but will now have to compete with manufacturers selling direct and customers that inevitably are going to get stuck in these systems that will be looking to forklift or migrate in a few years but can’t because the budget will be gone and the price to change will be too high. Same old song and dance.

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Another interesting element, Latch boasts of selling hardware at a lost to lock customers in long-term:

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I agree with the "Starry Eyed Apple Engineer" sentiment. I sat through the first half of the product demonstration video and I didn't see any features that are unique compared to other solutions. It's just another access control platform that uses proprietary components and they're hoping to benefit from a strong marketing campaign opposed to providing a product that differentiates itself.

One thing they have going for them is an app that appears to be polished and the potential to provide the end user with an ecosystem that includes pet cams and alexa type integrations. And I agree with other comments that question whether the product sacrifices cyber security for ease of use. They'll need to leverage their "Apple Pedigree" to market this product because I don't see anything special here.

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Isabella - this is an excellent piece. If there is an index of "helpful information per word", I think you would win! Thank you.

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You know a worry that presented itself after thinking about these guys for a while is, if they are willing to just take VC money come in build some massive business then they are willing to sell it too.

So is this how Google/Amazon big tech buys it's way into the Access Control Security Industry? They tried with Nest Security and a couple other products, but no real large bite out of the Access Control sector.

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then they are willing to sell it too.

They literally just did sell it, i.e., the reverse merger / SPAC. They are public now so they can run their own company, raise money, cash out, etc. without having to sell to Google or Amazon, etc. I am not saying that at some point they won't, just that being public gives them options to not sell that either don't exist or are much harder when a company is private.

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In the investor's call, Latch emphasized European expansion:

we can accelerate our European expansion. We thought long and hard about our European strategy for years. Our plan is to start with a focused approach, leveraging Tishman Speyer’s decades of expertise and assets and target the 23.5 million apartments in Germany, 9.9 million apartments in France, and 4.2 million apartments in the U.K. in the first stage.

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For what it's worth, IMO...I certainly can see them being extremely successful and crushing those numbers in the very near future. Let's be honest, most multi-family projects don't have the need for a true, enterprise-level ACS. They've always been in a no-man's land somewhere between hotel and enterprise-level ACS. This offering simplifies ACS while adding an extra layer of aesthetics and the "sexiness" of app-based technology which is what appeals the most to the target demo that these developers/property managers are looking to attract. The old-school integrator in me wrestles with the change but, the Salesman who likes commission checks sees that it's a good fit in a market that needed a sensible, middle-ground solution. While the on-going software cost has traditionally been an obstacle to overcome, some of the revenue-generating features that are (will be) available should make this an easier sell.

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An interesting example of how even industry executives are confused between made up 'booked revenue' and actual revenue:

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Latch's CEO was on The Motley Fool's podcast, the transcript has some interesting points.

For example, alludes to building in functionality to help make it simpler to move from apartment to apartment:

in iOS land, there’s now this blue cloud that comes up on the screen of your old phone and you just scan it with the camera on the new phone and that’s how all the data moves over. You’re just on your new phone. Why doesn’t moving work that same way, where I’m just moving, all of the stuff about me stays the same? It’s just this one thing, the address, that’s changing. All of my preferences about the world are kind of similar. Why are we not able to move in that fluid way? I think those are the types of use cases that we’re looking at and saying, we think you should be able to, again, subscribe to Space and have your preferences go with you and have something that’s really tailored to you.

Like the iOS example, that's the type of thing that only has regular practical value when one moves from a Latch enabled apartment to another, but given their plan is world apartment domination, it's understandable this is something they are thinking of.

Latch's CEO also gave more color on the hockey stick revenue growth projections:

we sign these contracts to supply our products and our services to those buildings in the future up to 24 months out, which is actually not very long. It’s long in one way, but mostly, these projects are actually being planned five years out. So two years out is what we look at as the bookings window. When you see our growth projected for next year, you’re looking at GAAP revenue, which is probably reasonable. We have LOIs for a very large portion of that, which is what gives us that confidence. If you think about our bookings being here and then the deliveries being a lagging indicator, they always move together. Does that make sense? The growth, we have really good visibility on because we have visibility on the bookings.

I would presume they have good confident about going from $18 to $49 million from last year to this year. Next year's projection, goes from $49 to $173, which is much steeper in terms of percentage and dollar amoun. That will be a good indicator of whether Latch is on track.

More color on their 154 percent NDR:

If you look at LatchOS, we deliver new modules over time. So as we scale new modules to existing customers, but then also just release net new modules, we’ll have a much bigger menu of products that solve problems for our customers. Is it always going to be 154 percent? Hard to predict the future. But what I would say is that we expect to continue to have very strong net dollar retention and also customer retention going forward.

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