Toast’s Stock Pops In Boston’s Biggest Ever IPO, Minting Cofounders As Billionaires

Sixteen months after laying off half its workforce, restaurant software firm Toast completed a whirlwind turnaround Wednesday when it began trading on the New York Stock Exchange at a $20 billion valuation.

Shares of the Boston-based company were priced at $40, and opened at $65.26, a dramatic rise from initial forecasts for Toast, which earlier this month said in a regulatory filing that it planned to sell shares between $30 to $33 each. The pop has made its three cofounders—Steve Fredette, Aman Narang and Jonathan Grimm—all billionaires. The IPO is also the largest in Boston history, according to the Boston Globe, and the latest success story for the city’s growing tech scene, which has seen recent exits from the likes of biotech firm Ginkgo Bioworks and ballooning valuations from startups including DataRobot and Klaviyo.

Speaking before the stock began trading, Narang, who serves as chief operating officer, said that the IPO was “just a milestone” in a longer term journey. “The restaurant industry is massive,” he said. “In the U.S. alone there are over 800,000 restaurants. We’re thrilled about this milestone, but we’ve got 48,000 restaurants on our platform and we see so much potential to grow.”

Toast booked $823 million in revenue last year, a modest 24% increase compared to 2019. But as a sign of its success in adapting to the pandemic, it reported revenues of $704 million for the first six months of 2021—at this pace, the yearly growth rate would exceed 70%. On the other hand, the company is not yet profitable, and its losses are increasing at a rate that mirrors its revenue growth. Toast reported net losses of $248 million in 2020, and $235 million for the first six months of this year. Narang was cagey on the question of profitably, saying “there’s many ways to build a great business” and that the company would “continue to invest in product and innovation.” 

Narang launched Toast out of his basement with Fredette and Grimm a decade ago. The trio of MIT graduates had previously worked together at e-commerce search software company Endeca, which was acquired by Oracle. Toast was launched in 2012 as a mobile payments app for restaurants. Since then, the software has expanded beyond handling point of sale transactions to encompass features including online ordering, delivery management and marketing.

At Toast’s opening price, Fredette, who is president, is now worth $2.2 billion based on a 6.6% stake in the company. Chief technology officer Grimm, who owns 5.3% of Toast, is worth $1.7 billion, while chief operating officer Narang’s 4.8% stake values him at $1.6 billion. CEO Chris Comparato joined the company in 2015 and holds a smaller stake worth $740 million.

In February 2020, the startup raised $400 million from investors at a $4.9 billion valuation, but a mass business shutdown the following month caused sales to plummet at restaurants and, in turn, at Toast. The company, which employed 3,000 at the time, laid off half its staff. But a digital shift helped the startup to rebound rapidly as restaurants shifted to delivery and pickup models and increasingly relied on Toast’s software to conduct the transactions. About 80% of Toast’s revenue is earned from taking a cut of payments completed through its platform; the remainder comes from selling its hardware and subscription-based software.

“When Covid first hit, it was a tough time for everybody, but especially for restaurants, so we had to make sure that they had the digital tools to be able to pivot in this world,” Narang says.

Like Toast, food delivery app DoorDash rebounded from an initial pandemic hit before going public last December. The San Francisco company, which also has yet to turn a profit, is now trading at 21% above its opening price, sporting a market capitalization of $74 billion. Perhaps a better proxy to Toast is competing payments software firm Square, which went public in 2015 and turned a yearly profit for the first time four years later. Square offers a full payments and employee management software suite to businesses, much like Toast, though it casts a wider net, working with retailers and restaurants alike. Its stock is up 67% in the past year, though it has been buoyed in part by the success of its consumer-oriented Cash App business.

Narang touts Toast’s exclusive focus on restaurants as an asset in its quest to expand its market share. The company’s employees, whose count has grown back to 2,200, have specific expertise to address customer concerns; two-thirds of them have previously worked in the restaurant industry, he says.

“Pre-Covid, to run a great restaurant, it was about really good food and really good service,” he says. “Increasingly, it’s also about really great technology and a really great digital presence, and having an end-to-end platform allows us to do that.”