What to know about the Latch IPO in 2021

Latchable Inc., a seven-year-old company that provides building operating systems to enhance security through software-as-a-service (SaaS), is hitting the market in 2021. The company offers tenants the capability of unlocking their units and other building entrances conveniently with their cell phone. Latch also provides temporary access codes for non-residents like dog walkers and service providers. 

The Latch IPO will take place through a merger with a special purpose acquisition company (SPAC) sometime in the second quarter of 2021. With an expected $1.56 billion valuation after the merger, perhaps the doors of opportunity will fling wide open for Latch once it becomes a publicly traded company. 

TL;DR 

  • Latch expects to trade on the Nasdaq exchange under the symbol LTCH. 
  • Latch launched in 2014 to help residents digitally manage locked entrances throughout apartment buildings. 
  • The company is headquartered in New York City, with other main offices in San Francisco and Taipei. 
  • In 2018, Latch made the Forbes “30 Under 30” List for Consumer Technology. In March 2021, they were included on the Forbes list of America’s Best Startup Employers, chosen from among 2500 candidates. 
  • Latch made $167 million in revenue in 2020, up 49% from 2019. The company has booked over 300,000 rental units across 35 states
  • Latch is in a definitive agreement to merge with a SPAC called TS Innovation Acquisitions Corp (TSIA) to take the company public. 
  • After the merger, the company is to have up to $510 million in cash and reach a $1.56 billion post-money valuation. 

A brief history of Latch 

The Latch OS offers digital entry devices for multifamily buildings. The internet-connected software also has delivery assistance capabilities and sensor integration for thermostats and lighting—all of which can be controlled on a user-friendly app. 

Back in 2014, a trio of guys founded Latchable Inc. Their names are Luke Schoenfelder, Brian Jones, and Thomas Meyerhoffer.

Schoenfelder and Meyerhoffer were already acquainted from their work together after the 2010 Haiti earthquake “aiding rural electrification efforts.” 

Through a partnership with the Clinton Global Initiative and Habitat for Humanity, they brought modular homes into Haiti to give locals shelter. 

Schoenfelder also founded GridPotential, a company that developed smart electricity meters with built-in SIM cards. He has an impressive resume, having worked at Apple for four years before founding Latch. 

Jones currently serves as the chief technology officer. His role with Latch is extensive—he oversees development of all the company’s software and hardware and leads more than 80 engineers across all of the technical teams. Prior to founding Latch, Jones gained expertise building remote data acquisitions systems.

Today, Meyerhoffer is the chief design officer, with previous experience as a senior designer at Apple and designer at IDEO (a global design company). Under Meyerhoffer’s guidance, Latch products have already received 10 international design awards.

The whole Latch team is optimistic about the company’s future. This is thanks to their business model, which focuses on long-term enterprise agreements. In fact, 97% of their customers prepay contracts of six years or more. The Latch Lens Partner Program also enables third-party access device partners, which can expand the reach of LatchOS to more buildings and locations across the globe. 

By 2019, just five years after Latch was founded, more than 10% of all new apartment units in the United States were built incorporating the Latch operating system. They hold strategic partnerships with other home-based smart sensor companies, not the least of which are Google Nest, Honeywell, Yardi, and RealPage. Schoenfelder says these initial partners “are aligned with our vision around enterprise device management and demonstrate a thoughtful approach to privacy and security, design, and brand.” 

Latch fundraising to know about

Latch has conducted several rounds of fundraising. Here’s a brief summary of how they have fueled growth:  

  • Pre Seed Round: October 2014 was the Latch pre-seed round provided by Techstars. 
  • Seed Round: Camber Creek and Third Prime led the company’s April 2015 seed round for $5.5 million.
  • Series A:  In February 2016, Latch raised another $10.5 million in a Series A fundraising round. Lux Capital headed up the first Series A. Other investors included Primary Venture Partners, Corigin Venture Partners, Camber Creek, and more.
  • Series A: The company’s second Series A round, led by RRE Ventures, brought in an additional $10 million in May 2017. 
  • Series B: In August of 2018, Brookfield Asset Management led a Series B fundraising round that added $70 million to the Latch fundraising totals. The company’s new valuation was about $250 million. 
  • Series B: After a Series B fundraising in August 2019 (in which Avenir Growth Capital was the lead investor), Latch scored another $56 million.  

All told, the company has raised a total of $152 million over six rounds of Latch fundraising. 

Path to the Latch IPO 

Tishman Speyer Properties has been familiar with Latch for some years, both as an investor and a customer. Rob Speyer, the company’s President and CEO, says their residents love the Latch products. 

“I hope we can act as both a thought partner and product incubator for them.” – Rob Speyer, CEO of Tishman Speyer Properties

Tishman Speyer is the power behind TS Innovation Acquisitions, which will merge with Latch. 

Latch CEO Schoenfelder told TechCrunch in January that the company decided to pursue something different from a traditional IPO

“We felt like there was an opportunity here to have an extra level of strategic partnership and an extra level of product expansion that came as part of the process,” said Schoenfelder.

He said this partnership accelerated the ability to move Latch into commercial offices and even European markets.

Latch hired a new chief revenue officer, Chris Lee, in February 2021. Lee held the same position at Reputation.com, where he doubled their annual recurring revenue. He also worked at Salesforce and was the VP of DocuSign—two seriously successful brands that just so happen to be publicly traded. Lee’s prior experience should prove vital in helping him propel further growth after the Latch IPO date. 

In addition to being president and CEO of Tishman Speyer, Rob Speyer is a real estate developer. He will serve on the board of directors for Latch following the merger with TSIA. 

Since Latch functions primarily in the space of residential apartment buildings, a commercial real estate firm like TS Acquisition’s parent company Tishman Speyer appears to be a natural fit.  

When is the Latch SPAC merger date? 

The announcement of the impending Latch merger with TSIA came on January 25, 2021. A SPAC is a shell company formed expressly to acquire another company to take it public.

The newly combined company will trade on the Nasdaq exchange under the symbol LTCH. CEO and co-founder Luke Schoenfelder will stay on as the leader of the new company. 

Related: A guide to SPACs

In a company press release, Latch announced their proposed board members for the publicly traded company, calling the group “an experienced group of leaders with expertise in technology, real estate, proptech, security, finance, and capital markets.” The anticipated board members are:  

  • Peter Campbell, former CFO of Mimecast
  • Tricia Han, chief product officer of Care.com and member on a NYSE-trade real estate investment trust (REIT) company
  • Raju Rishi, general partner at RRE Ventures
  • J. Allen Smith, president of Cadre and former president and CEO of Four Seasons Hotels & Resorts
  • Robert Speyer, president and CEO of Tishman Speyer
  • Luke Schoenfelder, CEO of Latch
  • Andrew Sugrue, founding partner at Avenir Growth Capital

Based on experience alone, this is a loaded board.

Risks and opportunities investors should know about 

The market for apartment building operating systems is estimated at $54 billion across 47 million rental homes in America. So far, Latch only services less than 1% of the total market, which leaves them plenty of room to grow. New funding from the SPAC merger will propel this.

Over the course of 2020, Latch earned $167 million in booked revenue (aka revenue from contracts to be fulfilled in the next 24 months). Their net revenue in 2020 was estimated at $18 million as of January, and the company projected net revenue to grow to $600 million in 2024

In spite of their positive metrics, Latch is not yet a profitable company. Last year, they posted a net loss of $61 million. The reality is that this company may be on a volatile ride for at least a few years. 

Chamath Palihapitiya, a frequent SPAC investor and one of Latch’s key investors, claims to see a great opportunity for Latch’s smart home technology to infiltrate millions more rental homes in the future. In Palihapitiya’s own words, Latch is “the best SaaS company I’ve ever seen/invested in.” 

The Motley Fool also noted that while some SPAC stocks trade at a huge premium to the deal price, Latch is more reasonably priced at only 38% above NAV (net asset value). 

So what’s really on Latch’s mind? Expansion. As they plan to move into the European market (especially France, Germany, and the United Kingdom), investors could see their returns fluctuate as money goes out and comes in. Combined with possible market growth in the US,  Schoenfelder says that Latch has a total market opportunity of $144 billion annually. 

That’s a speculative notion, but one worth considering for interested investors.

Bottom line

Latch has a strong business model with potential for continued growth, and their partnership with a real estate SPAC could prove beneficial as they go public. Schoenfelder envisions “a world where every space is powered by and unified under the Latch system, from home to the office and everything in between.” Let’s see if the public market agrees.

Rachel Curry is Pennsylvania-based content writer and journalist talking all things finance. She likes to give meaning to numbers by humanizing them. You can connect with her on Twitter at @writingsofrach.

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