C3.ai IPO: What Investors Need to Know

In this episode of Industry Focus: Tech, Dylan Lewis and Motley Fool contributor Brian Feroldi do a deep dive on C3.ai, which is soon coming public. They discuss the company's operations and expansion strategy, and why they think its management inspires confidence in investors who are new to the AI space and gives the company an edge. They also get into the company's financials, growth potential, some things to keep an eye on, and much more.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on December 4, 2020.

Dylan Lewis: It's Friday, December 4th, and we're talking about C3.ai. I am your host Dylan Lewis, and I'm joined by Fool.com's, other opal opportunist of owning outrageously optimistic opulence, Brian Feroldi. The tongue twister is back, that means that one of my favorite co-hosts is back. Brian, how are you doing?

Brian Feroldi: And it means that yet again, Dylan, I failed. [laughs]

Lewis: [laughs] You know, there's a rhythm to it, I'm usually like, OK, there's going to be, like, six words here. And I think you managed to sneak an extra one or two in; I almost ran out of breath.

Feroldi: [laughs] There you go. Well then, I guess that's the best that I can hope for, given your flawless track record.

Lewis: [laughs] You know, I think we're just going to hit the day where eventually you're like, you know what, I'm throwing 13 at him. And we're just going to see how long he can go until he doesn't have any oxygen left in his lungs and that will be the day that I don't get through your kickoff.

Feroldi: I'll build it up, Dylan, one word at a time each week. [laughs]

Lewis: [laughs] But then you'd be training me; you'd be slowly building up my resistance and make me capable.

We're talking about a business today, Brian, that has a much shorter name than the introduction that you give yourself, and that is C3.ai. Interesting business. If you're trying to do your homework about this business, the name of the company, also the website, is C3.ai. So, you can just pop that directly into your address bar.

Feroldi: This is a company that one of my Twitter followers sent me. This is @bleurakoon. I'm assuming that's blue raccoon, but misspelled. And one of the things I love about Twitter is, listeners pitch me ideas all the time, and they're like, hey, check this out. I will be completely honest, I saw the name C3.ai, I am just like, oh! This is going to be a disaster, that was just my initial thought. Then, as I did initial research, boy! Did I become interested quickly.

Lewis: And you know, Brian, it's worth just reflecting on that for a second. There is a lot of power that comes in what you call a company. And you know, I mean, we talk a lot about a company like Lemonade, you know, totally different from the space that they're in, and I think it evokes this freshness for the industry that they're operating in. But there are a lot of businesses that wind up being discounted or, kind of, cast aside because of their name, it would be [laughs] easy to do that with this business because it's so out there.

Feroldi: And sometimes that could actually be a positive sign. I still don't like the name Datadog, like, I just think [laughs] that's a terrible name; the company is doing OK though.

Lewis: Yeah, numbers don't lie, right? [laughs] And that's really what it comes down to at the end of the day. It doesn't matter what you call it, if it's a successful business, it's going to be a successful business, but an odd name or maybe one that causes people to dismiss it can often create opportunities for investors.

Feroldi: It certainly can. And I just want to say right up front, the thing that jumped off the page to me, I always like when I see that, when I'm reading through them and I'm like, wait! what? And that makes me do a double take. The thing that jumped off the page to me here was the Founder. This is the name that I have known for years, and if you know anything about the tech space, you probably do too. Thomas Siebel the architect behind Siebel Systems. He is a billionaire. He has been well-known in Silicon Valley. Extremely successful track record. That is the Founder and CEO here, so right out of the gate we are a good start.

Lewis: Yeah, I think if you want to give a quick bio on him, it's basically, in the '80s joined a little known tech company called Oracle and [laughs] wound up seeing a lot of success there. In the '90s, as you mentioned, founded Siebel Systems, went on to then sell that to Oracle, coincidentally enough, for just under $6 billion. So, this is someone who has been in the tech space, has seen a lot of evolutions in tech, has created successful businesses before, and it's nice when you can invest along a leadership team that has that track record.

Feroldi: And one thing that you have to love about people like this, I saw this in an interview that I read of his, he basically said he founded this company, because this is my idea of a good time. This is just a person that loves technology, loves business, loves founding companies, and this is what he wants to do. He says this isn't going to change my life financially if this is successful, I am in this because I enjoy it. How do you not love that if you're an investor?

Lewis: [laughs] Yeah, I saw the quote, it was like, I'm going to have the same car, I'm going to have the same house, basically regardless of what happens with this business. I'm doing this because I love to do it. And you know, what more could you ask for? I mean, that's passion and that says, you know, he doesn't need the money, but this is what he gets out of bed every morning wanting to do. And I think we can get into a lot of the different things here, but particularly in a space that is -- let's be honest, AI is kind of black-boxy, and it's a little bit [laughs] mysterious, particularly as someone who doesn't have a deep technical knowledge. It's a big stamp of approval when you have a track record like this and you have a successful leadership team, it gives me a lot more confidence investing in a space where I don't know if I have a technical edge.

Feroldi: And I feel the same way. AI is complex! and we are still so early on. And it's hard to even fathom the number of companies that are investing in AI technology right now. Who's going to win? Who's going to be the market share leader? What's AI going to look like? My best guess right now would be that there's not going to be one winner, I think there's going to be maybe a dozen winners, because the opportunity for AI is so huge. When it comes to things like that, one nice shortcut that I like is say, all right, who are the people in this industry that I respect, [laughs] that I trust, that have an eye for this kind of thing? No doubt in my mind, Siebel is the guy.

Lewis: Yeah. And why we have this company now, I think, is really foresight that he had about 10, 11 years ago, realizing that this is where the industry was going. And one of the things I really like about him as a leader is that he has recognized the major technological shifts as they've happened, he's been in the industry for decades at this point. And it seems like he is someone who likes to ride the hot hand and understand where money is going and where the industry is going. This business is really built on capitalizing on that, because we are still in the infancy.

Feroldi: And because we're so early on in the infancy, what's the most important thing at this stage of the game? Talent. You just want to attract and retain the smartest people that you can. Period. How do you do that? You create a fantastic culture that people want to work at. Thomas Siebel has the name and he has created the culture, as we'll get to later, that attracts people to the organization, that allows them to pick the best and the brightest and be extremely picky with defending their corporate culture. That I think is in advance for this company.

Lewis: It's a huge edge, and you need that talent if you're in a space like this. And frankly, [laughs] the talent is going to be expensive, but it's probably going to be worth it when you're building out their products. Speaking of, why don't we talk a little bit about what the company does here? They are operating on the enterprise side, you know, they are a software provider. And I'm going to steal directly from their website here to explain them: Enterprise AI is a category of enterprise software that harnesses advanced AI techniques to drive digital transformation. Developing and deploying enterprise AI at scale requires a new technology stack. The last part of that, not so relevant, but I copy-and-pasted, Brian, and we wind up [laughs] with it live, so there it is.

But put another way, this business offers Software-as-a-Service applications that enable rapid deployment of enterprise AI applications, and wind up basically being able to provide businesses the keys to a lot of AI apps, but then also make sense of things on their own within the AI suite that that business maintains.

Feroldi: Yeah, it's a little bit complex, but I think you nailed the most important points. This is a Software-as-a-Service company that, if you are an enterprise and you're interested in deploying AI in your company to make better decisions, C3.ai allows you to do that. They offer almost like an online app store where you can go in and plug-and-play and use different applications to find the information that you need and process massive amounts of data. At the end of the day it's all about decision-making, that's the real promise of AI at enterprise level. And C3.ai, in theory, [laughs] makes it easy for companies to do that.

Lewis: Yeah, they have the AI suite, which is an app development and runtime environment that basically allows customers to do what they want, allows them to design, develop and kind of have this environment to work within. Then they have the AI apps, which is a little bit like the iOS Store or the Google Play Store that we would be familiar with, it's kind of an easy ecosystem way to understand. And that comes with a lot of benefits, you know, if you create a marketplace in, kind of, a developer environment, there are a lot of really nice benefits that come with that, some network effects and some nice tailwinds that come with that as well.

They have a third segment I'm, admittedly, not as familiar with, Brian.

Feroldi: Yeah, they call it Ex Machina, however you pronounce it, but essentially, it's a no-code platform that allows non-data scientists to rapidly use AI to build things, to configure them. My best analogy would be, it's similar to -- what's the company that everyone at The Fool loves?

Lewis: Twilio.

Feroldi: No. I'm totally blanking on the name. The no-code platform for building software products; why am I blanking on this company ...

Lewis: ... oh, Appian?

Feroldi: Appian! Geez! That took way too long for me to get out. Appian. Appian is a no- or extremely low-code solution for building applications. This product tool seems to be a no- or low-code tool for making AI modules.

Lewis: You mentioned the decision-making part of this. And I think what's interesting is, you know, you look at the first couple of pages of any company's prospectus and you're going to see what they want to highlight, what they really want to get out there front-and-center. There's going to be a pretty graphic, the numbers are going to be huge. The numbers that we're seeing for this one are a little different in terms of metrics than what we might be used to seeing from companies. Front-and-center on their S-1: 1.1 billion predictions per day, 4.8 million machine learning models in production use, and 622 million sensors generating data for the C3.ai suite. That's a massive scale given how small this company is in a lot of ways, but it kind of [laughs] speaks to the way that they're looking at things.

Feroldi: And that's important what you said, in the way that they're looking things. They look at themselves as "the world's largest enterprise AI production footprint" they believe that that's an advantage that they have, or essentially, they're operating at scale in this environment. I don't know if that is a correct statement, because I know a little bit about a little company called Google, [Alphabet] I hear they're OK at AI. But you know, this company is, as you said, putting front-and-center that they are already operating at scale, that makes them an attractive choice.

Lewis: Yeah, and for them, we were talking about it before, this is SaaS, so it all rolls up into a subscription revenue model. They also have a Professional Services segment, but the subscription revenue is about 85% of the topline. They use a couple of different interesting strategies here, Brian, when it comes to acquiring customers and maintaining customers. And I think I want to start there before we get too deep into the financials.

But one of the things that I think is really interesting is they have this lighthouse strategy. And so for them, they go out there and they say, we're going to focus on the big industry stalwarts, the people that have huge use cases for our technology and the people that, if others see us being used by them are going to be wanting to be customers, they're basically proof-of-concept type customers. And so, they don't have a lot of customers at the moment, but they are using this approach. And I think they're using it because, what we're talking about, in terms of the space and the benefits, are kind of hard to wrap your head around otherwise.

Feroldi: Yes. And that's a shortcut that many of the companies -- or that's the strategy, as you said, they're going after the big, the industry leaders. And when they're entering a new industry vertical, they want to start at the top, and if they can land that big customer, that gives them almost like permission or street credibility to land a lot of customers that are smaller. So, they have already landed AstraZeneca in the pharmaceutical space, Raytheon in the defense base, Con Edison in the utility space, the United States Airforce, they have numerous of these big contracts already in place. And they are also signed to multiyear deals. When you sign up with C3.ai, you typically sign a three-year contract.

Because of this strategy, their sales growth and their sales cycle is extremely long. They have to spend a ton of resources to land that first customer. And it takes them a long time from initial contact with the customer to actually become a paying customer to convert them. So, that's a risk for investors to watch right now. However, I could very easily see all of those numbers trending in the right direction because of this strategy. They basically front-load all of the hard work in an industry, and after they nail that, after they landed that lighthouse customer, the selling becomes easier from there.

Lewis: Yeah. And I've seen some estimates on what that sales cycle looks like for them. At one point, I think like, 13 months or something like that on average. I believe it's been consolidated a little bit down to the single-digits in terms of months now. Some of that is sales expertise, some of that is them being able to, kind of, speak the language and better structure deals, make those integrations happen a little bit earlier, and some of it's just people being able to wrap their head around the benefits that this business is offering. But once they get in the door, it is the more classic land-and-expand strategy that you expect to see from a Software-as-a-Service provider.

Feroldi: Yeah, as we said at the top of the show, this is a Software-as-a-Service company that comes with all the usual benefits that we absolutely love about the space. Getting your foot in the door, extremely hard, extremely costly. Once you're in, companies tend to become very reliant on your products and you just become another ongoing operating expense for them. Moreover, that tends to lead to expansion of revenue opportunities over time. So, they have numerous use cases that they point out, where they landed a customer at, let's say, $10 million in contract revenue, and they quickly boosted up to over $30 million. So, that's the tried-and-true formula that we love to see with SaaS stocks.

Lewis: Yeah. The downside with the long sales cycle is that it takes a while to bring someone on and there's a lot of upfront investment when it comes to getting customers. The upside is, [laughs] once they're there, you know, you don't want to have to go through that process again every three or four years with a new supplier. So, if you're happy with what you've got, you are probably going to stick around, particularly if the product is useful. And what we've seen with some of their customer metrics is that that is the case. They note that with their 15 largest customers, overall spend has on average expanded to 3X the initial contract that they signed. So, that's what we have in terms of expansion.

The one thing I have as, kind of, a frustration with this business, Brian, and we'll get into this a little bit more when we talk about some of the key business metrics, is we don't get the typical dollar-based net expansion or retention rate number that we would expect to get from a Software-as-a-Service provider.

Feroldi: It's really interesting that they're breaking with industry norms here, and they've basically come out and say, we're not providing you with revenue retention, we're not providing you with any of this. You know that metric that you all love, yeah, we're not giving you that. The logic behind them holding that back is that they admit, we only have a few dozen customers at this point and what the decision of any one customer is would wildly make that metric -- would wildly inflate or deflate that metric. So, I agree with that. I think that the volatility of that number would be extreme. And we've seen with SaaS companies, investors are so laser-focused on that number that if this company came public, and it was 170% one quarter and then 102% the next quarter, their stock would get absolutely crushed. So, they seem to be holding that closer to the vest and saying, pay attention to our remaining performance obligations as well as our revenue, don't so much look at that number yet.

Hopefully, in time, as their customer count grows, they'll start to provide that to us, but for now, they're not.

Lewis: So, what we get instead with this company is RPO, which is something that we're probably going to have to unpack a little bit, but it's their Remaining Performance Obligations. And this is basically contracted future revenue that has not yet been recognized. You can, kind of, put two different numbers together and get it, it's a look at deferred revenue plus the added value of a non-cancellable contract. Which is nice, because you know, that money is pretty much money in the bank, it's not going anywhere.

But basically, the easiest way to think about this is, RPO increases when they sign new customers and when existing customers expand their relationship, and it decreases when revenue is being recognized on existing contracts during a period. So, in a perfect world, I think this number is continuing to go up over time, [laughs] because it shows that they are getting more commitments and they are onboarding new customers. We have some sense of how it is tracked over time, but because of how low their customer count is, it is a little bit of a lumpy number, Brian.

Feroldi: It definitely is lumpy, and particularly in 2020, that makes sense to me. This seems like a software product that, again, is really hard to wrap your head around upfront, so I can imagine this company having to go through a tremendous sales process to really land a customer. That was made much harder because of COVID, you can't do as many in-person meetings and this kind of thing. I have a hard time getting a CIO to sign the dotted line over a Zoom meeting, I would guess [laughs] they want to have a relationship with the person for months ahead of time. So, we did see this number slowed down significantly in 2020. If this company is the real deal, I could easily see this number starting to reinflate in 2021 and beyond.

Lewis: Yeah. So, what we have in terms of year-over-year-over-year, the easiest one to look at is the July period for reporting. In 2018, this RPO was $123 million. In 2019, $295 million. And now in July 2020, $275 million. But a couple of contracts can swing that pretty wildly. And so, you know, if they wind up onboarding several new clients in a relatively short period of time, that number is going to be posting back over to year-over-year growth fairly quickly.

Feroldi: Yeah. And just put some percentages on that. So, in July of 2019, 140% year-over-year growth. July of 2020, -7% year-over-year growth. So, we'll have to see if once the world opens back up, if they can get this number humming in the right direction again.

Lewis: So, when we actually look at what this turns into in terms of the [laughs] company's financials, because I guess we can kind of get away from some of the core business and idiosyncratic ways that they look at their company. 2020 is their most recent full fiscal year, they posted revenue of $157 million, up 71% year-over-year, Brian, which is actually an acceleration from where they were in 2019.

Feroldi: Yeah. Good to see strong topline growth, the thing we love about all SaaS companies are, most of them have very strong gross margins too. In this case, 75% gross margin. Keep in mind that a good chunk of their revenue is earned from services, or at least 14%, so that is going to act as a natural drag on the gross margin. So, really good to see that at this stage of the game, they're already at 75%. And that figure was up 800 basis points over the prior year. No surprise, given everything we just said about sales and marketing, that the company is operating at a huge [laughs] net loss. Last year, their net loss was about $70 million on $157 million in revenue. I can see that number rapidly improving over time, but for right now, make no mistake, this company is setting fire to capital.

Lewis: Yeah, this is a classic story of let's get to scale, the margin profile looks really strong if we get to a certain size and we're going to be able to become profitable, particularly when you have some long-term contracts that can really assure that the spend is going to continue to be there. One note I will make on that RPO number that we threw out there, while it does take the vast majority of their revenue into account, their future revenue into account, there are revenue sources for that business that aren't going to be captured by that metric. So, you know, it's probably going to be the thing that we track most closely as we watch this company, but it doesn't necessarily factor in everything. And so, that's where you get into some of the services stuff and some of the overages and, kind of, usage things that come with the contract actually being fulfilled.

Feroldi: And you also shouldn't be too scared about the company's net losses at this stage of the game. They do plan to raise about $500 million at the IPO, at a roughly $4 billion valuation. When you add in the cash they had prior to the IPO, of over $100 million, they're going to have plenty of liquidity to get them where they need to go. But you just need to know at the beginning that the company is still losing money.

Lewis: Still losing money, but in a pretty good cash position, going to be pretty flexible, and I have to trust management to be correctly allocating capital here. You know, when you have someone that has successfully run a business that is already bigger than what this company currently is. You know, Siebel Systems, I believe was just under $6 billion acquisition, I think at IPO this is going to be about a $4 billion business. So, it's not [laughs] like this is his first time running a company of this size.

Feroldi: And I could see this very quickly after IPO being much bigger than a $4 billion business, given what we've seen what have happened to tech valuations this year, so, but to your point, yes, the management team here does have the pedigree to run a company of this size.

Lewis: So, we talked a little bit about just some of the core business model elements that lend themselves to, kind of, having a moat and having a little bit of insulation from competition, despite there being a lot of people in the space and a lot of very deep-pocketed players that have existing infrastructure deals with a lot of people that might be interested in these types of products, it's not the only thing, though, I think that's insulating them from competitive pressure.

Feroldi: So, the switching costs are definitely, I would say, the No. 1 thing here, but they also have numerous data integrations, as well as, relationship with some of the biggest companies in the industry to deploy their products. So, they have a relationship with Adobe, Amazon, Baker Hughes in the oil and gas, Fidelity National Information Services in financial services, Google, IBM, Microsoft, Raytheon, and as I said, 770 unique data integrations, that makes it very easy to get your information onto their platform, and those are certainly some big guns that are partnering with this company.

Lewis: Yeah. And I think, I try not to over-index to management, but I think that this is one of those businesses where management, leadership, and culture are kind of an X factor that gives it an edge. And it's such a hard thing to quantify. We use some shorthand to try to get a sense of what a company is like, but I think Siebel's pedigree and what we see when we look at Glassdoor for this business, are things that are going to help them continue to retain talent and acquire new talent in spaces as they need to.

Feroldi: I agree. I mean, as I said at the top of the show, the AI industry is still so early about what it could become in time. So, I think that having a leadership team and a culture at this stage of the game is especially important, and Siebel historically has definitely been someone to bet on. I also really like his motivations. The thing that I look at when I'm looking at inside ownership and culture is, I'm trying to assess does the CEO here have soul in the game? Like, do they care about this company succeeding more than just for financial reasons? Now, financial reasons indicate that the management team cares about the success of the company, but this guy was already a billionaire, I totally believe him that he is not [laughs] founding this company just for the sake of the money, like, what's he going to do with a couple more billion dollars? I truly believe that he generally enjoys building businesses and he generally cares about the company and the corporation that he's making. So, I really like that.

Lewis: Yeah. And when I look at the way that the voting structure and ownership structure is set up, like, he owns 30% of the company, he is going to benefit financially [laughs] if the company does well, but I think crucially, he has over 70% voting power. And so, if you have someone who is really driven, really motivated and holds the keys, you know that they are going to be able to follow his playbook without too much intervention.

Feroldi: Exactly. Plus, his name himself, I think that he can buy himself a whole lot of goodwill with Wall Street. I mean, how badly would this company be getting roasted right now if they said, oh, we're not going to provide a net-dollar retention rate, right? But this is a company that I think is going to get away with that with no problem because of who the CEO is here, so.

And if you look at Glassdoor, the numbers are spectacular. 4.6 stars out of 5. 90% approve of the CEO. And even in their S-1, they called that they got over 50,000 job applications last year and they took about 200 of them. So, that shows you that top talent wants to work at this company and they can be extraordinarily picky with who they hire.

Lewis: Yeah. Smart people want to solve big challenges, right? That's what it comes down to. If you're providing people with a space where they have freedom and flexibility and they're able to go after really big hairy things, then they are going to generally enjoy doing that. And so, I think that they've cracked that well.

That's not to say that there aren't risks with this business. And we talked about where they are in terms of revenue right now, you know, $150 million-ish for their fiscal year. They do not have a lot of customers at this point, and I think customer concentration risk, in particular, is a very big risk for this company.

Feroldi: No doubt. I mean, last year or last fiscal year, two customers accounted for more than 10% of revenue. The loss of any one of them would certainly hurt this company financially, so that is a risk for investors to watch. To me, the bigger risk here is just competition. They claim that they are the leader in what they do and they claim that their size and their scale gives them all kinds of advantages, but there are so many unknowns with AI at this point, it's really hard to say if this company is going to be one of the emerging leaders. So far, the numbers that we've seen do suggest that. Will they be able to retain that over the long-term? That's something I don't know. That's why, in many ways, I view this company as more of a jockey play on Siebel than anything else.

Lewis: [laughs] Yeah. And I think that if you have the right leadership team, it's OK to make those bets and just say like, this is a smart person who is positioning the company well to take on a big challenge. I think Siebel is one of those leaders that you can invest alongside relatively comfortably, but you need that. I said at the beginning of the show, particularly if you feel like you're a little bit beyond your depth in a space, and I think AI, you know for me at least is one of those space where it's like, I can't tell who really has the best tech there, I just I can't. So, I need to have the X factor, and he is someone who helps bring that X factor.

Feroldi: Totally. And the other thing that I really like about this IPO is they're planning on coming public at a $4 billion valuation. It's not like this company is already worth $50 billion and it's really hard to justify, really hard to see them growing hugely from here. They're probably going to come public at a very, very high price-to-sales ratio, and I predict that that price-to-sales ratio is going to expand rapidly as soon as these shares come public. But even still, the potential of AI is in the hundreds of billions of dollars, like it's just massive. This company has under $200 million in trailing revenue. If this thesis works out and this company is a leader, I could very easily see this being a multi-bagger from here. And if it's not, you can only lose 90%-ish of your capital, so it's a very asymmetric bet that you can make by buying this company.

Lewis: Yeah, I think they're operating in a high upside space. I kind of like the fact that they've been a private business for about 10 years too. There's an element of them, I think, choosing to go public rather than feeling like they have to go public that I think is kind of nice here. And so, I think that if companies are able to stay private for a little while, it allows them to, kind of, create the culture that they want to create. Obviously, things are going to change a little bit as they go public, but I think when you take seasoned leadership and then you also apply the fact that this business has been allowed to grow in the way that they want to for an extended period of time, that really says a lot about how they're going to be to handle themselves as a publicly traded business.

Feroldi: Yup! And I very much see this IPO as a marketing event for the company. When you become a public company, you get the eyes of people in the business community far more than you were when you are a private company. Once they come public, if they have some success, I could very much see that helping them to retain customers. I mean, they could have easily raised capital in the private markets, at the valuations that they're coming public at, to fund themselves. So, I see that as more of a coming out moment than a, hey, we really need capital to keep this business going moment.

Lewis: All right, Brian, I'm sure the listeners at home are wondering, is this a watchlist stock for you, is this a must-buy stock for you, how are you looking at C3.ai?

Feroldi: I don't think that many things are a must-buy stock for me, and as we've said before, I always like to give companies like this time on the public markets, so that we can see how the culture changes, how management performs. I'm guessing that this company is going to do just fine for public investors, so I could very much see it being high on my watchlist after it comes public. Plus, awesome ticker, right, AI, how can you beat that?

Lewis: [laughs] You'll always know how to pull up the [laughs] stock symbol, you know, I think it's the beauty, but sometimes you really have to jog your brain trying to remember what you should be searching for. I'm with you, I mean, I think that the size that they're coming public at provides pretty decent multi-bagger potential, particularly with the space that they're operating in. I love investing alongside leadership teams that have demonstrated success in the past, I think this is a very classic, you know, you don't need to put much into it, because frankly, if it works out, there's going to be a lot of upside. And if you don't put a lot into it and it doesn't work out, you'll be pretty happy. I think it's one of those types of investments, but how do you feel about that?

Feroldi: One of my favorite investing quotes ever comes from Tom Engle, TMF1000 on the boards, and he says, "If this company is the next great growth stock, a little is all I need. If it's not, a little is all I want." So, to me, it's just that, if you're interested in this, buy a little bit, if it 10-bags, you'll do very, very well, and there's no reason you can't add along the way as it grows. If they get crushed by some other competitor and they become a rounding error in your portfolio.

Lewis: Yeah. Well, Brian, we'll be following up, I'm sure, we need some more details on when this company is actually going public, but thank you and thank @bleurakoon for throwing this one on our radar. We always like getting suggestions for show ideas and topics.

Feroldi: Especially when there are awesome companies.

Lewis: [laughs] Yeah, that makes it even more fun. And frankly, Brian, I will say, I wasn't sure what kind of year 2020 was going to be for IPOs, but it's been an embarrassment of riches, we've had a lot of really great companies come public and we've had a lot of really fun S-1 shows.

Feroldi: We really haven't had the chance to do the normal format that we do here, like, let's talk about three companies in this space or three companies in this space. It's like, every episode we do, it's S-1, S-1, S-1, because there's so many great companies to talk about.

Lewis: Yeah, even today we're like, are we going to be talking about C3.ai or are we going to talk about Roblox? [laughs]

Feroldi: Right. And hopefully we're doing Roblox next week.

Lewis: Yeah, unless something more interesting comes along, in which case, sorry, Roblox. [laughs]

Feroldi: [laughs] No, no, no, Roblox is going to be a very fun company to talk about, that is a product that all three [laughs] of my children are addicted to.

Lewis: [laughs] Well, we have at least three listeners for that episode; Brian, thank you so much for joining me on today's.

Feroldi: Any time, Dylan. Nice to be back.

Lewis: Listeners, that's going to do it for this episode of Industry Focus. If you have any questions or you want to reach out and say, "Hey!" shoot us an email at [email protected] or tweet us @MFIndustryFocus. If you're looking for more stuff, subscribe on iTunes or wherever you get your podcasts.

As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against stocks mentioned, so don't buy or sell anything based solely on what you hear.

Thanks to Tim Sparks for all his work behind the glass today, and thank you for listening. Until next time, Fool on!