Retail investors often bemoan the fact that we don't get access to investing in exciting early-stage, private tech companies in the same way that venture capital (VC) funds and other accredited investors do.

By the time the typical retail investor can buy shares of a company after its initial public offering (IPO), the valuation is often much higher than what venture investors bought the company for. Look no further than Snowflake's (SNOW -1.47%) IPO, for example.

One silver lining of the tech sell-off is that valuations have been reset and investors now have the chance to invest in some of these companies at around the same price that they were valued at before going public. One great example is HashiCorp (HCP 4.81%)

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Invest like a venture capitalist 

HashiCorp went public in November 2021 at an offer price that valued the company at about $14 billion. Previously, in its last private funding round, investors valued the company at about $5 billion, about a third of the valuation at which it went public, meaning that investors buying into HashiCorp in its last private funding round could have nearly tripled their money just a year later when the stock went public.

Unfortunately, most individual investors typically do not have access to this type of opportunity. Amid the current market sell-off, HashiCorp is down 66% from its 52-week high, bringing its valuation down to just $5.6 billion, not much higher than where early-stage investors were able to buy into the company in 2020.

If you're interested in high-growth software stocks with high margins and strong recurring revenue, and wish you had a chance to buy HashiCorp before its IPO, this is likely a good entry point into the stock. 

What is HashiCorp?

HashiCorp is a cloud automation software provider. The company makes open-source tools that work with and complement the offerings of public cloud providers like Microsoft (MSFT -3.76%) and Amazon (AMZN -4.58%). The company has nine different products that serve various areas of the cloud infrastructure market, such as Terraform, which sets up infrastructure, and Vault, which manages passwords.

The cloud is expected to grow at a 15% compound annual rate between now and 2026, so this is a good market segment to build solutions for.

86% growth in customer count 

While HashiCorp is not yet profitable, it boasts impressive 80% gross margins and trades at 15 times sales, which is expensive but not beyond the pale for a fast-growing software stock. Its land-and-expand strategy seems to be working well. The company provides open-source tools to developers, meaning that anyone can use and modify the code, and these tools have been downloaded over 100 million times.

This gets HashiCorp into the door at large companies (management says its tools are used by 80% of Fortune 500 companies) and it can then sell additional features, add-ons, and custom solutions to these large enterprise customers.

At the end of the most recent quarter, the first quarter of fiscal 2023, HashiCorp reported that it had 3,240 customers, an 86% increase from the 3,240 it had in the year-ago quarter. The company also grew revenue year over year by 51% to $101 million and grew to 704 customers that are spending $100,000 or more, compared to 523 in the year-ago period and 655 last quarter.

HashiCorp also reported an impressive 133% net dollar retention rate (based on the past four quarters). This is a key metric for software-as-a-service stocks as it measures revenue from existing customers. This 133% rate shows that the company is not losing customers (thus retaining the recurring revenue it brings in each year), and on top of that, it is gaining 33% more revenue from existing customers.

So these customers like HashiCorp's product and are willing to spend more money than they did the year before. 

Is HashiCorp a buy? 

HashiCorp is not yet producing earnings and trades at a fairly high price-to-sales multiple that is just about on the boundary of what I would consider reasonable for a high-quality, high-growth software stock.

But after the steep sell-off, I think the stock is at a good entry point to invest in this fast-growing software company with high gross margins and a growing customer base.

Investors can now buy shares for not much more than private investors were investing prior to its IPO, giving them a chance to invest in a promising tech stock at a valuation they normally wouldn't get.