Will There be Any Crumbs Left After Toast Goes Public?

There is no shortage of news about companies moving toward public offerings or using SPACs as a mechanism for going public. Today, we’ll look at Toast’s plans for an IPO this year. Toast is a SaaS company squarely focused on the restaurant point-of-sale space. Just a few months ago, we updated you on Toast’s progress after we saw the company’s valuation surge from $4.9 billion to $8 billion. This in the midst of a pandemic that has ravaged the restaurant industry. But as we discuss below, this crisis brought with it opportunities for companies like Toast. 

That valuation now appears to have climbed by 150% to an estimated $20 billion based on the IPO news. And just yesterday we wrote about Olo, another food-related SaaS company. As we pick up our food at our local Italian restaurant, we consumers often see the Toast POS device. Beyond the consumer transaction, Toast’s software helps restaurants market, manage inventory, handle accounting tasks, manage menus, as well as delivery logistics. 

A Decade’s Evolution

The company has been hanging around the restaurant industry since being founded in 2011 and launching in 2013. And during this time Toast has evolved its value proposition considerably. But the company’s  URL — pos.toasttab.com — makes clear its roots. The term POS is in the URL.

Fast forward to today. The company is clearly benefiting from restaurant operators’ urgent need had to move to a digital experience. While the pandemic motivated millions of small business owners across categories to get on board with digital innovation, the restaurant space was arguably the most impacted by this event. Restaurant owners were doomed without an easy way to stand up a compelling digital patron experience.

Instead, companies like Toast stepped in to fill this void. Of course, Toast delivers software for basic business operations from $70 to $200 per month. But the pandemic is a crisis that demanded fast innovation. One example of Toast’s adaptation to the crisis was its rollout of Toast Capital as a means of providing fast access to much-needed cash to keep the doors open and the supply chain flowing. 

Fit to Fight Another Day 

Early last year as the contours of the pandemic began to take shape, the company let nearly 500 employees go. In an April blog post by CEO Chris Comparato said Toast planned to “reduce staff by roughly 50%, citing a drop in revenue of more than 80% in March in most cities.” In addition, they “also reduced executive pay across the board, froze hiring, halted bonuses and pulled back offers.” 

For so many, the pandemic has now been a year-long slog. And for others, like Toast, it has set them up for an IPO. The force reduction they undertook back in the spring of 2020 has only made the company more financially healthy. But it took more than downsizing for a restaurant software company to grow its valuation in a pandemic that decimated its client base. 

It also required some very hard work on the part of the remaining employees, plus a strong vision from the leadership team. Add to this meeting the opportunity presented by the demands of a restaurant marketplace and the result spells big-time success. 

Back in November, we wrote this. “It will be interesting to see how Toast and its customers navigate the next six to 10 months. It will take at least this long for the restaurant economy to return to some semblance of its prior self. Smart restaurant owners will realize that using platforms like Toast can lower operating costs and increase their overall effectiveness.”

Toast Rising Against Pandemic Headwinds

Massive Growth Expectations

Given Toast’s lofty new valuation, its business model and value proposition seem in sync with the demands of the restaurant industry. Going forward, Toast needs to figure out how it drives revenue growth in keeping with its $20 plus billion-dollar valuation.

It seems to us that in addition to continuing to sign up new restaurants, Toast must consider its role in helping its existing customers lure new dinners with tools beyond email. Will Toast move closer to offering an all-in-one restaurant management platform? This would require having functionally that runs from the front of the house (websites, mobile apps, digital marketing) through the middle (bookings/reservations) to the back of the house (payroll, inventory).

We imagine Toast’s management team will look at all pieces of the restaurant value chain and seek to add adjacent functionality. And they will do this either through their own product team or by using some of the new capital to acquire adjacent solutions. Done right, Toast could gain considerable scale and market coverage. And this could leave the remaining players fighting over the crumbs.

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