Cloud business software provider ServiceTitan has set a price range of $52 to $57 per share for its initial public offering (IPO), with hopes to raise $446.2 million to $514.2 million at the midrange. In its latest S-1A SEC form, the company disclosed that it plans to use a significant portion of the funds to buy back all the shares of its non-convertible preferred stock, a move that is uncommon among companies going public.

The company plans to use approximately $311 million to buy back the preferred stock at $1,000 a share, which is the price these investors paid. Additionally, ServiceTitan will pay the stockholders any unpaid dividends per share. The investors, according to the documents, are Saturn FD Holdings, LP, and Coatue Tactical Solutions PS. The company was on the hook for annual 10% dividends for five years and 15% for the sixth year for these shares, significantly higher than the average dividend yield for public companies in tech, which stands at 3.2%, according to Dividend.com.

It's worth noting that ServiceTitan's largest venture capital investors are ICONIQ Growth, Bessemer Venture Partners, and Battery Ventures, in that order. An entity of TPG is also a major investor, according to the documents. Unwinding expensive private capital investments is not a typical use of IPO funds, as companies usually dedicate the money to running their businesses or for possible acquisitions. In this case, ServiceTitan says it will use whatever is leftover as working capital for the company or other corporate uses.

This latest disclosure follows news that ServiceTitan sold its soul, so to speak, in 2022 when it raised a Series H round by agreeing to grant the investors in that round a "compounding IPO ratchet structure." This means that the company will almost certainly have to grant those Series H shareholders a bunch more shares as part of the IPO, too. If its IPO share price was less than what the Series H investors paid, ServiceTitan agreed to cover the losses, and every quarter it delayed an IPO after May 22, 2024, the company agreed to owe those investors even more.

VC Alex Clayton, general partner at late-stage firm Meritech Capital, known for his IPO analysis, believes that spending a large chunk of its IPO cash to get out of the preferred stock deal "makes sense." "They clearly want to have a cleaner cap table so are using the proceeds to buy these back. They could buy this back anytime and now have the cash to do so," he said.

However, the company also appears to need the cash for the business. While losses are narrowing, at the end of its fiscal 2024, it lost $183 million from operations and logged a net loss of $195 million when factoring in interest and other costs. Clayton also believes the bankers are playing their typical IPO pricing games with that $52 to $57 range, which was lower than he expected. That means that the company might actually price above the range – which helps create positive headlines and excitement for the offering. If so, ServiceTitan can clean its cap table and walk away with more cash.

"This is just the initial range, it's likely to be priced and trade higher. Remember, bankers want an 'IPO pop' and it will not excite companies to work with them if they price the IPO too high and it trades below issue price. I suspect the company will trade in the high $60's or low $70's," he said.

In addition to the IPO details, ServiceTitan also clarified who will be eligible to buy stock in its direct share program. The company is setting aside 5% of its shares to sell to friends and family of the founders and, it clarified, to certain C-suite decision makers of its customers. While there could be some conflict of interest issues there – a customer who is also a shareholder selecting a vendor – such private stock sales have become more common. Reddit, which went public earlier this year, for instance, did so for its moderators.

Ultimately, ServiceTitan's IPO might wow or it might whimper, but it isn't much of a reflection on when tech IPOs will start rolling in earnest again. The company did not immediately respond to a request for comment.