Crowdstrike CEO’s Stake Set to Autopilot as Window to Sell Opens

(Bloomberg) -- With Crowdstrike Holdings Inc. shares down by almost 50% from their initial explosive gain, and the cybersecurity software provider's recently reported earnings behind it, attention turns now to what early investors and insiders will do. Come Monday, co-founder and chief George Kurtz and other early backers get their first chance to take money off the table day since the June IPO.

The cybersecurity software provider's shares are up 56% above its IPO price, but have fallen from its mid-August peak of $102 as investors have cooled on software stocks with lofty valuations. Roughly 70% of the Crowdstrike shares that are available for trading unlock next week.

If there is any selling of Kurtz' stake, it'll be determined by the market.

“I'm on a 10b5-1 plan and depending on what the market does, it could sell, or not, programatically, but that's not reflective of my views,” Kurtz said in a telephone interview. “I'm bullish about our future and that's why [the plan] is in place.” He declined to discuss what parameters were set to trigger selling.

With an enterprise value to estimated fiscal 2020 revenue ratio of 25, Crowdstrike still sells at a premium to software peers. When asked about investors' valuation concerns, Kurtz said: “The market does what the market does well -- look at strong companies, and reward them.”

The stock was briefly up as much as 6.7% pre-market Friday after reporting a beat-and-raise quarter on Thursday after the market close.

Crowdstrike's IPO was a blockbuster even by information technology standards. Its offering is among nine of this year's 25 technology and communications IPOs that was both up-sized and priced above-range -- and Crowdstrike had already boosted the marketed offer.

It also had the best debut in that group, soaring 87% at the open. Zoom Video Communications Inc.'s 81% gain was second best.

Early investors include Warburg Pincus and Accel. Warburg bought shares in November 2011 as the very first investor. And its co-CEO Joseph Landy and the firm's managing director Cary Davis are on Crowdstrike's board of directors. Accel was also named as a principal shareholder in regulatory filings, and its partner Sameer Gandhi is on Crowdstrike's board. Warburg declined to comment and Accel didn't respond to queries about the lock-up expiration.

A large block trade could weigh on shares, which have an average 30-day trading volume of 1.6 million. Kurtz said he doesn't know what early investors will do, but is confident in their ability to manage “liquidity situations.”

As for additional capital needs? “We wouldn't comment on future financing, but we've got a strong balance sheet and we're excited about our positive free cash flow in the quarter,” he said. “Strong balance sheet and execution is the name of the game.”

--With assistance from Jeran Wittenstein.

To contact the reporter on this story: Crystal Kim in New York at ckim426@bloomberg.net

To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, Scott Schnipper

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