The IPO of ServiceTitan is becoming increasingly strange.

On Tuesday, ServiceTitan, a cloud software company for businesses, announced a price range for its initial public offering (IPO) of between $52 and $57 per share, with the expectation of raising between $446.2 million and $514.2 million on average. In its recent S-1A filing with the SEC, the company revealed its plans for the use of the raised capital, including the purchase of all shares of its non-convertible preferred stock for approximately $311 million at a price of $1,000 per share, which is the value paid by investors. Additionally, unpaid dividends per share will be paid to these shareholders.

According to the information presented, investors in these preferred shares include Saturn FD Holdings, LP, and Coatue Tactical Solutions PS, who received annual dividends of 10% for five years and 15% in the sixth year. In comparison, the average dividend yield for public companies in the tech sector is 3.2%. It is worth noting that the largest venture capitalists in ServiceTitan are ICONIQ Growth, Bessemer Venture Partners, and Battery Ventures, with a TPG entity also listed as a significant investor.

It is uncommon for companies to allocate funds from their IPO to unwind costly private equity investments; they typically use these resources for business operations or acquisitions. In this case, ServiceTitan has indicated that any remaining funds will be used as working capital or for other corporate purposes.

This revelation comes in a context where ServiceTitan had agreed in 2022, during a Series H funding round, to provide the investors of that round with a "composite IPO ratchet structure," implying that Series H shareholders could receive more shares if the IPO share price was lower than what they paid. Reports indicate they bought in at $84.57 per share.

Alex Clayton, a general partner at Meritech Capital, a growth capital firm, highlighted the complex ratchet structure in an analysis that gained significant attention, suggesting that the company seeks to simplify its capital table by buying back preferred shares, leveraging the liquidity generated by its offering. However, despite the reduction in losses, the company reported an operating loss of $183 million at the end of its fiscal year 2024, reaching a net loss of $195 million when considering interest and other costs.

Clayton also expressed that the price range might be low, suggesting that the company is likely to set a price above this range, which could generate excitement around the offering. ServiceTitan's plan includes reserving 5% of its shares for friends and family of the founders, as well as for some high-level decision-makers at client companies, raising potential conflicts of interest by having a client who is also a shareholder.

This situation could influence the perception of ServiceTitan's IPO, which could generate high expectations or go unnoticed, without necessarily reflecting the market trend for tech regarding initial public offerings.