Why Oura delayed its IPO

I was wrong.

A few weeks ago, on my merry way to vacation, I wrote about Oura’s pending IPO and how, amazingly, in the AI era it was a smart ring maker we could rely on to take the go-public plunge. Not anymore: On Sept. 29, after a much-anticipated roadshow, Oura CEO Tom Hale delayed the plan, citing “uncertainty in the IPO market.” 

The obvious question: why get so close, then back off at the last minute? My colleague Morgan Chittum, who just joined Fortune and who Term Sheet readers will be hearing a lot more from soon, dug into this question in a recent piece. For one, she found, valuation proved tricky. As she writes, breaking down the numbers:

Oura had proposed selling 50 million shares at $40 to $44 apiece. At the $42 midpoint, the deal would have raised roughly $2.1 billion in gross proceeds. At the top end of the range, Oura would have had a fully diluted valuation of $15.6 billion. That might be too pricey for a company whose core product is an electronic ring. 

But the argument for Oura’s valuation depends on whether or not investors are seeing it as a single-product hardware maker or something bigger and with more expansion potential.

“If you are viewing Oura as an AI-enabled digital-health platform … then whatever multiple they are looking for can kind of be justified,” [Kat Siu, vice president of financial services firm IPOX,] added. “But if you are just looking at them as a pure ring manufacturer, just consumer hardware, then that valuation is pretty hefty.” The distinction matters because Oura’s sales still lean heavily toward hardware, according to Siu.

Oura has, of course, tried to sell itself as more than a smart ring, leveraging its massive data set and AI tie-ins as part of a more sweeping narrative. (I, for one, am an ardent Oura ring-wearer, but I don’t use too many of its AI-branded features). And, as Morgan writes, there were concerns about the IPO’s financial structure: 

The offering’s structure may also have given investors pause. Of the 50 million shares proposed, only 13.5 million, or 27%, were to be newly issued by Oura. 

The other 36.5 million shares, or 73% of the deal, were to be sold by existing shareholders, meaning the bulk of the cash raised would have gone to early investors and insiders rather than to the company. At the $42 midpoint, that works out to roughly $567 million in gross proceeds for Oura and approximately $1.53 billion for selling shareholders. 

This means there could be a ton of initial selling, which can make an IPO look less like a fundraise and more like a liquidity event for existing investors. “That’s a flag for the market,” Siu said. “It’s signaling that this IPO is not meant for growth.”

Oura, naturally, also faces competition from giants like Apple. All in, though, I sincerely thought they would dive into the IPO waters, and was wrong. So, mea culpa.

It’s possible (maybe even likely) Oura could try again at some point. The company said it was “postponing” the offering (although it gave no indication of when it was postponing the IPO to). This IPO market is quizzical in that it’s been perennially on the edge of something happening for months—and it looks like we may be in suspended animation for a while still. 

A programming note… Please welcome Morgan to Term Sheet! From here on out, she will be writing the newsletter with me, taking up a few days a week, bringing us all her Wall Street expertise. You’ll see her first newsletter over the coming week. 

See you tomorrow,

Allie Garfinkle
X: @agarfinks
Email: [email protected]

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Joey Abrams curated the deals section of today’s newsletter.

This story was originally featured on Fortune.com