On Tuesday, cloud business software provider ServiceTitan offered a price range for its initial public stock of $52 to $57 a share, with hopes to raise $446.2 million to $514.2 million at the midrange. 

It also made a few other interesting disclosures about what it will do with the money and who it will sell the stock to.

In its latest S-1A SEC form, the company disclosed that it plans to use a big chunk of the money – about $311 million – to buy back all the shares of its non-convertible preferred stock, at $1,000 a share – which is the price these investors paid. 

Plus, it will pay those stockholders any unpaid dividends per share. The investors are, according to these documents, 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 for these shares. For context, the average dividend yield for public companies in tech is 3.2%, says Dividend.com. Those are not, by the way, the largest VCs invested in ServiceTitan. ICONIQ Growth, Bessemer Venture Partners and Battery Ventures are, in that order. An entity of TPG is also a major investor, the documents say.

Unwinding expensive private capital investments is not what most companies say they will do doing with their IPO funds. They tend to 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 price range 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. They paid $84.57 a share, it disclosed.

VC Alex Clayton, general partner at late-stage firm Meritech Capital, known for his IPO analysis, was the first to point out that painful ratchet structure in a blog post that went viral. He tells TechCrunch that spending a large chunk of its IPO cash for ServiceTitan 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. 

Still, 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 however, 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 that vein, ServiceTitan also clarified better who will be eligible to buy stock in its direct share program. ServiceTitan 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. 

All of this means that 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.

ServiceTitan did not immediately respond to a request for comment.