If 2016 was a desert for business-to-business technology floats then 2017 is shaping up to be a bounteous rainforest. Already, Alteryx, Cloudera, ForeScout, MuleSoft, Okta and Yext have taken steps - although, not all of them have been public about these - towards IPO. What can we learn from this sudden blooming?
Let’s try to gain some perspective…
First, today’s IPO candidates have surely been emboldened. The crop of 2016 was meagre but the companies haven’t gone to seed. Nutanix has seen a fairly precipitous decline but retains a valuation of almost $3bn as does Twilio which has been up and down. But the examples of companies such as Box and Mimecast will suggest that once the short sellers have gone, the long-term can look pretty good. The mega-IPO of another tech company, albeit in B2C, with Snap may also have created an afterglow but B2B often serves up the lasting value.
Second, it’s not as if there’s any golden thread or uber-theme that runs through these companies. Security, where ForeScout plays, is often seen as the gift that keeps on giving to Wall Street but, oddly enough, the big security IPO, SecureWorks, cast off by Dell, was, at least initially, among the least successful floats of last year. Instead, the floats are coming from across the board: business analytics (Alteryx and Cloudera), IT management (Apptio), authentication and identity (Okta), datacentre infrastructure (Nutanix), data integration (MuleSoft and Talend), communications (Twilio), and location services (Yext).
Third, big losses continue not to be a deterrent if the upward trajectory is strong enough. For example, Okta lost $76m on $86m in revenues for its last financial year but grew at about 90 per cent; MuleSoft lost $50m on $188m but grew at 70 per cent; Alteryx lost $24m on $86m but grew at over 59 per cent. The modern way is to drive revenue, not profits, and here, Salesforce.com and Amazon are the exemplars.
Fourth, the recent metric of floating at about $100m in revenue and seeking a $1bn valuation is holding, just about, even if it’s a very rough ready-reckoner.
Fifth, software continues to eat the world. The fat valuations of most of the companies mentioned are justified by the equally swollen potential margins of these concerns that have no factories or materials to purchase.
Fifth, it helps is you’re nicely bolstered. All the prospective floats have raised over $100m in funding and Cloudera has over $1bn in investments.
Sixth, it’s becoming clear that the tech sector is being treated as immune to the weirdness surrounding US politics. The show must go on, even if the political scene is an unwelcome distraction to many.
Seventh and most important, it helps if you’ve been included in the IDG Connect Red-Hot, Pre-IPO Companies in B2B Tech annual survey – as Alteryx, Box, Cloudera, MuleSoft, Nutanix and Okta have all been.
IDG Connect Red-Hot, Pre-IPO Companies in B2B Tech 2016 Report
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Yext maps world of opportunities
Okta offers cloud cover for firms signing on
Cloudera CEO builds for data-driven world
MuleSoft wants to take donkey work out of integration
Adrian Schofield sheds light on tech in South Africa
Mark Chillingworth on IT leadership