After an unusually slow year for technology companies going public, investors and bankers are expecting 2016 to be more fruitful. They're counting on a string of corporate software companies to fill the pipeline of initial public offerings.
Selling software to businesses isn't as sexy as remaking the taxi or hotel industries. But investors like corporate software companies because their revenue and cash flows are generally more predictable than those of consumer-tech businesses, said Brett Rochkind, co-head of General Atlantic's Internet and technology sector. Digital security, data management, and cloud companies are among the most likely to be celebrating from the floor of a U.S. stock exchange this year, according to interviews with venture capitalists, bankers, and startup chief executive officers.
One thing most of them should have in common is annual revenue in excess of $100 million. While not a hard-and-fast rule, it's an important threshold, said Bob Blee, head of corporate finance at Silicon Valley Bank. “I don't see a lot of companies under $100 million going public,” Blee said. “If the growth rate is durable, they have strong margins or recurring revenue metrics, and they have a clear path to profitability, the market is likely to be open to them.”
Bloomberg compiled a cheat sheet with enterprise software companies said to be on IPO watch lists this year. While this isn't a comprehensive roster, at least one person close to each company said that an IPO next year was plausible or probable, and each one had revenue of at least $100 million in 2015. Investors hope they'll fare better than some of last year's hottest tech offerings, such as Fitbit and Etsy, which are currently trading below their IPO prices.
AppDynamics, founded in 2008, helps businesses track how well their apps and websites are running so they can respond swiftly to connection slowdowns or crashes. AppDynamics Chief Executive Officer David Wadhwani, who joined last year from Adobe Systems, said: "I was brought into this company to take it public, and that's what I'm going to do." The company was valued at $1.9 billion in a private financing round that closed in November from General Atlantic and other investors, according to a person familiar with the matter, who asked not to be named because the terms weren't disclosed. AppDynamics generated more than $100 million in its last fiscal year, the person said.
Cloudera, which competes with publicly traded Hortonworks, sells an enterprise version of the open-source platform Apache Hadoop, along with tools and services to support it. Accel Partners, a venture capital firm, was a major investor, along with Intel and Greylock Partners. Cloudera, which was founded in 2008, had more than $150 million in revenue in 2015, according to a person with knowledge of the matter.
DocuSign, founded in 2003, creates software that collects digital signatures and manages business services, such as new-hire paperwork and lease agreements. The company fetched a valuation of $3 billion after a financing round in May 2015, according to a person familiar with the matter. DocuSign has topped the $100 million in annual revenue mark, another person said.
MarkLogic, a big data software company founded in 2001 and based in San Carlos, Calif., is backed by Sequoia Capital, Wellington Management, Northgate Capital, and other investors. The company generated more than $100 million in revenue in 2015, according to a person familiar with the matter.
Medallia, a Palo Alto, Calif., software maker that helps companies capture and respond to customer feedback, has raised more than $250 million since its founding in 2001. Sequoia Capital has led every round of the company's financing. Medallia generated more than $100 million in revenue in 2015, according to a person familiar with the matter.
Nutanix, which makes software and hardware for data centers, filed for an IPO in the U.S. in December. The company, founded in 2009, listed a $200 million placeholder, an amount used to calculate fees that may change. Nutanix nabbed $140 million in its last private financing in August 2014, which was led by Fidelity Investments and Wellington Management and which valued the company at about $2 billion. Nutanix posted total revenue of $241 million in the fiscal year that ended in July with a net loss of $126 million, according to its IPO filing.
Plex Systems, which makes software for manufacturers, has raised more than $80 million in financing since its founding in 1995. The company generated more than $100 million in revenue in 2015, according to a person familiar with the matter. Its current valuation is more than $500 million, the person said.
Pluralsight, an online education company founded in 2004, generated more than $100 million in revenue in 2015, according to a person with knowledge of the matter. The person also said Pluralsight plans to go public in 2016. The company has raised $163 million in venture funding, with $135 million of that coming in August 2014 at a $1 billion valuation, the person said.
PointClickCare, a Canadian health-care software provider founded in 1995, filed in September for IPO in the U.S. and plans to do the same in Canada. PointClickCare posted an $11 million loss on revenue of $102 million for its fiscal year that ended in October 2014, according to the company's most recent prospectus. From November 2014 to April 2015, net income was $268,000 on revenue of $58.7 million.
Qualtrics, a corporate survey and analysis company founded in 2002, raised money from Accel Partners and Sequoia Capital in 2012, after years of profitability. The Utah company generated more than $125 million in revenue in 2015 and is cash-flow positive, according to a person with knowledge of the matter. The 2014 funding round valued the company at more than $1 billion, according to people familiar with the company.
SoFi, which runs an online lending marketplace, has raised hundreds of millions in debt, in addition to a $1 billion equity financing round led by SoftBank. Mike Cagney, the CEO of the San Francisco company, said SoFi had more than $100 million in revenue in 2015 and has been profitable for two years.
Squarespace, a New York website building and hosting service founded in 2004, has raised two rounds of funding from such investors as Index Ventures, Accel Partners, and General Atlantic. Squarespace CEO Anthony Casalena said 2015 revenue surpassed $100 million. Squarespace's valuation is more than $1 billion, according to a person familiar with the matter.
Tanium, a security and systems management company, was founded by the father and son duo David and Orion Hindawi in 2007. The pair previously worked together at the enterprise systems management company BigFix. IBM purchased that company in 2010 for about $400 million. Tanium has raised more than $300 million in multiple rounds, several of which were led by Andreessen Horowitz. Bloomberg LP is an investor in Andreessen Horowitz. Tanium generated more than $100 million in revenue in 2015 and is cash-flow positive, according a person familiar with the matter.
Tenable Network Security, a network security monitoring company founded in 2002, has raised money from In-Q-Tel, the U.S. Central Intelligence Agency's venture capital arm, as well as Accel Partners and Insight Venture Partners. Tenable generated more than $100 million in revenue in 2015, according to a person familiar with the company. The company's valuation is more than $500 million, the person said.