Tech unicorn AppDynamics — a startup worth more than $1 billion — is expected to go public next week. The first tech initial public offering of 2017, its success or failure will set the stage for other companies to follow.
According to its latest SEC filing, San Francisco-based AppDynamics will sell 13.8 million shares at a maximum price of $12, which means it could raise more than $165 million. Whether it accomplishes its objectives will give guidance to other tech companies that are on the fence about going public early this year or delaying.
For now, things for AppDynamics, a provider of application optimization software, look good: According to Renaissance Capital, which manages two IPO-focused exchange traded funds, reports the IPO "appears structured to do well right off the bat."
That's a positive sign for a dreary IPO market, which Renaissance reports started slowing in August 2015 when markets sold off over concerns of weakening in China, the impact of a Fed rate hike and a continuing decline in commodities. Last year, the Brexit vote in June to separate Britain from the European Union and the volatile US presidential election created more uncertainty.
"Proceeds fell to their lowest level since 2003 and activity was the worst since 2009," Renaissance noted.
Snap, Spotify Highly Anticipated
Snap could raise $4 billion at a valuation more than $25 billion through an IPO in the first half this year, Renaissance predicts. Spotify raised $1 billion in convertible debt financing in last March — and that "nearly guarantees an imminent IPO," it said.
Snap and Spotify alone stand to raise more capital than all VC-backed tech IPOs in the last two years combined, Renaissance noted.
The IPO Conundrum
Jim Lundy, CEO of Aragon Research, a technology advisory firm in Morgan Hill, Calif., said the costs of going public and the resources that must be invested for proper documentation “can be outrageous.”
“Many organizations underestimate the number of people that need to be hired to do it,” Lundy said. “And if you get something wrong, there could be major ramifications with the SEC (United States Securities and Exchange Commission).”
According to a Harvard University study, average total IPO fees and expenses for "emerging growth companies" (less than $1 billion in revenue) excluding underwriting fees from 2013 to 2015 was $3.7 million. The average total non-EGC fees and expenses was $6.4 million.
From Private to Public — and Back Again
CMSWire caught up with one company that went public last year, another that withdrew its public status in favor of a private-equity investment and another that’s considering going public, perhaps this year.
Twilio: Now Public
Twilio, a cloud communications provider based in San Francisco, went public last June. At the time it was the largest tech IPO of the year year, generating a market value of $2.4 billion.
Its shares have surged from an IPO price of $15 to nearly $70 before falling back to the high $20s.
Twilio, which reports its financials Feb. 7, is expected to post a loss of six cents per share for the fourth quarter Revenue is seen coming in at $74.12 million, according to a Jan. 18 InvestorPlace report.
“As a cloud company, the number one thing we sell is trust,” said Kay Kinton, director of global communications for Twilio. “We're asking customers to trust us with their applications, to build on top of us and know that we're going to keep delivering for them.”
Companies that trust a cloud provider give up control to another company they feel can do it better, she added.
“Going public was a great way to continue to build and demonstrate that trust because it makes the company an open book that customers can look into.”
Lionbridge: Now Private
Lionbridge Technologies, a Waltham, Mass.-based provider of globalization services to technology companies, went public when the IPO market was red hot, raising $35 million in 1999.
Lionbridge expects the transaction to be completed this quarter, subject to shareholder approval and customary regulatory approvals.
In a statement to employees on the company intranet (and shared with the US Securities and Exchange Commission), Lionbridge CEO and founder Rory Cowan said the deal will have little effect on day-to-day operations beyond reducing the number of investors in the company.
"Rather than having multiple investors, we will have a single investor," he noted.
Early in in the company's development, Cowan added, "public markets offered us the greatest opportunity and the greatest flexibility to achieve our goals. Today, private equity seems to be far more flexible and provides more aggressive sources of growth capital for our needs."
Clint Poole, Lionbridge’s chief marketing officer, caught up with CMSWire after the acquisition.
The acquisition, he said, ties directly into Lionbridge’s existing strategic direction. Their core translation services serves highly-regulated industries like Life Sciences, Healthcare and Legal. Lionbridge wants to build in those areas and grow by acquisition.
“And our capital partner accelerates our ability to do that,” Poole said.
Acquia: Planning an IPO
Acquia, a private digital experience provider based in Boston, has been open about wanting to go public.
Acquia has already received $173.5 million in venture capital since 2008, the largest rounds in May 2014 ($50 million) and Sept. 2015 ($55 million).
Asked about filing an IPO this year, Acquia CEO Tom Erickson told CMSWire the company continues to focus “first and foremost on building innovative solutions that enable our customers to better build and manage digital experiences at scale.”
He noted Acquia, which provides cloud hosting of the Drupal content management system, has a customer base that includes large enterprises like Nestle, NASDAQ and the Australian Government to new customers including Advanced Auto Parts, Molson Coors Brewing and AthenaHealth.
“2017 is shaping up to be a strong year for Acquia,” Erickson said. “We’ll continue operating as an IPO-ready company, with the success of our customers being a top priority.”
The two primary benefits of being a public company are the ability to use stock as a currency enabling more inorganic growth and crossing a perceived threshold of achievement that opens up a broader market of large enterprises to its solution, Erickson said.
“Beyond these, we don’t see any challenges to the business by staying private,” he added. “There is considerable private equity available to offer liquidity to our faithful early stage investors should they decide to seek it. We have significant cash on hand that will allow us to pursue our goals as currently planned. We have a greater fear of stifling innovation should we get onto the quarterly results treadmill that public companies face. Staying private gives organizations the opportunity to move faster and stay agile as business opportunities arise. We’re proud of our growth over the past nine years, and being private has served us well.”
Potential Hot 2017 IPOs
Here are companies to watch in 2017, according to CB Insights:
So About This IPO Market ...
Earlier this month, venture capitalist Fred Wilson predicted the 2017 IPO market, led by Snapchat, will be white hot. "Look for entrepreneurs and the VCs that back them to have IPO fever in 2017. I expect we will see more tech IPOs in 2017 than we have since 2000.”
CB Insights CEO Anand Sanwal, however, responding to Wilson's claim, noted: “While it's not as bold, prescient or fun to take the other side of this prediction, there is zero chance of this happening.”
Meanwhile, Hyoun Park, chief research officer for enterprise technology firm Blue Hill Research, told CMSWire 2017 will be a big year for mobile app, API and collaboration companies from an acquisition perspective. "Expect big companies ranging from Slack to Dropbox to GitHub to either IPO or get acquired,” Park said.
Clearly, interesting times are ahead for investors of all kinds.