2017 IPO Market Could be Boosted by Silicon Valley’s Obscure Unicorns

With the potential to raise billions, social media firm Snap Inc may be the highest profile tech IPO planned for 2017.

According to investment bankers and advisers who work on IPOs, little-known names such as Apttus, Tintri and Okta – could be just as important in thawing a long-frozen IPO market as more than a dozen expected stock offerings of relatively obscure software firms targeting business customers.

Justin Smolkin, head of Americas technology equity capital markets at UBS Group AG said that such firms are a “leading indicator” of broader investor demand for market debuts.

“They tend to be viewed as cream of the crop, and where investors make the most money,” he said.

Subscriptions that produce reliable revenue streams are generally the modes through which such enterprise software companies generally sell their services.

Compared to many Internet or consumer-oriented companies that depend on advertising or high volumes of individual transactions, these companies aim to sign contracts lasting several years, giving investors more predictable returns.

Automating business processes, security, accounting, training software and expense management are some of the range of back-of-the-house services that the firms provide.

Will Connolly, Goldman Sachs Group Inc’s head of U.S. technology equity capital markets said that the sector accounts for most of the tech IPO market, although such companies have moderate valuations, between about $500 million and $4 billion.

“Most of the technology IPO activity is actually not big, large-cap companies going public,” Connolly said. “It’s small and midcap growth companies going public that are innovators in their own markets and are helping drive the next generation of technology.”

Thomson Reuters data showed that only six software companies went public in 2016 while it identified more than a dozen U.S. enterprise software companies that are making preparations for a 2017 IPO including Avalara, MuleSoft, ForeScout Technologies Inc, AppDynamics and Yext.

Between 30 to 45 venture capital-backed technology companies could go public in 2017, compared to 15 in 2016, predicted Greg Becker, chief executive of Silicon Valley Bank, a lender to venture capital-backed companies.

While requiring ample investor dollars and attention, IPOs of tech giants Airbnb Inc and Uber Technologies Inc are long-anticipated and these companies could also be aiming to get ahead of these tech giants.

By selling shares down the line, it could offer a boost to early-stage investors who provided key funding in the hopes of profiting if the enterprise software firms’ IPOs succeed. According to Thomson Reuters data, less than any year since 2008, only 20 technology companies went public in 2016.

“It will be important for everyone that these deals work well in the market to create positive momentum for the year,” said Anthony Kontoleon, global head of syndicate in the equity capital markets group of Credit Suisse Group AG.

Some venture capital fund managers could struggle to keep their investors happy if technology IPOs don’t take off in 2017. Also on the list of sufferers could be startups that have attracted and retained talented employees with the promise of a lucrative IPO.

(Adapted from Reuters)


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