A hot market for initial public offerings and a wide range of relatively mature fast-growth companies should make this fall a big one for fundraising.
The initial public offering, once the ultimate validation for company founders, is in fashion for the first time since the dot-com bust. In the first half of 2013, U.S. IPOs raised $20.6 billion, according to Kathleen Smith, principal at Renaissance Capital in Greenwich, Connecticut. Excluding Facebook’s $16 billion debut, that’s 63 percent more raised than in the same period last year.
And though any IPO boom includes big-company spinoffs and overseas listings, in this one, entrepreneurs are bringing it home. Analytics firm Tableau Software raised $254 million in May and saw its shares rise 64 percent. Marketing software company Marketo raised $85 million and got a 78 percent pop. Biotech start-ups, such as Bluebird Bio and Agios, have had their own first-day frenzies.
Two key factors work in IPOs’ favor, one permanent, the other fleeting. Fast-growth entrepreneurs are starting to take advantage of the JOBS Act, which allows companies with less than $1 billion in revenue to file essentially in secret, get feedback from investors and the U.S. Securities and Exchange Commission, and only then decide to register or quietly back away. Biotech entrepreneurs, realizing that the U.S. Food and Drug Administration is easing certain drug rules, are also adjusting accordingly.
Less reliably, the stock market is up about 12 percent this year, as of this writing. A hot market does wonders for new issues, because investors are “more comfortable with something new when the market is rising,” says Smith. It’s worth remembering, though, that markets also reverse; one debt-ceiling crisis or Mideast flare-up, and risk tolerance can shrivel overnight.
For a flavor of what it takes to go public these days, we asked analysts to name a handful of companies with much anticipated (and probably imminent) IPOs. They named companies with high margins, strong brands, and, in most cases, a founder still in charge. Not a Pets.com in the bunch.
Raised: $120 million
Valuation: $200 Million
In 1994, Dr. Emil D. Kakkis met the family of a child who had a rare metabolic disorder and was not expected to live to age 10. Working with funds initially raised from golf tournaments and bake sales, Kakkis synthesized a treatment to save the child’s life. Kakkis went on to become chief medical officer at BioMarin Pharmaceutical, where he won approval for three rare genetic disorder treatments. In 2010, he founded Ultragenyx, which now has one drug in a Phase II trial and another in a trial set to begin this month. The company raised $75 million last year; Sanofi-Genzyme BioVentures is a strategic investor.
Revenue: $62 million
Valuation: $1.25 billion
FireEye, which filed for its IPO in August, disables sneaky malware that firewalls can miss, such as emails with seemingly innocent zip attachments, and analyzes “zero-day” attacks (so named because they exploit previously unknown vulnerabilities--hence, “zero” days from discovery of the weakness to the attack). It counts more than 1,000 customers in 40 countries, including about one-third of the Fortune 100. In January, the company raised $50 million; investors even include the venture branch of the Central Intelligence Agency. Still, FireEye is the rare IPO candidate that is losing money--$67.2 million in the first half of 2013, despite a doubling in revenue.
Los Altos, CalifORNIA
Raised: $300 million
Valuation: $3 billion
Founded in 2005, while its founders were in college, online storage company Box has raised about $300 million and has an estimated valuation as high as $3 billion. Box says it has 180,000 customers--including more than 97 percent of the Fortune 500--and 20 million users. Revenue more than doubled last year. John Connors of venture firm Ignition Partners (not an investor in Box) says the business software market “moves slowly, sales channels can be expensive, and incumbents are hard to displace. But once you get the flywheel started, the market is very big.” When he says big, he means big: $3 trillion worldwide.
New York City
Revenue: $800 millION
Valuation: $3.4 billION
With the global economic recovery has come an increased interest in luxury fashion. Gilt Groupe and Zulily are two brands certainly in investors’ sights, but the most talked about is the glamorous Tory Burch. The company sells its line of luxe bohemian women’s clothing, shoes, handbags, and eyewear at its own 90 stores, as well as at outlets such as Neiman Marcus, Nordstrom, and Bergdorf Goodman. For an initial public offering today, “brand recognition is key,” says Kathleen Smith of Renaissance Capital, and Tory Burch has that in spades. Bloomberg recently valued the company at $3.4 billion.
Revenue: $580 million
Valuation: $10 billion
The social network with more than 200 million users filed for an IPO in September--but it used the JOBS Act loophole to do so, meaning revenue and profitability (if any) numbers aren't public at this writing. Research firm eMarketer predicts that Twitter’s ad revenue will hit $1 billion in 2014, and analysts say its valuation is closing in on $10 billion. Skeptics say it hasn’t yet transitioned from popularity to profit, but CEO Dick Costolo, had earlier sent an internal email saying Twitter wouldn't IPO until it had "very predictable quarterly earnings growth." There had been other hints: This summer, Twitter advertised for a financial manager familiar with IPOs and hired ex-Ticketmaster CEO Nathan Hubbard as its new head of commerce.
This story first appeared in Inc magazine. It was updated for Inc.com on Sept. 26, 2013, to reflect the fact that Twitter has filed for an IPO.