While 2012 was a good year for private companies in enterprise software and big data, untested business models of many consumer Internet companies failed to live up to their lofty expectations.
This was epitomized by Facebook's tremendous IPO flop, which soured investor interest in consumer tech companies for the rest of 2012.
The second half of 2012 also saw a venture capital series A "crunch," a result of too many seed-funded start-ups and not enough series A venture capital to go around. New accelerators and incubators emerged on almost a weekly basis, seeking to replicate the successes of leaders Y Combinator and TechStars.
With such a tumultuous year finally wrapped up, I offer my top 8 predictions for 2013.
1. Twitter will file to go public.
Twitter, the latest social media darling, will approach the public markets in 2013. Contrary to widespread speculation that Twitter will file to go public in 2014, law firms and investments banks readying pitches to help take Twitter public say the IPO registration documents will be filed as early as the fourth quarter of this year. That would leave the company ready to go public by the first quarter of 2014.
Twitter's IPO could not come at a better time. Over the past year, Twitter has begun to monetize its platform through advertiser "promoted tweets" and "targeted tweets," and aggressively expanded into more than 50 countries and 33 languages. This growth has pushed the company's revenue north of $245 million in 2012, according to estimates from PrivCo, the private company financial data company where I'm CEO. If all goes to plan, Twitter would double its revenue in 2013 to $500 million, which would be a favorable growth story to IPO at an estimated $15 billion valuation in February 2014.
Unlike Facebook, which waited too long to go public by the time revenue growth had decelerated, PrivCo estimates that Twitter will IPO at just the right inflection point: while revenue grows in the triple digits.
2. Luxury fashion label Tory Burch will go public this year.
In 2012, Tory Burch's private company that carries her name experienced stunning growth; it generated more than $760 million in revenue, up 55% over 2011, according to PrivCo estimates. As a sweetener, on December 31, Tory Burch also was able to settle a long-standing legal feud with her ex-husband, Chris Burch, which gave Tory renewed focus on growth.
One way I predict Tory Burch will celebrate 2013 is with an IPO that would value the company at close to $4 billion. Money raised will give the company additional capital to fuel international expansion in emerging markets like Asia, a market where I see Tory Burch as the female Ralph Lauren.
3. The incubator wave will end.
Ninety percent of all start-up exit money last year was created by top incubators like Y Combinator and TechStars, according to PrivCo's analysis of incubated start-ups. The rest of the incubators, hundreds of recently opened copycats, showed poor to negative returns. I predict that by the end of this year at least one third of them will shut their doors.
In addition, I predict the surviving incubators will sharply reduce the amount of seed capital they invest in their start-ups in 2013, following Y Combinator's example. (Y Combinator recently reduced the amount of funding in each of its accepted companies to just $80,000, from the previous $150,000.)
4. Crowdfunding will partially replace "b-level" incubators
The new means by which small companies will attain their initial seed capital? Crowdfunding. The recently passed JOBS Act legalizes crowdfunding as well as general advertising of start-up fundraising, encouraging the general public to participate in funding of start-ups. Even though the legislation still faces hurdles in Washington to be implemented, I expect Kickstarter to emerge as the market leader, and for secondary markets such as SharesPost and SecondMarket to also enter the online start-up fundraising business in 2013. These funding sources will give start-ups more alternatives, and further turn low-quality incubators into low value-added entities.
5. Foursquare will fail by the end of the year.
Foursquare, the mobile check-in start-up, has already fallen short of its VCs financial expectations, as well as its internal plans, quarter after quarter. I estimate Foursquare pulled in a puny $2 million in 2012. Current experiments with new revenue streams (including personalized coupons) are too little too late to save Foursquare, and I've learned advertisers trumpeted in its new merchant dashboard spent nominal sums of as little as $5,000 each.
To make matters worse, there has been little interest from new investors in Foursquare. Foursquare's last round of funding was in 2011, raising $50 million at a nosebleed $550 million valuation. At the time, Foursquare had virtually no revenue and Facebook's IPO hadn't already taken the wind out of the sails for consumer Internet companies. Foursquare's existing VC investors have also made it clear to Foursquare management that they will not invest additional capital in the company.
The only option for Foursquare is an acquisition at a much depreciated valuation from its lofty high of $760 million in March 2012. I predict Foursquare will continue its downward financial spiral in 2013, and be acquired for less than $50 million by the end of the year, an amount far less than what VCs originally invested. In 2010 and 2011, Union Square Ventures, O'Reilly Alphatech Ventures, Andreessen Horowitz, SV Angel, Spark Capital, and a number of angel investors, invested $70 million in the company. Foursquare's founders and employees will walk away with close to nothing.
6. The best-performing IPO will be Tableau Software.
I predict that Tableau Software, a data visualization company, will go public in 2013, and prove to be the top-performing IPO of the year. Tableau will benefit from investor interest as a result of top-performing IPOs in a similar space last year: Workday, Palo Alto Networks, and Service Now.
While some industry experts warn that enterprise technology as a sector might experience a "sophomore slump," Tableau has also posted eight consecutive years of record sales, with sales topping $100 million in 2012, and an impressive three-year revenue growth rate of 80%, according to PrivCo data.
Tableau also has thousands of customers, including eBay, Electronic Arts, Facebook, LinkedIn, and Wal-Mart.
7. Visa, American Express, or Paypal will acquire Square for $5 billion.
Square is a start-up built to be bought. In recent years, Square has grown without turning a profit. However, its network of small merchants, as well as recent large partnerships with Starbucks and taxi cab companies, will become very valuable to a traditional payments player finding itself behind the curve on mobile. Square CEO Jack Dorsey is smart enough to know to cash out before the losses become unsustainable, and PrivCo predicts he'll parachute out a billionaire. Dorsey holds a 26 percent stake in Square, according to PrivCo data.
Payment network giant Visa, which already bought a small stake in Square in 2011, will of course be increasingly interested in Square as more and more businesses become tailored to mobile consumers. American Express, a company currently sitting on $25 billion in cash, could make a play on Square in order to take control of the mobile payment sphere. And Paypal, which built a copycat mobile card reader product, PayPal Here, has found it slow to be adopted; it may look to protect its position in mobile payments.
8. The NYSE will undisputedly beat out the NASDAQ for most tech IPOs for the first time in years.
NASDAQ's botching of Facebook's IPO in May 2012 seriously damaged its credibility amongst tech companies. At the same time, the New York Stock Exchange made huge strides in 2012 to match its longtime rival for the coveted title of having the most U.S. tech IPOs. (Five years ago, NYSE's share of the U.S. tech IPO market was only 5%.) NYSE also successfully listed many highly regarded enterprise tech companies, such as Workday and Palo Alto Networks.
In 2012, NYSE arguably had already topped NASDAQ for the most U.S. tech IPOs. According to NYSE, its share of the U.S. tech IPO market was 52.3% or 23 out of a total 44 tech IPOs. However, NASDAQ saw itself on top with a 53.5% share, using different measuring sticks; NASDAQ counted 15 out of 28 total tech IPOs.
I look forward to revisiting this column this time next year, when I'll release my 2014 private company predictions, and find out just how many of the 2013 calls were spot on.