Companies that sell software to other companies are having a fruitful IPO year. Dropbox made a big splash recently, and has performed well during its handful of weeks as a public company. Cybersecurity company Zscaler was similarly welcomed by the stock market with open arms. And those two are just the beginning.

After last year's drought, 2018 seems to be offering a flood of IPOs, just as experts predicted. DocuSign, Pivotal, Zuora, Pluralsight, Smartsheet, and Carbon Black all plan to debut on the stock market in the coming months. Meanwhile, Salesforce has acquired MuleSoft for $6.5 billion, nearly a third more than its public market cap. The acquisition served as another sign of the strong demand for B2B software companies.

"We see ample opportunity for VC-backed public offerings to pick up steam driven by a group of aging, more cash-efficient businesses," said Nizar Tarhuni, associate director of research and analysis at PitchBook, via email. Tahuni was referring to the cohort of B2B software companies that are now poised to IPO. Intriguingly, they could continue to fund their growth with private capital if they wished to.

Tarhuni also pointed out that because contemporary startups raise more funds and stay private longer than their predecessors, "venture-backed businesses utilizing the IPO exit ramp today tend to be significantly larger."

What's the effect on the rest of the tech industry? A general mood of elation. Everyone in the Silicon Valley ecosystem is happy to see price charts go up and to the right. Entrepreneurs who are currently building startups can dream that their own companies will meet such an eager reception. VCs relish the prospect of multiplying their investments, either now or in the future.

For example, Evan Schneyer is the CEO of Outlaw, a DocuSign competitor that makes contracts more user-friendly for nonlawyers. "I think DocuSign's IPO is exciting news, because they're doing the heavy lifting in terms of hauling the archaic contract process into the 21st century," he wrote in an email. "We may technically be competitors, but I'd much rather show customers why they should switch to Outlaw from DocuSign than from scanners and fax machines."

Venture capitalist John Lilly, who led Greylock's investment in Dropbox, also cited modernization as key to the success of B2B software. "Unlike legacy systems and traditional tools, Dropbox placed emphasis on things that the modern workforce cares about," especially ease of use, Lilly wrote in a statement.

That's the value proposition of the hottest enterprise tech companies on the market: Make business processes more efficient and, hopefully, also less annoying to the people who operate them.

 

Published on: Apr 12, 2018