Over the last three years, we’ve seen an increasing number of tech IPOs – many from consumer-facing companies that we’ve long known were headed for an IPO. I’m talking about Facebook, Twitter, Pandora, Yelp, Groupon, Zynga, etc., which most casual observers could see from a mile away. Markets tend to be swayed by sexy consumer offerings; however, we should be paying close attention to the massive shareholder value that is being created by enterprise software companies.
Enterprises are building rapidly growing top-lines, which are helping their customers run their businesses more efficiently and profitably. In fact, if you take out Facebook – a once-in-a-decade business – the market cap of the top five enterprise IPOs of the last two years is equivalent to the market cap of the top five consumer IPOs of the last two years. This includes Workday, ServiceNow, Splunk, FireEye and Tableau which combined have a market cap of around $55 billion depending on the day – about the same as Twitter, Pandora, Yelp, Groupon and Zynga. Who would have thought? But this is just the beginning for enterprise software IPOs.
With Castlight Health starting to trade today on the NYSE and rumors of Box filing for an IPO (both companies that I have invested in), we’re about to see a new wave of companies operating within the more mature era of web-based business. These are typically companies in the enterprise services space that have already nailed down their monetization models. For these companies, it is now all about rapid growth, and a public offering will be a key means of supporting that growth.
What makes this time particularly exciting is that we’re about to witness a perfect storm of:
Buoyant equity markets (Facebook and Twitter have been performing admirably while Zynga recently hit a one-year high);
a belief that “technology companies” as a category are a central economic pillar for accelerating productivity;
a wave of companies that have established themselves as important enterprise tools with accelerating adoption rates and long-term growth plans;
the public market investors love for recurring revenue companies that are predictable to evaluate and hence easier to invest in. In short, this breed of company is more sustainable, has its long-term growth path figured out, is being adopted by relevant markets and is met with a healthy appetite.
With this in mind, I thought it would be a useful exercise to outline 10 companies that I believe will be big players in this next wave of enterprise IPOs, along with what makes them uniquely positioned for continual relevance and success.
1. Atlassian. If the software developer is the “blue-collar” worker of the 21st century, then Atlassian’s products are a necessary part of their toolbox. You will hard-pressed to find a company developing its own software not using Atlassian’s products. What’s amazing about Atlassian is that it’s created a large business with minimal traditional sales and marketing commonly found in enterprise software companies of their scale. The lesson here is that developers do not like being sold to.
2. Box. Although considered a competitor to Dropbox, Box actually has a laser focus around serving the file storage, sharing and collaboration needs for the business community. Box takes into account the needs of the business user while also keeping in mind the needs of the IT buyer – think security and control. The company has leveraged its freemium business model and parlayed it into a 90 percent adoption rate at Fortune 500 companies. This process has allowed it to become the ubiquitous cloud-based file sharing and collaboration solution for these large enterprises, as well as lots of smaller ones. There is a lot of excitement around Box because it has the opportunity to be used by 1.5 billion knowledge workers worldwide.
3. Castlight Health has a specific industry focus that provides transparent price and quality information of healthcare services to employees at self-insured employers. This gives their employees the ability to shop for their healthcare. Castlight has done an incredible job of building a platform that can easily be deployed into an enterprise and can be offered to the complete employee base. This empowers employees to search and find the right doctor for them based on their specifications, including price, quality and their own deductibles or co-pays. This saves both employees and employers a significant amount of money when it comes to covering amounts over deductibles, and that hits both of their bottom lines. Castlight is helping reduce the cost of healthcare in the U.S. one company at a time.
4. DocuSign dominates the electronic signature market. CEO Keith Krach, who has been impressive at the helm, was previously the co-founder and CEO of Ariba, which he ran and took public in the go-go days of the late 90s and was later acquired by SAP for $4.3 billion in 2012. Krach knows a thing or two about building a large enterprise software business. The company has more than 48 million signers and has become the market leader as well as the industry standard for digital transaction management. I think we would all agree that most important documents, in the future, will be e-signed and managed through a service like DocuSign’s.
5. Hubspot is an all-in-one inbound marketing solution for marketers to use to attract, nurture and convert leads into new customers. While Eloqua (now part of Oracle) and Marketo duke it out on the enterprise side, Hubspot’s bread and butter is the SMB and small enterprise market. This enables it to compete against companies like Act-On Software (one to watch for 2015). And with more than 10,000 customers, Hubspot is on the coveted IPO path. You might ask, how can so many marketing software companies become billion-dollar companies? Well, the CMO/Head of Marketing will soon be spending more than the CIO and will need the tools to make the best decisions. Aside from that, marketers are less herd-driven and like to pick their weapon choice allowing more than one company in the sector to become big.
6. MongoDB has thrived in a world that has quickly moved to NoSQL databases to overcome the limitations of traditional relational databases. MongoDB started out as an open source project that over the last five years has become the preeminent NoSQL database for large enterprise companies. It has also become the norm for many new startups.
7. New Relic is a SaaS-based software analytics company that monitors web and mobile applications in real-time that operate in the cloud, on-premise or hybrid environments. The company has created a flexible platform that sits on top of any web application and provides powerful analytics. It is a great tool for software management and has quickly become a must-have for developer operations.
8. Twilio has dominated communication-as-a-service for both web and mobile products that need an SMS or voice component. Their big win? A simple API that has gotten tens of thousands of apps, websites, voice and messaging enabled in a hurry.
9. Zendesk is a SaaS help desk that provides solutions for ticketing, issue tracking and customer-service support. Zendesk has used branding to its advantage: I’d liken them to the Virgin America of help desk software, which has otherwise been boring, bland, and painful software. On top of that, Zendesk’s leadership understands the need to be customer-first when it comes to web applications, and has made it easy for customers to adopt and communicate.
10. Zuora is a SaaS-based subscription billing service that helps enterprises manage the entire lifecycle of subscriptions across e-commerce, billing and finances. Zuora was among the first few to recognize the shift toward a subscription economy and the need for a billing service that is not only easy to integrate but also highly scalable. Zuora is the most likely product that is used by nearly all the companies in this article, meaning that it has been part of the success of an entire generation of SaaS companies.
So what do these companies have in common? First, they are open for business 24/7, are easy to adopt and easy to deploy for customers. The friction to adopt and deploy enterprise software has dropped so dramatically that these companies are growing their revenues faster than ever before. Subscription pricing has made it more affordable and accessible for companies all over the world to buy robust, enterprise-grade software that was built for the scale of Fortune 500 companies.
It is also important to realize that most of these companies have been incredibly focused on solving a single need with their products, only branching off and building tangential services and features once the core need of their customers has been addressed. For most, this will only come after an IPO – there is still so much more room for growth with a single product, especially as the demand continues to grow worldwide.
We’ll see where things go from here, as an even newer batch of companies, like Act-On Software, AppDynamics, Asana, Clearslide, Cloudera, GitHub, Okta, Optimizely, RelateIQ, Zenefits and others, continue to grow, but I’m excited to see how the markets welcome what I view as a healthy period of technology-based enterprise companies.
Enterprises are building rapidly growing top-lines, which are helping their customers run their businesses more efficiently and profitably. In fact, if you take out Facebook – a once-in-a-decade business – the market cap of the top five enterprise IPOs of the last two years is equivalent to the market cap of the top five consumer IPOs of the last two years. This includes Workday, ServiceNow, Splunk, FireEye and Tableau which combined have a market cap of around $55 billion depending on the day – about the same as Twitter, Pandora, Yelp, Groupon and Zynga. Who would have thought? But this is just the beginning for enterprise software IPOs.
With Castlight Health starting to trade today on the NYSE and rumors of Box filing for an IPO (both companies that I have invested in), we’re about to see a new wave of companies operating within the more mature era of web-based business. These are typically companies in the enterprise services space that have already nailed down their monetization models. For these companies, it is now all about rapid growth, and a public offering will be a key means of supporting that growth.
What makes this time particularly exciting is that we’re about to witness a perfect storm of:
Buoyant equity markets (Facebook and Twitter have been performing admirably while Zynga recently hit a one-year high);
a belief that “technology companies” as a category are a central economic pillar for accelerating productivity;
a wave of companies that have established themselves as important enterprise tools with accelerating adoption rates and long-term growth plans;
the public market investors love for recurring revenue companies that are predictable to evaluate and hence easier to invest in. In short, this breed of company is more sustainable, has its long-term growth path figured out, is being adopted by relevant markets and is met with a healthy appetite.
With this in mind, I thought it would be a useful exercise to outline 10 companies that I believe will be big players in this next wave of enterprise IPOs, along with what makes them uniquely positioned for continual relevance and success.
1. Atlassian. If the software developer is the “blue-collar” worker of the 21st century, then Atlassian’s products are a necessary part of their toolbox. You will hard-pressed to find a company developing its own software not using Atlassian’s products. What’s amazing about Atlassian is that it’s created a large business with minimal traditional sales and marketing commonly found in enterprise software companies of their scale. The lesson here is that developers do not like being sold to.
2. Box. Although considered a competitor to Dropbox, Box actually has a laser focus around serving the file storage, sharing and collaboration needs for the business community. Box takes into account the needs of the business user while also keeping in mind the needs of the IT buyer – think security and control. The company has leveraged its freemium business model and parlayed it into a 90 percent adoption rate at Fortune 500 companies. This process has allowed it to become the ubiquitous cloud-based file sharing and collaboration solution for these large enterprises, as well as lots of smaller ones. There is a lot of excitement around Box because it has the opportunity to be used by 1.5 billion knowledge workers worldwide.
3. Castlight Health has a specific industry focus that provides transparent price and quality information of healthcare services to employees at self-insured employers. This gives their employees the ability to shop for their healthcare. Castlight has done an incredible job of building a platform that can easily be deployed into an enterprise and can be offered to the complete employee base. This empowers employees to search and find the right doctor for them based on their specifications, including price, quality and their own deductibles or co-pays. This saves both employees and employers a significant amount of money when it comes to covering amounts over deductibles, and that hits both of their bottom lines. Castlight is helping reduce the cost of healthcare in the U.S. one company at a time.
4. DocuSign dominates the electronic signature market. CEO Keith Krach, who has been impressive at the helm, was previously the co-founder and CEO of Ariba, which he ran and took public in the go-go days of the late 90s and was later acquired by SAP for $4.3 billion in 2012. Krach knows a thing or two about building a large enterprise software business. The company has more than 48 million signers and has become the market leader as well as the industry standard for digital transaction management. I think we would all agree that most important documents, in the future, will be e-signed and managed through a service like DocuSign’s.
5. Hubspot is an all-in-one inbound marketing solution for marketers to use to attract, nurture and convert leads into new customers. While Eloqua (now part of Oracle) and Marketo duke it out on the enterprise side, Hubspot’s bread and butter is the SMB and small enterprise market. This enables it to compete against companies like Act-On Software (one to watch for 2015). And with more than 10,000 customers, Hubspot is on the coveted IPO path. You might ask, how can so many marketing software companies become billion-dollar companies? Well, the CMO/Head of Marketing will soon be spending more than the CIO and will need the tools to make the best decisions. Aside from that, marketers are less herd-driven and like to pick their weapon choice allowing more than one company in the sector to become big.
6. MongoDB has thrived in a world that has quickly moved to NoSQL databases to overcome the limitations of traditional relational databases. MongoDB started out as an open source project that over the last five years has become the preeminent NoSQL database for large enterprise companies. It has also become the norm for many new startups.
7. New Relic is a SaaS-based software analytics company that monitors web and mobile applications in real-time that operate in the cloud, on-premise or hybrid environments. The company has created a flexible platform that sits on top of any web application and provides powerful analytics. It is a great tool for software management and has quickly become a must-have for developer operations.
8. Twilio has dominated communication-as-a-service for both web and mobile products that need an SMS or voice component. Their big win? A simple API that has gotten tens of thousands of apps, websites, voice and messaging enabled in a hurry.
9. Zendesk is a SaaS help desk that provides solutions for ticketing, issue tracking and customer-service support. Zendesk has used branding to its advantage: I’d liken them to the Virgin America of help desk software, which has otherwise been boring, bland, and painful software. On top of that, Zendesk’s leadership understands the need to be customer-first when it comes to web applications, and has made it easy for customers to adopt and communicate.
10. Zuora is a SaaS-based subscription billing service that helps enterprises manage the entire lifecycle of subscriptions across e-commerce, billing and finances. Zuora was among the first few to recognize the shift toward a subscription economy and the need for a billing service that is not only easy to integrate but also highly scalable. Zuora is the most likely product that is used by nearly all the companies in this article, meaning that it has been part of the success of an entire generation of SaaS companies.
So what do these companies have in common? First, they are open for business 24/7, are easy to adopt and easy to deploy for customers. The friction to adopt and deploy enterprise software has dropped so dramatically that these companies are growing their revenues faster than ever before. Subscription pricing has made it more affordable and accessible for companies all over the world to buy robust, enterprise-grade software that was built for the scale of Fortune 500 companies.
It is also important to realize that most of these companies have been incredibly focused on solving a single need with their products, only branching off and building tangential services and features once the core need of their customers has been addressed. For most, this will only come after an IPO – there is still so much more room for growth with a single product, especially as the demand continues to grow worldwide.
We’ll see where things go from here, as an even newer batch of companies, like Act-On Software, AppDynamics, Asana, Clearslide, Cloudera, GitHub, Okta, Optimizely, RelateIQ, Zenefits and others, continue to grow, but I’m excited to see how the markets welcome what I view as a healthy period of technology-based enterprise companies.
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