Since 2015, tech IPOs have finally experienced the best quarter this year by proceeds, based on a report by IPO Research Company called Renaissance Capital. The first quarter has been good to the 10 tech companies which contributed to the overall 44 companies that raised $15.6 billion collectively. The total proceeds of 40% were raised by tech companies during the first quarter, which means double than other industries.
Focusing on a subscription business model, five software companies went public last month where investors grabbed the shares and made them soaring on their first day. Among those companies are the two highly priced tech companies that started trading and witnessed their share prices went up 30% to 40% , namely DocuSign (a startup electronic signature service company) and Smartsheet (software company). The list also highlights Ceridian HCM Holding Inc. (builds a human resource system) which soared 39% and nLight Inc. (a laser company) with +7.93% within its first week.
According to reports, investors are interested in cloud software companies due to the fact that they receive more foreseeable revenue generation. In the past weeks, this was a regular theme in the IPO campaigns among these tech companies. DocuSign declared that it has more than 370,000 clients in total, and it sees the e-signature business as not yet heavily infiltrated.
In fiscal 2018, its revenue increased 36% to $518 million. Ceridian stated that it has over 3,009 clients with more than 2.5 million active users utilizing its Dayforce system. In 2017, its revenue grew 6.5% to $750.7 million, and witnessed 35.8% increase in cloud software solutions.
The tech IPOs market had also finally tasted one of its sought-after tech companies when Dropbox went public last March 2018. Investors had been hoping for this to happen and after the cloud-storage company sold its 36 million shares at $21 each, they grew 36% on their first day.
Another company that is being closely monitored by the tech IPOs market is Spotify, a music-streaming company. Spotify Technology SA opened last month and started trading at $165.90. Since then, it has fallen by about $6, but surprisingly, despite the unorthodox execution of direct listing, Spotify’s value has fared.
It’s a well-known fact that IPO market opens and closes quickly, and cloud software companies look like they are going to be a well-sought target within the year if other companies with a higher potential of growth and subscription renewal settle to take the leap. Nowadays, investors are ready to welcoming mature, small companies in markets with great revenue growth and minimal losses, without considering the name value.
Usually, tech IPOs are like the backbone of many venture companies because they are highly predictable. The purchase cycles are quite extensive, the path to revenues is a bit obvious, and the business model depends more on execution than the impulses of consumers. Though the present situation of the market appears well, and companies that have incubated for too long are now prepared to go, it’s important to note that the IPO wave that we have been expecting is not yet here. 2018 may be finally the year that the past 3 years didn’t happen to be, but it could also fail. It’s just good to know that the horizon looks clear for now.