Bumper Crop for IPOs in 2018

Zuora ipo

It looks like 2018 will be the strongest year in tech IPOs in recent history. Although some of the largest companies (Airbnb, Uber) are still waiting on the sidelines, so far we've seen a large number of very successful IPOs including DropBox, Zuora, ZScaler, Spotify and others. This week there were three strong IPOs including Ceridian, Docusign and Smartsheet which popped 30-42% in their debut. These companies all have much stronger fundamentals than some of the troubled IPOs of 2017 (Blue Apron, SnapChat) which gave investors pause. 

Pivotal is the only IPO that had a very modest rise on it's debut, a day when the markets were down overall. But in the following week, Pivotal has risen about 20%. DocuSign is a good example of a cloud company that has pursued a massive market opportunity. DocuSign has a $2 billion dollar run rate ($518m revenue in Q1, doubling over the last two years) with a quarterly loss of $52m, compared to $115m a year ago. While the company certainly could have gone public earlier, at a $6 billion market cap, the wait seems to have been worth it.

One of the factors fueling demand for new IPOs are the strong Q1 results among public tech companies including Amazon, Facebook, Microsoft and even Twitter.  Microsoft's stock has recently hit a historic high, based on the growth of its cloud business. Considering that Microsoft was a laggard in this space, it speaks to not only the disciplined management that CEO Satya Nadella has put in place, but also the huge upside that still exists for tech companies with recurring revenue SaaS offerings. 

And that's precisely why we should expect to see even more IPOs in the second half of 2018.  It looks like Acquia, Anaplan, Avast, CarbonBlack, Domo are likely to go out in the next few months. I would expect to see quite a few IPOs between now and mid-August when bankers head out on vacation and then more in the fall.

While there has been a lot of volatility in the market earlier this year, it has still been a nine-year bull market and at least in the tech sector, it seems that there is still a lot of headroom for growth.

What companies do you think will IPO in the rest of 2018? Will the bull market keep running? Let me know your thoughts by posting a comment below.

 


Are Tech IPOs Back in Fashion?

2017 ipos

Much has been made of the slowdown in tech IPOs in recent years, but that trend appears to be changing in 2017. Of course, there are a few mega-companies that continue to sit on the sidelines (AirBnB, Uber, DropBox, I'm looking at you!) but I think we will continue to see improvements in 2017 and 2018. Perhaps not as strong as the record number of IPOs of 2014, but likely enough to reverse the declining trend from 2015 and 2016.

Early this year we saw IPOs from the likes of Snap, Mulesoft, Aleryx, Okta, Cloudera among others. Other than Snap, which was rather over-hyped, most of the others had very good returns for their investors and are continuing to trade above their IPO price. And overall multiples for tech companies on NASDAQ and NYSE are holding steady. I'm especially encouraged by the performance of B2B software companies Mulesoft, Okta and Cloudera. Mulesoft now has a market cap over $3b and Cloudera and Okta look likely to cross that threshold later this year based on their steady growth and increasing efficiency. It looks like B2B stocks are once again in fashion.

My expectation is we'll see a bit of an IPO slowdown during the summer and then a significant uptick in the fall. For B2B SaaS companies getting to $100m or beyond in annual recurring revenue (ARR), this will be an interesting time.


2016: Down Rounds & Layoffs

Nasdaq - Box Twtr Etsy APIC

If you thought 2015 was a rough year for the financial markets, you ain't seen nothin' yet. So far, 2016 has every sign of being a full-on bear market, meaning a 20% or more decline in the major stock markets. 

And no surprise, we've seen a ton of bad news for so-called Unicorns --tech companies valued at over a billion dollars. Unfortunately, many of these companies have failed to build an efficient, profitable business to maintain their lofty valuations. No surprise, companies are seeing their public and private valuations dramatically reduced. Here are a stories that have surfaced in recent months:

The point of all this bad news is that it's not just about one or two companies that have missed the mark. It's a systemic problem. And likely, we are still just seeing the early signs of what may become more common in 2016.

To be sure, there are plenty of strong companies out there whose valuations are well justified. Companies like AtlassianHubspot, New Relic, Zendesk all have efficient business models and disciplined growth. 

But a lot of other wannabes have billion dollar private valuations that are much harder to justify. It could be that the market correction in tech is just an adjustment to valuations that were never warranted in the first place. There are lots of cool apps, devices and services out there, but it doesn't mean they are good businesses. If a company gets to $100 million in revenues and has no clear path to profitability, it's kind of a fool's errand. And many of these companies haven't even gotten that far. 

WSJ stock charts Jan 2016

So what does this mean for startups? Basically the lofty multiples of 2010-2012 are gone. The truly great companies will still command good multiples, but only if they are converging towards profitability. The "growth at all cost" land grab strategy that inspired young companies to burn millions or tens of millions of dollars per month isn't going to be viable in the current climate.

If you're in a company with less than 12 months cash burn, you better make sure management is reducing expenses. If you don't have an increasingly efficient growth story, this is going to be a tough time to raise money, so expect a down round. If you can weather the storm without having to raise additional capital and grow back into your valuation over time, that's not a bad way to operate. 

 

 


Silicon Valley Overheated?

Silicon valley lightbulb

Don't Worry - Winter Is Coming

There's been quite a bit of press recently about whether there's a tech bubble or not. Certainly, things are overheated in the valley. Traffic is out of control, competition for talent is fierce and there are definitely some companies with billion dollar valuations that seem, well, a little suspect. If HBO's series "Silicon Valley" is meant to be a satire of the worst in tech, it's remarkably close to the truth in some areas. I think the show is funny, but almost every farcical element in that show seems way too close for comfort.

One of the things newcomers to the industry forget is that, like most sectors, tech is a cyclical industry. There are boom times when stocks seem to just go up and there's unlimited demand for IPOs and then, well there's the opposite. That's what happened in the early 1980s, more severely in 2001 and again in 2008. There have been a couple minor corrections to sky-high SaaS valuations in 2014 and 2015, but nothing like we saw in earlier downturns.

The companies I work with all seem to be in good shape. They've got plenty of dry powder, having raised money in the last 12 months and generally are increasing their efficiency in terms of customer acquisition costs, cash position, etc. But for companies that have less than 12 months of runway, there could be problems. Like, a going-out-of-business problems. As is occasionally reported by new CEOs who run out of money, there's this tricky thing called "burn rate."  Which basically means, you should make more money than you spend. Really, it's not that complicated. 

When you build a company, you can't just optimize for growth at all costs. Otherwise, those costs can easily exceed what you're bringing in. And when the piper changes his tune and VCs and Wall Street decide to no longer value money losing companies quite as optimistically as those that are generating cash, it can lead to some pretty ugly situations. Just take a look at the downfall of GetSatisfaction, Fab, Zirtual or even Good Technology, which managed an exit, but at less than half it's billion dollar valuation.

GoodTechnology was around for almost 20 years and raised $290 million (!) over six rounds. The company talked about doing an IPO back in 2013. They filed for an IPO in 2014 and then amended it in 2015. Sadly, their growth started to decline while losses continued to mount. They lost $95m on revenues of $158m in revenue in 2014 leaving them just 7 months of runway in 2015.

Good-financials

Presumably Good couldn't raise more money and couldn't do an IPO in the current market. So they got acquired by Blackberry, a struggling company if there ever was one. While some of the investors and execs will have made money, I doubt the rank-and-file employees got much out of it.

It was probably lucky for Good that they didn't complete their IPO. While strong SaaS performers like Hubspot, Zendesk, New Relic have done well with steady growth in their revenues and share price, there's an increasing number of tech companies trading well below their IPO price including Alibaba, Apigee, Box, Castlight Health, Etsy, Twitter and others.

Bill Gurley from Benchmark Capital has been a particularly strong voice reminding startups that "Winter is coming"; valuations are being compressed and CEOs need to make sure they have a path to profitability.  Words to live (or die) by.


Open Source Enigma Project

Open Friggin' Enigma

The wild and crazy guys over at S&T Geotronics, James Sanderson and Marc Tessier, have decided to go full tilt with a Kickstarter version of their DIY Open Enigma Project.  For those who missed the fanfare last year, they were featured on Instructables showing how to build an Arduino-based encryption machine that works exactly like a WWII era Enigma.  You know, the thing that Alan friggin' Turing and his team at Bletchley Park cracked to  bring an end to WWII?  Yeah, that Enigma.  

The Enigma was also featured in the aptly-titled novel "Enigma" by Robert Harris and the film starring Kate Winslet and some people I've never heard of.  That film was produced by Mick "code-breaker" Jagger.  Yeah, that Mick Jagger... By the way, Jagger owns his own personal friggin' Enigma machine.  How cool is that?  

The Enigma Machine (and it's cracking) remains one of the most significant breakthroughs in computing.  And Turing is considered one of the fathers of modern computing as well as a brilliant mathematician, logician, code-breaker and... wait for it.... world class marathon runner. (I kid you not, the guy ran a 2:46 marathon, coming in 5th in an Olympic qualifying round.  Take that Nazi scum!)

But unless you happen to have a spare $208,137 lying around to throw at a Christie's auction, the closest you're ever gonna get to an Enigma machine is to view Mick Jagger's Enigma sealed behind glass at Bletchley Park.  I've been there, it's fantastic.  But it's also heavily guarded.  Just sayin'. 

Enigma kitNow with the Open Enigma Project, you can get a working, life-size replica of the Enigma and be a part of computing history.  You can sponsor the Kickstarter project for as little as $5 (cheapskate), or if you're a DIY hardware hacker, for $250 you get a bag of electronic stuff you can assemble. 

Or if you're a software person who wouldn't know which way to plug in a soldering iron, then you can get a fully assembled kit (without a case) for $300.  And if you want the whole enchilada including the genuine wooden case, it's $600.  Executives, VCs, rock stars and others can splurge for even higher levels to help make this project a reality. 

This is literally a once-in-a-lifetime opportunity to get a working Enigma replica.  And that is some cool cyber-encrypting steampunk goodness!  You can plug the Open Enigma into your PC via USB port and run some kind of crazy distributed big data bitcoin-mining NoSQL social media photo sharing site on it.  

All the hardware and software is open source so you can compute all you want on your desk, put it behind glass or run a marathon with it.  Just like Alan Turing would have done.


SambaCloud and Big Content

Sambacloud_app

Another hot new startup that has recently come out of stealth mode is SambaCloud.  The founders Ian Howells and Razmik Abnous bring many years of content management experience from companies like Documentum and, in the open source space, Alfresco.  

When I first heard about SambaCloud, I was a bit skeptical.  But as soon as I saw the demo, it was quite clear that SambaCloud does something that no one else does.  While there are lots of content management software companies and quite a few cloud storage companies, SambaCloud brings a much needed fresh perspective on some age-old problems that vex most organizations.  Namely, how do you get people sharing the right information?

SambaCloud enables you to easily set up different channels of content so that you can monitor, share and collaborate with others. These channels can be built from different types of content ranging from external newsfeeds to internal documents and presentations.  That may sound like a minor detail, but it's a huge breakthrough in transforming content management from something that sounds as fun as a tax audit into something that's as easy to use as Facebook or FlipBoard.  

Despite the fact that SambaCloud is a relatively young company, they've also come out of the gate with not only an easy-to-use Web application, but also mobile versions for iPhone and iPad. Initially, SambaCloud is targeting sales & marketing teams, but ultimately I think there are probably dozens if not hundreds of potential use cases. 


Tok.tv's World Series Pitch

Tok tv

San Francisco and Silicon Valley have become obsessed with the World Series.  After all, it's not that often your team gets to play a second world series in three years.  And for some, there's a unique combination of tech and sports resulting in brilliant innovation.  One such innovation comes in the form of Tok.tv, the brainchild of open source guru Fabrizio Capobianco.  Fabrizio was the founder of Funambol, an open source cloud sync technology that has become the de facto choice for many carriers.  He's also a huge San Francisco Giants fan, perhaps the biggest Italian baseball fan ever.

Right now, Tok.tv is an iPad application that enables baseball fans to talk and cheer in real time with their friends.  But Tok.tv has much more potential than just baseball.  Why not football?  World cup?  Tennis?  Movies?  Reality shows?  I'm sure Fabrizio has big plans...

Meanwhile, Tok.tv is getting great news coverage for its unique "second screen" play for baseball fans.  So come cheer the San Francisco giants with your friends by using Tok.tv's iPad app.


Forbes: Customer Satisfaction

Forbes

A few weeks back, Forbes published a guest editorial I wrote called "Customer Satisfaction by the Numbers" which describes the Zendesk customer satisfaction benchmark we've developed drawing on a survey of 65 million consumers in 137 countries.  Here's a brief excerpt from the article.

As drawn from the survey, the following are global averages across all companies in all industries:

  • Customer Satisfaction rating of 86%
  • 630 inquiries per month requiring human interaction
  • 2,600 customers per month who found answers in self-service forums
  • First response times of 23.6 hours

Generalities may be somewhat interesting, but what companies really care about is how they are doing compared to their peers.

The Best and Worst
Examining customer satisfaction by industry, the survey revealed the top three industries are:

  • Real Estate: 96%
  • IT Services & Consultancy: 95%
  • Healthcare: 94%

The bottom three are:

  • Retail & Wholesale: 82%
  • Social Media: 78%
  • Entertainment & Arts: 77%

...

It may seem surprising to see social media at the bottom of the ranking since social media is truly revolutionizing the way customer service is being delivered. Smart companies are monitoring Twitter and Facebook where customer service fiascos can quickly spin out of control as we’ve seen with such companies as Netflix, Bank of America and Verizon.

Yet, social media companies themselves only have a customer satisfaction rating of 78%. One reason is that they get a huge number of customer service inquiries each month – more than 1,600 on average – and likely are not staffed to handle them. Another reason is that many social media companies use ONLY social media for customer service. Consumers find it frustrating because for some types of problems, live chat, email or even phone, may be more effective for the customer.

You can read the full story "Customer Satisfaction by the Numbers" at Forbes. For those interested in learnign more about the customer satisfaction results, you can get more information at Zendesk.


Customer Service Revolution?

I posted a guest editorial over at CRM Buyer called "Managing the Customer Service Revolution."  Here's a brief excerpt.

More recently, the social network boom has created a new revolution in customer service. The reach and immediacy of Twitter, Facebook and, now, Google+ has made the voice of the customer an extremely powerful force. Bad customer experiences can quickly snowball into online customer uprisings leading to PR disasters...

As is often the case, tech-savvy startups are the first to embrace new technologies and communication channels. Larger, more traditional organizations are now finding that they need to develop new customer service strategies or else smaller, more nimble organizations may leave them in the dust and take their customers with them.

Interestingly enough, we see a lot of open source and SaaS startups embracing the new model of customer service.  This includes rapidly growing companies like AirBnB, Box.net, CloudEra, CustomWare, DataStax, DropBox, GoodData, GroupOn, Hulu, New Relic, ScribD, Strobe, Twilio, Yammer, Zoosk, Zuora and thousands of others who are using Zendesk to deliver awesome customer service.  I think the reason for this is that companies whose products and technologies are disruptive will often chose disrupt tools in other areas also. 

Check out the full story at CRM Buyer.


From Open Source to SaaS

I'm about to take a week off from my new gig as COO at Zendesk and it got me reflecting on the company and my decision to join.  I stayed with MySQL through the Sun acquisition and left when Oracle acquired Sun.  Although I have a lot of respect for Oracle, it seemed to me the only interesting jobs would be those that report directly to Larry Ellison.  So I took some time off to travel, worked as an EIR at Scale Ventures for a few months and began thinking about what I wanted to do next.

I turned down offers from companies and investors to come in and "repeat the MySQL playbook" in Big Data or NoSQL or apps or whatever.  I think Open Source can be a fantastic development approach and it provides good commercial possibilities when done at scale, but I also felt that it was time to do something new.  And as important as Open Source has been in powering the last ten years of Internet companies, I felt that there was an even bigger force that would play out over the next ten years: namely the cloud.  

While some are quick to dismiss the cloud as a new buzzword for an approach that's been around for a while, I think that's missing the forest for the trees.  I believe the transition to Software-as-a-Service, Platform-as-a-Service, Infrasctructure-as-a-Service will be as profound as the introduction of the PC, client/server or even the browser.  In other words, this is a huge platform shift that will have profound effect on businesses and individuals.  It may take some years to play out, but from my perspective, cloud is where the excitement is.

When I joined Zendesk back in December it was already a strong business.  The founders Mikkel, Alex, Morten had built a phenomenal business.  They got to over 7,000 customers worldwide without a sales team!  That's the kind of adoption that makes open source guys envious.  And I don't mean just free users; these are paying customers including the likes of Cloudera, DataStax, Dropbox, Groupon, Hulu, MSNBC, Neilsen, Rogers Communications, Rockstar games, SAP, SmugMug, Zappos Insights.  Equally importantly, the company has developed a customer-oriented culture.  Zendesk enables the fastest way to great customer service.  It's not just a motto, it's a way of life at Zendesk.  And we love our customers!

In the last six months, the company has delivered tremendous innovation and is now recognized as the leader in cloud-based help desk software.  Recent innovations include: integrations with Salesforce.com, SugarCRM and Atlassian JIRA, advanced reporting and analytics with GoodDataTwitter integration, mobile versions for iPad, iPhone, Android and Blackberry, and a new open API for sharing tickets.  The NetworkedHelpDesk API allows you to share support tickets across teams, organizations or applications with support from more than two dozen software companies.  

Zendesk now has more than 10,000 customers in more than 100 countries worldwide with revenues quadrupling last year.  The company also has funding from Benchmark capital, Matrix Partners and Charles River Ventures enabling us to develop a deep bench of technical talent and a superb management team.

I'm tremendously proud of what we've been able to do over the last couple of quarters.  And I'm even more excited about all the innovations planned in engineering over the next six months.  This is the most fun I've had since the early days of MySQL!  This is one heckuva exciting time to be in the software business.