One of the recent trends in the venture capital industry is that firms are building platforms. In the pursuit of a platform, many firms are staffing up in multiple functional areas, raising larger funds, investing across stage (all the way from seed to pre-IPO), growing both consumer and enterprise practices, and dabbling in geographies in which they haven’t had a long term presence. VCs routinely encourage their portfolio companies to focus, but, by trying to do everything, these firms are risking losing focus themselves. While there are elements of a platform approach that are appealing, with so many firms in the market, I believe it is important for partnerships to maintain focus to achieve success.
Emergence Capital stands apart from the noise in today’s market. For those who know, Emergence is a relatively small fund, consistently focused on early-stage software and cloud businesses. Over the course of various vintages, Emergence has stuck to its knitting, kept its fund size consistent, and quietly built up demonstrable competence and a deep network around the areas it cares most about. As a result, people know when to go to Emergence. Their signal is clear. While they don’t make the most noise, they’ve built a reputation as a highly-respected partner in any deal in which they participate.
Emergence was recently in the news, which prompted me to share my thoughts. A month ago Veeva Systems had its IPO and was very warmly received by the public market. Emergence led the one and only venture round in Veeva back in 2008. Earlier in his career, Emergence partner Gordon Ritter worked closely with Salesforce.com founder and CEO Marc Benioff, helping Benioff get Salesforce off the ground initially. Ritter then co-founded a cloud platform company with Benioff that ultimately was rolled back in to Salesforce to help form the force.com business. Veeva’s founder, Peter Gassner, took over as GM of force.com and got to know Ritter as a result. When he decided to start Veeva, Ritter and Emergence were the obvious choice venture capital partner – Ritter had already proven himself a capable and knowledgeable cloud executive. As a result, Emergence won the competitive deal and became the largest external shareholder in Veeva.
Today, after years of hard work by the folks at Veeva, Emergence’s stake in the company is worth well north of $1Bn, making this deal among the best ever done by a VC. I’m writing this because, as a VC myself, I have great admiration for the focus, steadiness, and precision of Emergence. Focus isn’t always easy because it means saying no to lots of “hot” trends that will fall in and out of favor, but as Emergence has shown with Veeva, focus can really pay off. At GGV Capital, where I work, we aim to do the same — to make China an integral part of our investment strategy, and to identify people and businesses that are “Going Long.” It is a competitive world out there, so at GGV, we need to be as focused on long-term independent businesses and China as Emergence is focused on SaaS and cloud.
On a personal level, I deeply respect the quiet resolve of the Emergence team. Simply put, it is the type of work we try to build into our culture at GGV. While we are a different firm on many dimensions — stage, focus, history — we value this approach to venture capital and bestow upon it a great deal of respect.
December 02, 2013
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Congratulations to CC Zhang, CEO, and his entire team at Qunar! GGV-portfolio-company Qunar had a very successful IPO and public market debut Friday on the NASDAQ. The company initially filed a pricing range of $9.50 – $11.50, raised it to $12-14 while on the roadshow, priced the IPO at $15 and closed Friday at $28.40, up 89% on the first day of trading. This strong showing indicates that public market investors are very excited about the prospects for Qunar, China’s leading online travel player. Similarly GGV’s outlook is driven by some key elements:
China’s Continued Rise on the Global Stage. While many other US venture firms who had previously established China-based operations were leaving the Chinese market in the few years post the global financial crisis, GGV doubled down on China. We believed then and still believe strongly that China’s economy will continue to thrive and grow, providing a fertile setting for our portfolio companies. We invested in Qunar in ’09 and the company has performed exceptionally well ever since. Although we don’t expect a straight line up, China’s domestic and international travel market should continue to grow for many years.
Mobile growth and China/ US convergence. GGV’s global team has been built to help our portfolio companies take advantage of the increasing inter-dependency of the Chinese and US economies. Our view is that mobile, which is so strong in both markets, will only continue to further tie China and the US together for entrepreneurs. Qunar is no exception. Mobile as a percent of traffic and usage is growing very rapidly with more than 100M app downloads to date, and although Qunar is focused on China’s domestic travel market, as Chinese people continue to travel abroad more frequently, expect Qunar to help serve this customer base. Mobile is also quickly changing how users in China and the US are planning travel, becoming more real-time and location-based. This mobile growth, coupled with an online travel market that’s still fast growing (33% CAGR expected for China in the next 3 years), is a combination GGV believes will provide exceptional opportunities ahead (and we’ve also invested in Hotel Tonight in the US and Tujia in China as a result).
“Qunar Model” – Strategic Partnership with Baidu. Qunar has done a terrific job building a strong brand in China. A majority of its traffic comes organically, as people know to visit Qunar for travel related queries. That said, the partnership with Baidu is powerful, making Qunar the default gateway to travel in China, and most of the public investors with whom I spoke about Qunar mentioned it as a very attractive element of the story. GGV Partner Jixun Foo, who led our investment and sits on Qunar’s board, was instrumental in bringing Baidu into Qunar as an investor and partner. Jixun was able to help spark and negotiate this deal, borrowing on the strong relationships he’s built from his days as a trusted venture investor and board member at Baidu. The “Qunar Model” is first of its kind in China, and now quickly are being borrowed by others in China. UCWeb (yet another GGV portfolio), which recently received investment from Alibaba, another GGV portfolio company, is another example.
Management’s desire to “go long.” CC Zhang, Qunar’s CEO, has been a terrific partner from day one of our investment. He knows his market cold and he has a strong vision for where he wants to take Qunar. Like GGV, he sees travel as a huge market opportunity in China. He believes he’s early in the game and expects many more years of exciting progress. We’re strapped in for the journey with CC!
November 03, 2013
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My partners and I are incredibly excited to announce that Hans Tung has joined GGV Capital as our newest Partner.
In sports, we’re constantly reminded that when given the chance, you should always draft the best athlete rather than someone who fills a specific position – just ask the Portland Trailblazers, who famously selected Sam Bowie in the 1984 NBA Draft, leaving Michael Jordan available for the Chicago Bulls with the following pick, because they didn’t believe they needed another shooting guard. In Hans, we’re getting a remarkable athlete. Hans is recognized widely as a top venture capitalist, known for his entrepreneur-friendly approach and his tremendous portfolio, including Xiaomi, China’s legendary mobile phone player, Forgame, which just went public on the Hong Kong Stock Exchange and carries over a $1Bn valuation, Vancl and eHi Car Rental.
On rare occasion, the best athlete also happens to fit the position you’re looking to fill. The Indianapolis Colts hit the jackpot with the first pick in the 2012 NFL Draft, selecting Andrew Luck, and in so doing, filling their biggest need – the quarterback position, with the best player to come to the NFL in the past decade (sorry Russell Wilson and RG III). Similarly, for GGV Capital, growing China & US convergence is the cornerstone of our strategy. As the world grows increasingly mobile and new billion dollar industries bloom, Hans joins at a time when the opportunity to continue to help the world’s best entrepreneurs grow from the US to China and from China to the US to build global leaders is at its peak. Hans’ experience with and familiarity in both China and the US is truly unique, and we look forward to working together with Hans to help a new crop of entrepreneurs build great companies.
Stay tuned. The future at GGV Capital looks bright, and with the addition of Hans, we’re more excited than ever.
October 21, 2013
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As published in TechCrunch.
As excitement grows for the upcoming Twitter IPO, the federal government shutdown and pending debt ceiling issue looms large. There are some in silicon valley who believe that the current innovation cycle, powerfully led by mobile and cloud computing, will overwhelm any public market dislocation caused by Washington DC ineptitude. After all, Twitter and other highfliers such as the rumored 2014 IPO class including Dropbox, Palantir, AirBnB and Box, are growing fast, operating in huge markets with big and slow-moving incumbents and beginning to show business models that will generate meaningful profit. This has been the recipe of success for LinkedIn, Splunk, Workday, ServiceNow and even Facebook, where IPO investors have done extremely well.
Recent history suggests, however, that in times of macroeconomic disruption, even the strongest of companies can see their IPO price get hit hard. One good way to assess the severity of a market dislocation caused by external events is the VIX, a measure of the implied volatility of the S&P 500. The chart below plots the VIX relative to IPO pricing over the past three years. As you can see, during periods when the VIX spikes due to external events, the implied IPO pricing discount increases sharply. For example, during the late summer / early fall ’11 period when US debt was downgraded after the failed debt ceiling negotiations followed quickly by the Greece-led Euro crisis, the VIX spiked and IPO pricing discounts went from an average of approximately 20% down to over 50%. Similarly, when the fiscal cliff led to the automatic federal spending cuts in early ’13, the VIX sharply increased, sending ensuing IPO discounts up to over 30%, from a range of 10-20% in the months prior.
Should the mess in Washington go unresolved over the coming several weeks, a clear risk for Twitter is that the VIX spikes up. If this happens, recent history suggests that Twitter will be forced to price its IPO well below levels it could otherwise achieve.
While this situation, if it transpires, will cause Twitter to either raise less capital or suffer more dilution than it would have otherwise, all is not lost. Aftermarket performance of the IPOs that have priced in the last three years doesn’t appear to be highly correlated to IPO pricing. In fact, as you can see from the chart below, some IPOs that price at steep discounts perform quite well in the ensuing 30 day period. For example, IPOs that priced in mid ’12, during the height of the macro concerns in Europe, were done at steep discounts, yet these IPOs were up 15-32% on average in the ensuing 30 days. More recently, IPOs priced at a steep discount during the “taper talk” of this past summer, but this class also performed very well in the ensuing 30 days. So, while Twitter may face IPO headwinds if Washington doesn’t come to its senses soon, a buying opportunity may follow.
Whatever happens, Twitter’s long term stock price trajectory will have everything to do with its operating performance and the market around it, and very little to do with how its IPO fares.
October 14, 2013
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Below you can watch my conversation with Emily Chang, host of Bloomberg West, on the growing threat of cyber crime and our recently announced investment in AlienVault.
September 07, 2013
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Today AlienVault, the leading provider of Unified Security Management and crowd-sourced threat intelligence, announced a $26.5M financing, led by GGV Capital, with participation from Kleiner Perkins, Trident Capital, Sigma West and other existing and new investors. We’re very excited to be leading this round of financing and I’m personally looking forward to serving on AlienVault’s board.
We jumped at the opportunity to lead this financing round in AlienVault. Our enthusiasm for the company and opportunity is driven by several key factors:
- Quality of Team. AlienVault is run by Barmak Meftah, the former Chief Product Officer of Fortify Software. Barmak has assembled a strong and experienced team of technology, sales and marketing executives from companies such as Fortify and Solar Winds. At GGV Capital, our best investments have been driven by great leaders who’ve assembled top notch teams such as Lars Dalgaard at Successfactors, Jack Ma at Alibaba and Mike Lazerow at Buddy Media. We believe Barmak and his team possess similar capabilities and we’re grateful they selected GGV as the lead financing partner in this round from a long list of interested funds.
- Enormity of the Opportunity. Hardly a day goes by these days without news of a major IT security breach. These attacks are no longer being carried out by disconnected, thrill-seeking, young hackers but are now the province of state-sponsored cyber warfare and organized crime, where large losses of IP and market value hang in the balance. Companies of all sizes now recognize they must protect themselves. This has created lots of tailwind for AlienVault with large, mid-size and smaller businesses.
- Product Approach & Business Model. While products that block and prevent routine attacks, such as firewalls and anti-virus software, have already been brought together under unified platforms to make them simple and affordable, until now there hasn’t been a solution that unifies the tools necessary to provide comprehensive threat detection and security visibility. With its Unified Security Management (USM) platform, AlienVault is the first company that has built a platform that federates security information from all parts of a network to identify and thwart attacks. AlienVault uses the very same tools that hackers use to perpetrate attacks, turning these tools around to create secure environments and enabling customers to fight hackers proactively rather than the typical reactive model. AlienVault also takes advantage of real time intelligence gathered from the thousands of users of its open source products, and has created the largest repository of up-to-date threat intelligence information. As the velocity of exploits and vulnerabilities grow with network complexity, this repository has become indispensible to AlienVault’s growing customer base.
With all this these factors at play, AlienVault is growing rapidly with a very attractive business model. We look forward to great things from our partnership with Barmak and his team at AlienVault!
September 05, 2013
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In 2010, had you suggested to the smartest Silicon Valley entrepreneurs and investors that LinkedIn would have a larger market value in 2013 than Groupon, Zynga or Twitter, you would have been laughed at. Had you hypothesized that LinkedIn would be worth more than Groupon, Zynga and Twitter combined and worth nearly one-third the value of Facebook, no one would have believed you. LinkedIn just wasn’t as exciting as the internet darlings of the day, and, as a result, there were many LinkedIn doubters at that time, myself included.
While LinkedIn circa 2010 might not have been as exciting as its go-go internet brethren, the company was clearly doing something very right, building out a product roadmap, company strategy and team that has paid handsome dividends since the company’s IPO. The case study of LinkedIn raises interesting questions for founders and investors alike. Why has LinkedIn worked so well as a public stock? And what can we all learn from their IPO and after-market performance? In this post, I’ll briefly make four arguments as to why LinkedIn has performed so well:
- The value of beat-and-raise methodology on Wall Street.
- Creating a deep competitive advantage and position.
- Building multiple growth vectors.
- Designing a product that gets better as it gets bigger.
First, LinkedIn has played Wall Street perfectly. The company priced its IPO well below the market clearing price, kept expectations muted, and since its public debut, has obliterated both its guidance numbers and consensus Wall Street estimates. In fact, as you can see below, the consensus Wall Street expectation for LinkedIn’s 2013 revenue has risen from $755M at the time of their IPO in mid May, 2011, to $1.5Bn presently. Ditto for ’13 EBITDA consensus, which has climbed from $147M at IPO to $367M today! As revenue and profit expectations have shot up, so has the stock price.
This strategy requires patience. It takes time to build enough maturity in a business for the team to predictably deliver results and maintain visibility. On Wall Street, to quote Radiohead, “no alarms and no surprises.”
This strategy also requires the company to take a hit, a tough thing to do. The value transfer from early investors to the new IPO investors comes in the form of higher dilution or less money raised in an IPO. Most Valley folks are trained not to do this, but one has to think about paying it forward, even for Wall Street, as crazy as that sounds. If companies can make money for their investors, these shareholders tend to remain loyal and attract others who recognize the value. At the same time, management gains more and more credibility among investors, a very valuable asset for public companies.
Second, though it’s now obvious to us all, LinkedIn created a very deep competitive position for itself. The heart of LinkedIn is its remarkably large data set of professional information on individuals and companies. The company spent many years figuring out how to build up this corpus of information and create the right user experience to keep the data set growing in value. Arguably, no pot of money from Microsoft, Google or Salesforce.com could rebuild this data set at this point. This is the moat. The fact that it took a long time to build only makes it more valuable, and it’s not going anywhere. Wall Street has gained confidence that a competitor cannot come up and kill LinkedIn, and on Wall Street, once the fear of credible competition evaporates, valuation multiples shoot up. To wit, while ‘13 revenue expectations have nearly doubled since the IPO, as the chart above shows, the multiple investors are willing to pay for this revenue has more than tripled (from 5.2x to 17.5x). Fear of competition is subsiding and confidence in the company’s ability to exceed its guidance is growing.
Third, LinkedIn built not one, but many, growth vectors. Wall Street investors love a large, addressable market, and while they don’t love when companies spread themselves too thin by going after many disconnected markets, they do love adjacent markets that leverage core assets. With this, investors can model out more growth over more time and will continue to pay up for a stock, expecting high growth rates. LinkedIn has done incredibly well at building multiple revenue streams (Talent Solutions, Marketing Solutions and Premium Subscriptions are all rapid growers that contribute a healthy share of overall revenue), increasing their product set, and moving to mobile with an aggressive iOS plus HTML5 strategy, all leveraging their core data set.
Fourth, LinkedIn has aged like a fine wine, getting better and better with age and size. In the Valley, people focus on growth at all costs. This makes sense. Wall Street is also enamored with growth, but investors also typically love margin expansion and expanding profit growth as much (and sometimes even more). LinkedIn has invested in its business so that the company now benefits from great profit dynamics — a fast-growing top-line alongside expanding margins (EBITDA margins, for example, were up in the June quarter to 24.4% from 22.1% a year earlier). My guess is that company management opted to sacrifice more rapid growth early on in order to make sure they engineered the right model. This may explain why some didn’t view LinkedIn positively on Sand Hill in the early days, but it’s all moot now as their patience is paying off on the Street.
In the wake of the Facebook IPO debacle and recent resurgence, I’m often asked about how companies should plan for Wall Street. My answer: the more you can emulate LinkedIn’s approach, the better.
August 17, 2013
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As published on TechCrunch.
It’s finally happened. Some fourteen and a half months after its IPO, Facebook shares closed on Friday above its IPO price of $38/share for the first time since the date of its IPO. Investors who bought shares in Facebook’s IPO and held until now are a whopping 5 cents in the money, with Friday’s $38.05 closing price.
The challenges of the Facebook IPO, primarily the company’s lowering of revenue guidance while marketing the deal and the NASDAQ trading glitches, are well chronicled. The IPO was clearly not executed well. Now that the company is back to the $38/share starting line, however, it’s a good time to take a step back and distill lessons from the IPO and Facebook’s last 14 months as a public company.
The Journey Influences the Destination. I believe Facebook shares would be much higher today, probably closer to $45/share, had the company priced its IPO lower, at $20-25/share, and started with lower revenue guidance. While I can’t prove this, I’ve spoken to several public investors and other buy & sell side experts, and most agree. Had Facebook priced its IPO lower, it would have signaled powerfully to the largest and most long-term oriented institutional investors that the company was seeking to attract and retain these investors by allowing them to initiate positions in the stock at an attractive entry point. Similarly, had Facebook kept financial guidance more conservative, potential IPO buyers would have gained comfort that Facebook was leaving plenty of slack, allowing for future earnings outperformance and guidance raises, despite future environmental uncertainties such as mobile. The net result of this approach would have been an initial book of IPO buyers more concentrated among the largest and best (ie, most long-term oriented) institutional investors.
The likely rush of retail buyers into the stock would have undoubtedly ensued, but the notorious fickleness of retail buyers would have been much less tested had the IPO price been lower, despite whatever uncertainties were cast over the market by the NASDAQ trading glitches. A better book of institutional investors and less jittery retail investors, all of whom would have had lower average costs to their Facebook positions, would have led to less initial tumult and shareholder turnover. Additionally, starting from a lower level of financial guidance, would have given Facebook more room to delight shareholders with outperformance, solidifying the shareholder base rather than prompting huge investor turnover.
Facebook is a once-in-a-generation company. Add the story line of an attractively priced IPO, a strong and loyal shareholder base from day one and a company that weathered the early mobile uncertainty well because expectations were set lower, and the net result points to a much higher stock price today.
Predictability Trumps All Else. Facebook is a remarkable company that would be nearly impossible to replicate. The revenue and profit growth the company has achieved have been matched by few other companies in technology over the years. Despite these unique qualities, Wall Street seeks predictability above all else. The life of a fund manager is complex. Large cap growth fund managers have a few hundred companies they can trade. At any one time, the typically manager will only follow closely about 30-40 companies in her universe and own 10-20 of them in size. In short, there is a lot of competition for her time and attention. The easiest way to turn a fund manager off is by missing numbers and not raising guidance. Once she has lost faith in a company’s ability to clearly predict its future and guide accordingly, her attention will be very difficult to regain. Although Facebook has had many strong quarters since going public, particularly lately, the company started public life on rockier footing. The strong emergence of Facebook’s mobile usage had a negative connotation initially because investors were concerned with mobile monetization and, hence, Facebook’s ability to keep up with financial projections. The narrative would likely have been much more positive had Facebook kept more slack in the system, giving investors more confidence that core web Facebook usage would cover revenue and profit estimates for some time, while mobile growth and mobile monetization remained as looming upside to the story, not a requirement to hit forecasts.
The Perils of the Silicon Valley to Wall Street Hand-off. Facebook’s utter dominance of the social networking arena and its growing importance in the internet advertising market, leading to jaw-dropping revenue and profits, drove private market sales in Facebook up ever higher in the years and months leading up the company’s IPO. What tends to excited Silicon valley venture and cross-over investors – rapid growth, very large market opportunities, great teams and competitive advantage – typically underpin the investments made by public institutional investors as well. Public market investors can trade in an and out of stocks every day, however, enabling for constant comparisons of one company’s stock versus another. As a result, Wall Street public investors tend to focus on price as another variable much more intensely than Silicon Valley investors. The signal coming from the pricing of private market trades of Facebook’s stock leading up to its IPO, many of which were done at very high prices, was of limited value when predicting what public investors were willing to pay for Facebook early on. Everyone knew (and still knows) that Facebook is a remarkably attractive company, but valuation was the key component missing from the Silicon valley analysis relative to Wall Street.
Entrepreneurs running private companies face challenges similar to public companies like Facebook. Each successive financing round represents a chance to recruit new investors. Deciding who is the right fit is key. The best investor relationships are long term in nature. Entrepreneurs need to listen to the market, but taking top dollar isn’t always the best answer. As Facebook has shown us, sometimes pricing a financing at or near the top of what the market will bear, can have near calamitous implications.
Still, one of the best elements of the 14 month roundtrip Facebook has taken with its IPO investors is a reminder that Silicon valley is full of comeback stories. Facebook is undeniably a remarkable company. While its management team may have made some mistakes navigating its IPO, this same team has remained incredibly focused on building Facebook into something even more special. Perhaps the next 14 months will reward IPO shareholders for their patience.
August 04, 2013
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Earlier today, Semil Shah wrote a terrific post on TechCrunch about Twitter’s inexorable march toward an IPO. I’ve summarized Semil’s points here:
- The drumbeat for Twitter’s IPO has begun and will continue to get louder and more frequent (see here for proof)
- Now that Facebook has returned to IPO price and is back in favor, the market will be much more receptive to Twitter
- That said, Twitter should price its IPO lower than Facebook, giving investors a chance to make money and employees the morale boost from a rising stock price, rather than the tumult Facebook inflicted on investors and employees
- Twitter still has lots of work to do to improve – ie, mobile integration, DM functionality, etc
- But, Twitter is undeniably a powerful tool for an increasing number of people
- Despite the likely growing momentum for its IPO, Twitter should emulate LinkedIn, tempering expectations, rather than follow in Facebook’s footsteps
I couldn’t agree with Semil more. My generic advice for companies heading for an IPO, as enumerated here, is to build in plenty of potential upside by tamping down expectations for future financial performance and to price IPOs at least 20-30% below the market clearing price, thus attracting the highest quality, longest term, institutional shareholders and signaling the desire to retain these shareholders for a long time to come.
Twitter is a great service that, like Semil, I personally derive great value from (far more value than I derive from Facebook, for example). While delivering a well executed IPO is a major goal for most companies, for consumer services such as Facebook, Twitter and LinkedIn, the imperative is even higher. As we’ve learned with Facebook, a poorly executed IPO can actually negatively impact consumer sentiment toward the service and thus ultimately drag down financial performance. Facebook has been able to overcome this tumult, but Twitter, if the company executes a better IPO and public market plan, will hopefully never have to face a similar challenge.
August 04, 2013
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As featured in TechCrunch.
Stanford-born and Seattle-based Tableau Software (ticker symbol: DATA) enjoyed a tremendous debut on the public markets on Friday, closing on its first day of trading at over $50/share, up over 60% from its $31/share IPO price. The company raised over $250M through the sale of approximately 14% of the company, and its enterprise value now sits at approximately $2.5 billion.
For the pundits who’ve been arguing that the tech IPO landscape is in crisis, deals like Tableau serve as a powerful reminder that the public market is eager for certain tech companies. In fact, over the past year or so, there have been several other high profile tech IPO winners such as Workday, Splunk, Palo Alto Networks and ServiceNow.
What lessons can aspiring tech entrepreneurs learn from Tableau and these other Wall Street success stories? Here are few.
Stand Out in the Crowd. Tableau has built a highly attractive business. Growth has been very strong – March quarter revenue growth was over 60%, to $40M. The company is operating in a huge and proven market – the data analytics and visualization space has produced big winners across several software generations and remains interesting as big data pushes the limits of existing solutions. Finally, Tableau has been able to show profits, albeit modest, as the company has grown rapidly. For all these reasons, public investors flocked to Tableau.
If you’re considering an IPO for your company in the future, recognize that public fund managers have MANY companies from which to choose. More specifically, small-cap growth managers have between 500-1,000 companies in their universe. Given the enormity of this number, a typical manager will only follow 50-100 companies closely and, depending on strategy, will likely only invest in 25-50 of these in any one year. Tableau stands out in this sea of stock tickers. Does your company stand out? If not, what investments do you need to make to help you rise above the noise?
Price Your Company Right. Cynics will suggest that Tableau left money on the table. Since the stock popped over 60% on the first day of trading, the company clearly could have set its IPO price higher and raised more money. This misses the point. Tableau smartly recognized its IPO is a chance to establish a new shareholder base. By pricing the IPO at $31, the company surely had its pick of new investors since most everyone, seeing the obvious good deal, wanted to get in. I’m sure Tableau’s management team spent time evaluating who was most likely to hold their IPO stock and add to their ownership over time. If the company has done its job well, Tableau has stacked its shareholder list with the best, long-term oriented fund managers. This will serve the company well for years to come.
Similarly, you should spend time getting to know potential VC investors before you take money into your company. Consider prioritizing things like alignment of outlook and ability to help add value ahead of price. Taking the highest price limits dilution in the short-term, but if you add a VC who either can’t help or has a different vision that you for your company, you’ll likely regret the decision down the road.
Patience is an IPO Virtue. Tableau deferred its IPO for several quarters. In fact, had Tableau used $100M in revenue run rate as a threshold for IPO timing, as many others do, the company would have now been public for over a year. Because Tableau waited longer, the company was able to continue to invest in its business. With more time and investment likely came increased visibility and predictability, which is critical to performing as a public company. Also, Tableau has become more valuable during the past year as it has grown and solidified its leadership position in the market. With a higher valuation, Tableau’s IPO brought in more money and established a larger public float than would have been possible a year ago. Public fund managers dislike small, or “thin,” float deals; such thin float IPOs often lead to more stock volatility, which is difficult to manage.
As you build your company for IPO readiness, consider waiting until you have predictability well under control and your valuation allows you to sell a larger amount of stock without taking more than 15-20% of dilution.
Clearly Tableau is a remarkable company. Emulating these three traits will help you succeed as well.
May 19, 2013
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