Every once in a while, an IPO has a much bigger impact on overall IPO sentiment than people expect. For example, while everyone watched the Snap deal closely, with its malaise casting a pall on the IPO market, less anticipated deals such as Twilio and Splunk played much bigger roles in igniting IPOs than people expected. MongoDB, the leading open source NoSQL database player, priced its IPO last night at $24/ share and began trading today, surging to a first day close of $32.07, up 34%. While regular readers of my blog know I don’t ascribe too much weight to how an IPO is received in the short term, I think the MongoDB IPO can have a large impact on the landscape for VC-backed tech IPOs, especially enterprise focused ones. Here’s why I think this is the case:
- Database Market. Oracle has had a hammerlock on the commercial database market for the past 25+ years, with Microsoft SQL Server and IBM’s DB2 being the only other players of significance. While analytics databases, ETL software and middleware have all taken off around the database, when it comes to relational databases, Oracle’s hegemony hasn’t been seriously tested since the days of Sybase. This market is exceedingly large, many tens of billions gets spent each year. So, the wave of noSQL databases, built more for modern, distributed web and mobile scale applications, arguably led by MongoDB, has a LOT of market to go after. As we know with IPOs, public investors love big markets.
- Open Source. MongoDB started life as open source software (OSS) and, to this day, by far the most popular MongoDB version is its OSS. While few OSS companies have made a big impact on the public market, OSS is becoming more popular and more companies are adopting this model. MongoDB’s relative success, like Cloudera and Hortonworks before it (both of which also rely on OSS), will be watched closely by the many OSS companies growing in the software landscape today.
- Cloud. I believe the move to public cloud is the most disruptive and important computing paradigm shift in the past decade (or more). While companies can and do run MongoDB and other noSQL databases in the cloud, its also true that the cloud vendors, principally AWS, Azure and Google, are all feverishly bringing their own databases to market. Plus, don’t forget about Oracle, who is investing in its own cloud services, including database. Additionally, the cloud is both giving rise to and enabling new database technologies to develop, such as streaming and graph databases, that “cloud” the picture a bit more for certain use cases of technologies like MongoDB. So, the cloud presents both opportunity and challenge – we’ll need to watch closely to see how this plays out.
- Funds Raised & Valuation. MongoDB has raised over $300M as a private company from Sequoia, Flybridge, USV, NEA and others. Although the company previously had raised capital at unicorn levels and there was some concern MongoDB would end up with a public price below its private rounds, based on the S-1, the last private preferred round was done in ’14, raising $80M at a per share price in the $17/ share range. At its first day close of $32.07, MongoDB has provided a paper gain of almost 2x to the last round investors. This positive debut will undoubtedly encourage more high growth private companies to pursue IPOs in the near term.
- Cohort Growth & Sales Efficiency. Despite the fact that MongoDB is losing lots, it showed investors very attractive existing account growth, coming in at over 120% for the past many quarters. The company also looked at its ’15 cohort of customers to show that, although the company loses money during its first year with a cohort, this cohort becomes much more profitable over time as revenue grows but costs to sell and support decline as customers age. Public investors love this story – big market with rapid growth and growing profitability of cohorts over time.
There are many other high growth, venture backed tech companies that have been biding their time and watching the market. Given the positive action around MongoDB’s IPO, I expect more deals to come over the coming months. If MongoDB can continue to perform, they’ll be doing a favor to the many private companies, especially enterprise focused ones, coming next.