Back when the dot.com bubble burst, technology investors went running for the hills. It was popular to issue grisly predictions about the future of technology IPOs. There was a common refrain in 2001:
- The IPO market will take 5 years to return
- When it does, companies will need to have sales of at least $100m
- When it does, companies will need to be solidly profitable
Considering the economic decimation at that time, the predictions seemed reasonable. Especially the part about profitability. Of course, time passed and we learned that only the first prediction came true.
The data show that five years after the dot.bomb, unprofitable technology companies with less than $100m in revenue were once again going public, to exuberant reception. The data shown in the visualization are based on a sample of publicly traded software companies. In the “Not Profitable” section you can see the respite from unprofitable IPOs 2001-2004, followed by a rebirth.
Take DemandTec (NASD: DMAN) as an example. Despite IPO Year revenue of just $44m, the maker of CRM software was popular with investors in 2007, raising $66 million. The stock went on to post a 3-month return of 97%. SuccessFactors (NASD: SFSF) is another example. Despite posting a net loss of $75 million in its IPO year, the company raised $108 million from public investors, several times its total IPO Year revenue.
Today people are issuing the same doomsday predictions about the IPO market that they were in 2001. In fact opinions are eerily similiar. My last post, Yesterday’s Most Successful Companies Wouldn’t IPO Today, suggested that today’s tough IPO standards are likely doing more harm than good. This post is meant to remind us that IPO standards change over time. The data show this clearly. Hence panic years may not be the best years to make predictions.
Thoughts and predictions?