What Does it Take to IPO Today?

by Daniel Hom on July 3, 2012

When we first started IPO Dashboards, we wrote a post detailing a common refrain from investors in 2001 after the dot-com bust:

-Companies will need $100m in yearly revenue to go public
-Companies will need to be profitable

It’s now 2012, and we have seen the next generation of tech companies go public, including long-awaited giants like Facebook. Have those predictions come true?

The results are a mixed bag. There is a definite charge towards needing $100m in revenue–60% of tech IPOs since last year had that much revenue before going public. However, the requirement that companies be profitable is nowhere to be seen. Compare this to the Top 100 software companies we sampled in our original post, of which only 34% hit $100m in revenue before going public.

There are some interesting consequences of this trend. Naturally, it takes longer to reach $100m in revenue than $50m, and in many cases holding out for that number will mean that companies will grow less after their IPO. In other words, it’s easier to quintuple the sales of a $50m startup than one that just had a $500m year. On the other hand, increasing the revenue benchmark could also serve as a means to test which companies actually have a viable business. It’s also worth considering that companies may have postponed IPOs because of the recession, and therefore simply reached $100m in revenue by the time they felt the markets were stable enough.

What thoughts do you see from this trend?

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