TMT Portfolio Updates: The IPOs are Coming! The IPOs are Coming!

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SEE LAST PAGE OF THIS REPORT Paul Sagawa / Artur Pylak

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April 19, 2013

TMT Portfolio Updates: The IPOs are Coming! The IPOs are Coming!

  • The TMT IPO market has been dead since the 2008 financial crisis. Facebook was supposed to make it safe for the dozens of increasingly valuable private TMT companies to come public, but botched execution made the FB IPO an impediment rather than a catalyst. Now there are dozens of TMT companies that could come public in the next 12-18 months. We have identified 35 that have likely valuations above $500, and evaluated them on the attractiveness of both the opportunity that they address and their competitive positions. The universe includes 9 e-commerce startups, 8 enterprise SaaS providers, 4 cloud service providers, 4 social networkers, 3 each of cloud infrastructure, enterprise hardware and on-line media, and 1 internet advertising network. We are most intrigued by Alibaba, Twitter, Hulu, Square, Atlassian and Pinterest, and have the most skepticism about subscale e-commerce players and enterprise IT plays. In this light, we are adding Workday to our large cap model portfolio and Marin Software to our small cap portfolio, both of which are recent IPOs.
  • A 5 year IPO drought has left dozens of interesting TMT companies private. The 2008 financial crisis killed new issues for many months. Facebook’s highly anticipated 1Q12 issue was supposed to break the log jam, but instead compounded the problem with the stock still more than 25% below its offering price. Still, industry scuttlebutt and recent S1 filings suggest that many IPOs that have been in a holding pattern could look to land in 2013.
  • Our list of 35 potential TMT IPO candidates contains intriguing companies. We identified 35 private TMT companies that we believe would command market caps in excess of $500 million, were they to come public. Rating these companies on the size of the market that they could address and on the strength of their competitive position, we have established a rough assessment of their likely attractiveness to investors. Of course, attractiveness must be tempered by the aggressiveness of the eventual offering price, a consideration obvious to investors and bankers alike in the wake of the Facebook debacle.
  • Acquisitions from the list by big cap players are likely. Over the last 3 years, Google has done 62 acquisitions for an estimated $16.3B, Intel has done 19 for $9.5B, Microsoft – 12 for $10.6B, IBM – 29 for $5.6B, Oracle –26 for $8.7B, HP – 13 for $20.2B, and so on. Many of the companies our IPO candidate list have been rumored as targets in the past, and some may choose to be bought rather than to pursue a private listing. Their value to would be acquirers is largely commensurate with our ratings, although some companies would significantly improve their competitive positioning in combination with a synergistic buyer.
  • Our favored candidates are Alibaba, Twitter, Hulu Square and Atlassian. E-commerce companies are the largest group, but other than Alibaba and Craigslist, the companies lack for scale and barriers to competition from the likes of Amazon. SaaS Applications is the second largest category, with many opportunities for start-ups, some of which will hit while others miss. We like Atlassian best from this group. Cloud infrastructure software and social networks have fewer candidates, but carry the highest ratings – Twitter is most favored from these groups, followed by Pinterest and Tableau. Cloud services, on-line media and on-line advertising are a mixed bag, with Hulu and Square stand-out candidates. We are not optimistic about overall spending on enterprise data centers, and view enterprise hardware makers skeptically – Violin Memory is the best of a risky lot.
  • Our large cap model portfolio performance has been strong. The large cap portfolio outperformed the S&P500 tech components by 280bp since our last update in late December, delivering 1.2% absolute performance over that time. We are removing Akamai – which is off 19% after poor numbers and guidance in February, Nuance – which moves in sympathy with Apple, and Skyworks – which we believe to be threatened by a new RF product from Qualcomm. In their place, we are adding Workday – a SaaS ERP vendor which recently IPOd, Netflix – which has built considerable business momentum with the success of its original programming, and JDS Uniphase – which could benefit from growing wireless data in both its network test and optical components businesses.
  • Our small cap model portfolio performance has been weak. The small cap portfolio underperformed the tech components of the S&P600 by 200bp, dropping 2.9% in absolute terms, since it was updated on January 7. Brightcove, Fusion IO and Allot were the primary culprits, and we are removing Brightcove and Allot, along with Triquint, which, like Skyworks, we believe is threatened by Qualcomm’s innovative 40-band RF chip. In their place, we are adding Marin Software – a recent IPO which sells SaaS tools to manage on-line ad campaigns, Ixia – a network test equipment supplier that is well positioned for expected wireless data build outs, and AMCC – which has traction on ARM based server processor chips.

TMT Start-ups … You are Cleared to IPO

The IPO backlog has been building for 5 years. The financial crisis of 2008 obviously hit hard, and after a few TMT issues hit the market in 2011 (LinkedIn, Groupon, etc.), the Facebook debacle in 2012 sent most would-be IPOs back into the holding pattern. A year later, and after the successful Workday and Marin Software issues, many of these companies may be circling back for another try. We have identified 35 private TMT companies that could command valuations above $500M, and that could conceivably come public in 2013. Of course, with VC money readily available, and typically asset-light operating structures with modest capital requirements, many will likely choose to remain private and avoid the regulatory burdens of public ownership as long as their private investors and employees will allow. Others will cash out by selling to one of the many cash-rich TMT mega-caps circling above. Still, some of these companies will come public.

The 35 company universe spans 8 categories. E-commerce is the largest, with 9 companies, led by the Chinese market leader Alibaba and the tightly controlled on-line classified king, Craigslist. The others have yet to build true scale economies and live under the threat from established on-line brands, like Amazon. We are more enthusiastic about the SaaS Applications category, which has 8 candidates. We believe modern cloud data center architecture will eventually render many traditional enterprise software applications obsolete, opening the door to SaaS competitors. We are particularly interested in Atlassian, Palantir and Zendesk. Social Networking could be a hot space, even in the wake of Facebook, with four possible IPOs, led by Twitter, and including Pinterest and What’s App. Cloud Infrastructure Software has 3 strong and likely IPO candidates – Tableau, Cloudera and Sumo Logic. Cloud Services has 4 candidates, including the hot mobile payments player, Square, started by Twitter founder Jack Dorsey. The 3 On-line Media companies and AppNexus, the single On-line Advertising candidate, face potentially fatal competition from the likes of Apple, Google and Amazon, although Hulu enjoys a unique position given its exclusive access to recent programming from its current parents, ABC, Fox and NBC. Finally, we are generally bearish on the future trajectory of the traditional Enterprise Hardware market, and thus the 3 would-be IPOs in the category, Violin Memory, which builds flash-based “RAID” storage systems, could buck the trend by taking share from traditional disk-based enterprise storage system makers.

This brings us to our model portfolios. The large cap portfolio continued its strong performance since our last update on December 21, up 1.2% in that time and beating its S&P500 tech components benchmark by 280bp, led by NetSuite and Seagate, both up more than 11.7%. Akamai, which missed expectations and lowered guidance in February, was down -19.4%, while Nuance was off just over -9% in sympathy with Apple. We are removing both stocks, along with Skyworks, which we believe could be vulnerable to a new universal RF chip announced by Qualcomm. In their place, we are adding Workday – which like NetSuite offers SaaS based ERP modules, Netflix – which is on a considerable roll with its original programming, and JDS Uniphase – which stands to benefit from more aggressive wireless network build-outs.

In contrast, the small cap portfolio continues to underperform, falling -2.9% in absolute since it was updated on January 7, and trailing the S&P 600 tech components by 200bp. The best performers were Monotype Imaging and Synaptics, both up more than 18%, offset by poor performance from Brightcove (-40%), Fusion IO (-29.6%) and Allot Communications (-22.0%). We are removing Brightcove and Allot, along with Skyworks competitor TriQuint, and adding network test equipment maker Ixia, ARM server processor pioneer Applied Microcircuits, and recently IPOed on-line advertising software vendor Marin Software. We are keeping Fusion IO, as we see its poor performance as the result of extreme volatility in its business results and believe that a substantial recovery is likely.

The IPO Backlog

Over the past 5 years, just 121 TMT companies have issued IPOs, a substantial drop-off from the previous five years, and striking, given the dramatic, technology driven paradigm shifts underway in the TMT sector. The market for new equity offerings had seemed poised for recovery at the beginning of 2012, but Facebook’s highly anticipated but poorly managed IPO just over a year ago put the kibosh on the plans for many private TMT companies, after the stock dropped 50% over the first 6 months of trading. While we believe that the perceived failure of FB has more to do with overblown financial projections and unrealistic expectations than a broken market, many potential issuers were cowed to the sidelines (Exhibit 1).

Exh 1: IPO Activity in US Tech, 2003-2012

We count 35 private TMT companies that could command market caps of greater than $500M, should they choose to come public, with total aggregated potential enterprise value of over $100B (Exhibit 2). Of these 35, just three –Gigamon, Marketo and Tableau – have filed their S1 forms, a necessary precondition to filing an IPO, but all have been rumored in the press as candidates for going public. In some cases, such as the intensely private Craigslist, the rumors seem to be wishful thinking by reporters or investors, but we have not cut down the list based upon the likelihood that the rumors come to fruitions. Breaking down the list, there are 9 E-commerce companies, 8 SaaS Application plays, 4 each of Social Networks, and Cloud Services, 3 each of On-line Media, Enterprise Hardware and Cloud Infrastructure Software and 1 On-line Advertising company. Summary assessments of all 35 can be found in an appendix to this note.

Exh 2: Private TMT Companies Well Positioned for IPO

We rated the IPO candidates on two factors. First, we assessed each company’s growth potential, based on the size of the market that each addresses and the likely trajectory for future expansion. Second, we assessed the company’s position vs. existing and potential competitors. Ideally, an IPO candidate should be addressing a substantial opportunity and possess sustainable advantage in capturing it for itself. We were particularly concerned for small companies that were pursuing businesses that would bring them into direct competition with the interests of the most powerful platform players – Google, Amazon, and Apple.

Considering both factors, Chinese e-commerce giant Alibaba is the most valuable private TMT company on the list, with a potential valuation north of $60B based on the huge Chinese market and the difficulties for western competitors looking to expand there to compete. Management sees its window for an IPO extending to 2015 and will act based upon its confidence in the market. Twitter is the next most attractive candidate, addressing the huge Internet advertising market with a unique product that would be very difficult for even the biggest rivals to replicate. Twitter has become the primary medium for time sensitive information dissemination across mobile platforms, with clear expansion and monetization strategies. Recent analyses have pegged its value at greater than $10B, a figure that we believe is conservative, given its growth, penetration and the monetization vehicles apparent. While management has been coy about a potential IPO, it is likely inevitable, given the interests of the many venture investors involved in the company.

On-line video streamer Hulu is next, addressing a huge opportunity with the considerable advantage of favored access to programming from its current parents, ABC, Fox and NBC. Hulu’s revenues were up 65% to $695M in 2012, with a likely valuation of well over $2B based on Providence Equity’s year ago sale of its 10% stake in the venture. While Hulu would clearly be a hot property as an IPO, squabbles amongst the media companies that own it could easily scuttle tentative plans for a public offerings, or even erode the value of the company.

Next up would be Square and Atlassian. Square is a mobile payments company started by Twitter co-founder Jack Dorsey. Square has gained an inside track while bigger players – Visa, Mastercard, Google, Verizon, etc. – squabble, signing a splashy deal to handle credit card processing for Starbucks, combining payments with customer loyalty programs tied to their cell phones. The Square solution for small retailers, combining card swiping hardware for smartphones and tablets with easy to use payments software has also proved a hit. Australian start-up Atlassian has delivered a state-of-the-art system for managing collaboration in software development. Kudos for the product are manifest, with the only question as to whether Atlassian can extend beyond hardcore software development. Square is talked about in the $3B+ valuation range, with Atlassian expected to be worth north of $1B. Other companies that we would likely view favorably were they to come public include Tableau, Zendesk, Palantir, Craigslist, Violin Memory, Opower, and Cloudera.

On the flip side, we are not enthusiastic about the prospects for subscale players without obvious barriers to larger competitors. The E-commerce category has several of these, including Living Social, Gilt Groupe and Grub Hub. Enterprise Hardware networking start-ups Gigamon and Arista have demonstrated traction, but face a longer term market that is shifting toward a cloud architecture that will not need their technology. Finally, we are sanguine about the prospects for Social Networker Foursquare and On-Line Media pioneer Spotify, both of which stand in spaces coveted by the major platform players (Exhibit 3).

Exh 3: Ratings and Positioning of the 35 Private TMT Companies

I’ll Buy THAT for a Dollar!

While these 35 companies have been the subject of kibitzing around the IPO table, they must also be considered attractive acquisition targets. Over the past 3 years, 132 different companies have collectively made 832 acquisitions for a total price of likely more than $170B. Leading the way, Hewlett Packard spent more than $20B on 13 deals, led by their controversial $11B purchase of British software company Autonomy. Google followed with $16B spread out over 60 deals, including the $12.5B acquisition of Motorola Mobility, a piece of which was subsequently sold to Arris for $3.5B. Microsoft spent $10.6B on 12 deals, the biggest of which was its $8.5B purchase of Skype (Exhibit 4). Intel, Oracle, Texas Instrument, IBM, Applied Materials, Dell, Western Digital, TE and Adobe each did deals for more than $4B apiece.

Exh 4: M&A Activity by Leading Tech Firms, 2010-2013 YTD

Moreover, the cash position at companies like Apple, Microsoft, Google, Facebook, IBM, Oracle, Qualcomm and others, combined with the sharp elbowed competition for position clearly portends continued deal making in the sector. While our ratings of the 35 IPO candidates is a reasonable first pass on their value to would-be acquirers, note that profound synergies could exist between buyers and sellers. For example – an acquirer that is well positioned across multiple markets – such as Google, Apple or Amazon – could apply a smaller company’s technology into a wider array of products. Similarly, a small company with a foothold in an attractive market could benefit from the scale and the competitive barriers that could be set by a larger partner. In general, we see these synergies as far more available to the large companies playing aggressor on the larger stage – old paradigm companies looking to use acquisitions to wedge into next generation markets have not been historically successful.

The SSR Large Cap Model Portfolio

Our strategy of focusing tightly on companies well positioned to exploit the major paradigm shifts that we believe are underway in TMT has been working. For the period dating back to our last update on December 21, 2012, our 15 constituent large cap model portfolio outperformed the S&P500 tech components benchmark by 240bp, rising 1.2% in absolute. Since inception in May 2011, our large cap model portfolio is now up more than 1070bp vs. its benchmark (Exhibit 5).

Exh 5: SSR Large Cap TMT Model Portfolio – Old Constituents

Amongst the constituents, Akamai (-19.4%) and Nuance (-9.6%) were the laggards for the period. Akamai delivered weak results in its 4Q12 and offered disappointing guidance for the current quarter. We believe that the biggest sources of streaming video traffic, the lifeblood for a CDN like Akamai, have moved to build out their own CDN capabilities, while Apple, Akamai’s greatest opportunity remains largely on the sidelines. Meanwhile, Nuance has Apple problems of its own – its voice recognition technology is embedded in Siri and as investor enthusiasm for the iPhone faded, so did their appetite for Nuance. We are removing both companies from the model portfolio. Skyworks Solutions was a good performer for the period, up 4.2%, but we are concerned that a new RF solution announced by Qualcomm, which has the unique ability to cover 40 different frequency bands in a single chip, could take significant market share from incumbent RF chip makers, including Skyworks. As such we are also removing it from the portfolio.

To fill the three spots in the portfolio, we are adding Workday, Netflix and JDS Uniphase. Workday issued its own IPO in October of last year, and has appreciated more than 18% since to its current $9.7B market cap (Exhibit 6). Workday offers SaaS versions of human resources and financial management elements of an ERP system, and is growing its revenues at a nearly 90% annualized pace. Expectations for just over 50% growth over the next year and continued losses appear reasonably achievable. Netflix jumped more than 60% after a 4Q12 upside surprise and bullish guidance. While valuation is robust, we believe business momentum will continue with the original series “House of Cards” not only a critical success, but a cultural touchstone. This and the highly anticipated debut of “Arrested Development” should allow Netflix to clock impressive subscriber and usage metrics going forward. Finally, JDS Uniphase is a beneficiary of the rising carrier competition about which we recently wrote. An acceleration of 4G LTE network deployment, spurred by M&A and new spectrum should benefit JDSU in both its network test equipment business and its optical components operation.

Exh 6: SSR Large Cap TMT Model Portfolio – New Constituents

The SSR Small Cap Model Portfolio

In contrast to the large cap portfolio, the small cap model portfolio underperformed the S&P600 tech components benchmark by 200bp, falling -2.9% in absolute, since its last update on January 7. Since inception in February 2011, the portfolio has underperformed by 310bp. As has been typical, the performance of the individual constituents of the portfolio was wildly volatile. Monotype Holdings – up 35.2% – and Synaptics – up 18.7% – were the big winners for the period, while Brightcove – down -40%, Fusion IO – down -29.6% , and Allot Communications – down -19.8% – were the primary losers. We are removing Brightcove and Allot, both of which dropped precipitously on poorly received 4Q12 results and guidance. Fusion IO, which has been exceptionally volatile in its less than 2 years as a public company, remains in the portfolio, as we remain bullish on the adoption of solid state storage in the cloud. We are also removing TriQuint, which was off 8% since the last update, given that it faces the same heightened competition from Qualcomm’s new 40 band RF solution as we noted for Skyworks.

In their place, we are adding Marin Software, Ixia and Applied Micro Circuits. Marin Software issued its IPO less than a month ago, trading now roughly 10% below its offering price. Marin offers a SaaS application that allows on-line advertisers to manage campaigns across multiple on-line venues. It is growing about 50% YoY and is still generating losses. Ixia is a network test equipment maker well positioned to capitalize on what we believe will be a growing wave of wireless capital spending. Finally, AMCC is a well-known maker of ASSP solutions for networking applications, but has made an aggressive move to implement the ARM processor architecture into CPU chips designed for cloud-scale servers. We believe that this could prove to be a substantial opportunity.

Exh 7: SSR Small Cap TMT Model Portfolio – Old Constituents

Exh 8: SSR Small Cap TMT Model Portfolio – New Constituents

Appendix – Potential IPO Company Descriptions

Twitter
Perhaps the best known social network next to Facebook, Twitter has over 500M registered users that generate nearly as many 140 character microblogs or tweets each day. Twitter was created in March 2006 by Jack Dorsey and officially launched in July of that year. The company experienced rapid growth from 400K quarterly tweets in 2007 to 100M in 2008, and to the nearly half billion daily tweets as of April 2013. It has become one of the leading sources of real time news from individuals and organizations. Originally lacking a monetization mechanism, the company has since moved into advertising with sponsored tweets and is expected to collect some $545M in revenue this year. Since its $5M Series A round of financing in 2007, which included Charles River Ventures and Union Square Ventures, the company has raised $1.11B in subsequent rounds. Though not as large as Facebook in terms of valuation, Twitter could IPO comfortably into large cap territory.

Pinterest
Pinterest is a photosharing site with a pinboard-like skeumorphic interface. The site was conceived in December 2009 and launched as a beta in March 2010.It’s founders initially wanted to pitch the site to a publishing company, but were dismissed before even getting a meeting. The site was off to a slow start only reaching 10,000 users in its first nine months, but quickly went viral thereafter reaching 10M users by February 2012. According to ComScore, it became the fastest independent site to reach 10M monthly unique visitors in the US. Like Twitter, Pinterest has had nearly zero revenue in its growth years and is now actively exploring monetization via advertising and usage tracking tools. The company most recently raised $200M in a February Series D round from Valiant Capital Partners, Andreessen Horowitz, and Bessemer Venture Partners. The latest funding round values the company at $2.5B.

Foursquare
Foursquare is the original location based social network that was launched in 2009 to allow mobile users to “check-in” at venues using a mobile website, app, or SMS. Users create online profiles and are awarded badges and points as they use the app to check-in to various locations. In three years, the company had growing to over 20M registered users. Foursquare’s growth and user engagement has somewhat stalled with Nielsen reporting in its Social Media Report 2012 that 42% of those who downloaded the app use it at least once a month. The company raised $41M in debt financing via a series D round earlier this month from Silver Lake Partners. Debt financing is unusual in the venture capital community as it could put an inordinate amount of stress on a young company. The company has been struggling to develop a viable business model and has been seeking additional capital since last year. We wouldn’t expect an IPO until the company has nailed down a solid path to monetization.

Whatsapp
Whatsapp is a cross-platform instant messaging app available for smartphones. The company was founded by Yahoo alums in 2009. The company has experienced tremendous growth and now handles well over 10B messages per day. The app has had the same effect on mobile carriers as Skype has had for landlines. Users simply pay a one-time fee to download the app in iOS or an annual $0.99 fee to download and use on other platforms such as Android, Blackberry and Windows. Users can message anyone signed into the service anywhere in the world. The founders have been adamant about avoid advertising in the company’s business plan. Earlier this month, the tech rumor mill was set ablaze with speculation over an acquisition by Google. Also, Facebook was a rumored suitor in December 2012. The service now has more monthly users than Twitter and carries some 20B messages a day or about 3 messages for every human living on the planet every day. A Whatsapp IPO would yield a massive return for Sequoia Capital, which so far is the only VC investor with an $8M stake as of April 2011.

Alibaba
Alibaba began in 1999 as a B2B portal to connect Chinese manufacturers with overseas buyers and initially raised funding from Softbank, Goldman Sachs, Fidelity and other institutions. The company was profitable early on by 2001, and launched a series of other sites in subsequent years including Taobao, a consumer e-commerce platform similar to eBay, and Tmall, a B2C marketplace for quality brand name goods. It also launched Alimama, an ad platform, and Alipay, an online payment service. Yahoo bought a 40% stake in the company in 2005. The company went public on Hong Kong’s exchange in 2007 in what was the second largest internet IPO at the time raising about $1.5B on a total valuation of over $25B. The company’s sites had trouble maintaining growth expectations in 2011 and shareholders approved a proposal for the company to restructure and go private in 2012. Alibaba also bought back Yahoo!’s stake valuing the company at $35B last year. CEO Jack Ma has said Alibaba could sell shares in an IPO in the next five years.

Eventbrite
Eventbrite was founded in 2006 and allows its users to set up and promote ticket sales for events of any size. The company generates revenue by charging a ticketing fee that can be borne either by the ticket purchaser or by the promoter. Fees are typically $0.99 per ticket plus 2.5% of ticket price. Free events can be ticketed for no fee. Eventbrite sold over $600M in tickets in 2012. The company has some additional products including a card processing app, which allows users to process will-call and same day ticket sales. A fairly conservative estimate of 2012 revenue would be in the range of $30M. The company has so far raised about $80M from investors that include Sequoia Capital and Tiger Global.

Gilt Groupe
Gilt Groupe was founded by a serial entrepreneur that saw a market opportunity for flash sales. In order to gain street cred among the New York fashion elite, founder Kevin Ryan brought on two fashion savvy HBS grads with eCommerce and Luxury Goods experience. The result was a partnership with Vogue and editor Anna Wintour’s blessing. Since being founded in 2007, the company’s sales are now said to be in excess of $1B annually with customers concentrated on the coasts and in urban areas.

Wayfair
Wayfair was started in 2002 as a single website, racksandstands.com selling media stands and storage furniture and was originally known as CSN Stores. The company expanded its offerings shortly thereafter to include home and office furniture, décor, home improvement, lighting, etc and reached $100M in sales by 2006. The company has since expanded to international markets and now has well over 200 domains and specialty store sites. The company consolidated its sites under the Wayfair.com brand in 2011 and surpassed $500M in sales that year. It is now the second largest home furnishings e-Commerce retailer.

AirBnB
AirBnB was founded in 2008 as airbedandbreakfast.com and is a service to provide a platform for individuals to rent unoccupied living spaces for short periods of times to guests. Properties include room shares, apartments, homes, and more exotic properties such as villas and even private islands. Property owners or “hosts” list their spaces on the site for free. Costs of the service are absorbed by “guests” who use the company’s proprietary messaging system to book arrangements with the “hosts.” Once booking is made, AirBnB makes a payout to “hosts.” The platform has allowed “hosts” to develop track records with “users” who rank and review available properties. The company reached 1M bookings in 2011 and is currently expanding internationally. AirBnb was initially backed by Y-Combinator and raised its initial rounds with Greylock Partnes and Sequoia Capital.

Living Social
Living Social was founded as Hungry Machine in 2007 initially focusing on Facebook apps that included  book recommendations and polling. The company acquired a site called “buyyourfirendadrink.com” in 2009 and launched a daily deals site shortly thereafter hoping on the Groupon fad sans expensive editorial copy. The company would promote deals for small merchants collecting revenues from customers and then disburse proceeds minus a large commission to merchants. The company’s initial financing came from Grotech Ventures and Steve Case, followed by subsequent rounds that included a $175M investment from Amazon in 2010. By the third quarter of 2012, Amazon wrote down $169M of its Living Social investment. The company is rumored to be running low on cash and given the decline of daily deals, an IPO is becoming less likely.

Craigslist
Craigslist was started in 1995 as an email distribution list of friends featuring local events in the Bay Area and expanded the following year into a web-based classified service. Since then it has expanded beyond the San Francisco area to most US cities and over 50 countries. Unlike other web properties that quickly sought to monetize or else wither away in the dot com bust, Craigslist remained focused on an altruistic goal of becoming a intimate community that helps users find second hand goods, jobs, and even dates. It has avoided collecting ad fees from individuals and instead generates listing revenue from employers and apartment brokers. The company has refused to run banner ads. Given the site is among the most popular websites in the world, many suitors have approached Craigslist to no avail.  Even eBay had limited success taking a 25% stake from a former principal in an attempt to shake up the company. eBay and the board of Craigslist have filed several suits against each other. It is believed that eBay’s stake has been diluted to somewhere near 10%.

Grubhub
GrubHub was founded in 2004 by two developers that worked at apartments.com. Working into the wee hours and constantly ordering from a limited number of takeout options served as inspiration for the site. The site lets users find restaurants and delivery options nearby and facilitates online ordering. GrubHub grew quickly from its home market in Chicago and now allows users to order from over 20,000 restaurants in 500+ cities. The company has raised $84M through five rounds of financing and is said to be generating somewhere in the range of $50M in revenue. GrubHub was also said to have hired banks to look into an IPO.

Seamless
Seamless launched in 1999 as SeamlessWeb targeting corporate users ordering food from restaurants and catering services. The company expanded to individuals in 2005 and now partners with some 12,000 restaurants in major US cities. The company was acquired by foodservices company Aramark in 2006 and was eventually spun out in 2011. The company has since raised more venture funding. Though Seamless has a smaller footprint than its rival GrubHub, it is a dominant player in the NY Metro area and does about 60% more in revenue.

Hulu
Hulu was originally founded as an online distribution platform by NBC Universal and News Corp with funding from Providence Equity Partners. The venture was announced in March 2007 and was officially launched in March 2008. Disney bought a 27% stake in 2009. The company was profitable by the latter half of 2009 and became the second largest streaming service behind YouTube by early 2010 according to ComScore. The company distributes content from its equity partners and smaller content owners on both an ad-supported and subscription basis. The service offers content from every broadcast network except for CBS. The venture was being shopped around in 2011, but the bidding process was unsuccessful as the model was dependent on ownership stakes and favorable terms from its owners. The company’s media owners are rumored again to be mulling options of an IPO or sale. Providence sold its equity stake last year and now former CEO Jason Kilar was given the boot last month.

Spotify
Spotify was launched in Europe in 2008 as a DRM protected commercial streaming music service. It has content from several major labels including Sony, EMI, Warner Music Group and Universal. The company operates under a freemium business model with some ad-supported and subscription content. Unlike rival Pandora, the service allows users to listen to music from their own playlists in addition to having a curated radio service. Spotify delayed its US launch to July 2011 as rights and licensing agreements had to be reached. The company raised another $100M from a group of investors led by Goldman in November 2012 implying a $3B valuation. Should it IPO, the company will undoubtedly be compared with Pandora.

Kabam
Kabam was founded in 2006 making free to play games on social networks such as Facebook, its own site, and other gaming sites. The company makes its revenue from in game purchases. Unlike rival Zynga, the company claims to target more profitable game enthusiasts rather than the broader population. The company brought down its revenue exposure to Facebook from 100% in 2011 to 30% in 2012 and now generates revenue form partner websites and app stores. The company is said to be profitable and made $180M in revenue in 2012. Comparable Zynga may adversely impact the company’s desired IPO.

AppNexus
AppNexus was founded in 2009 by former digital executives at Right Media and Google’s DoubleClick. The company specializes in real-time online advertising and offers an auction infrastructure for bidding. The platform is integrated with several advertisers including Google and Microsoft and offers the ability to buy inventory across formats including desktop and mobile. The company is one of the only independent advertising tech pureplays that facilitates real time auctions. The company now delivers some 40B ads per day. The company recently raised $75M in January 2013.

Evernote
Evernote launched in 2008 offering a suite of software and services for notetaking and archiving. The company offers it service via a feemium model. Basic capabilities are free and ad-supported, while more premium services are offered via subscription. The company allows users to store notes on all media: files, webpages, handwritten notes, photos, voice, etc and allows them to be sorted, annotated, edited and stored in the cloud, though some versions of the software allow for local storage. The service now has some 50M users, with at least 1.4M paying for premium services. The company has raised over $250M with its largest financing rounds last year bringing in $155M.

Square
Square is an point of sale electronic payments service conceived by Twitter founder Jack Dorsey and his friend Jim McKelvey in 2009. McKelvey was frustrated by his inability to complete a transaction with credit cards for some items he tried to sell. The company launched with a reader device that plugs into the audio jacks of select mobile devices to support an app that allows for cards to be swiped. The company currently provides the readers free for users and charges 2.75% per swipe, which is higher than traditional card transactions. It also allows for manually entered transactions at 3.5% plus $0.15. The company’s tool and app has become ubiquitous among small businesses and has allowed the company to raise over $340M in financing on a $3.25B valuation.

Dropbox
Dropbox is a file hosting service that was founded in 2007 by two MIT grads with seed funding from Y Combinator. The company offers cloud storage and file synchronization across devices. Founder Drew Houston conceived of the service after repeatedly forgetting his USB flash drive. The company offers a freemium business model with set storage limits, while paying users can get more capacity. Houston and co-founder Arash Ferdowsi were famously invited to a meeting with Steve Jobs in December 2009 who offered to buy the company and called the company’s service “a feature, not a product.” They turned down the Apple offer and managed to raise over $250M in 2011 valuing the company at $4B. The company has since logged over 100M users and even made an acquisition taking out photo storing giant Snapjoy.

Box
The company was started as a college business project in 2005, focusing on content and access for enterprise users. It is essentially a file-sharing network that saves and stores information uploaded by a customer to the company’s website. Box initially received capital from angel investor Mark Cuban and then went through several rounds raising an aggregate of $284M with an additional undisclosed amount from Intel late in 2012. The company has grown to count some 15M individual and over 125,000 business as customers.

Violin Memory
Violin was founded by Don Basile, the ex-CEO of Fusion-io in 2005. The company designs and manufactures enterprise flash memory arrays that combine NAND memory, DRAM, distributed processing, and software. The company received first venture funding in 2010 and has since raised over $170M from the venture arms of hardware players Toshiba and Juniper. Series D rounds included participation from SAP and GE Capital.

Gigamon
Gigamon was founded in 2004 and didn’t sell its first products until the following year. The company designs, develops and sells products and services that provide visibility of network traffic. Most of the company’s growth has come about in the previous 3 years. The company grew revenue from $46.5M in 2010 to $96.7M in 2012. The company only received one round of venture funding in 2010 totaling $22.8M from Highland Capital partners. The company had initially filed an S-1 in July 2012, but delayed its IPO to sometime this year. The company has subsequently filed an updated S-1 in March 2013.

Arista
Arista Networks, formerly known as Arastra, builds and sells 10 Gigabit Ethernet switched for cloud data centers. The company was co-founded in 2004 by Andy Bechtolsheim (Co-Founder of Sun Microsystems) and David Cheriton who founded a networking company that was acquired by Cisco in 1996. With success from previous investments, the founders funded the startup themselves. The company’s network equipment is noted for “self-healing” and live in service software upgrade capabilities.

Survey Monkey
Survey Monkey was founded in 1999 and has grown to be the world’s largest survey company and now helps its users collect over 1.5M survey entries each day. Customers include 99% of the Fortune 500, small business, academia, and other users. Like other companies profiled here, Survey Monkey also offers a freemium service with over 14 million free users, 360,000 paid customers and 65 million monthly visitors to its website. The company has raised some $450M in Equity financing and recently raised $350M in debt from JP Morgan in an $800M recapitalization that valued the company at $1.35B in March 2013.

Hubspot
HubSpot was founded as the result of an entry in MIT’s $50,000 business plan competition. The company was incorporated in 2006. The company was founded on the premise that inbound marketing is disjointed and tools available were too complex. As a result, HubSpot offers a suite of marketing services software. Catering to business customers, the company uses its blog, social media, and free tools to attract prospects. The company also offers some free software tools. It now has over 8,000 corporate customers in over 50 countries. The company has so far raised over $100M in financing from several venture firms including General Catalyst Partners, Google Ventures, Sequoia Capital, and Altimeter Capital.

Marketo
Marketo was founded in 2007 by marketers to allow companies to narrow the time it takes to create campaigns. The company offers a suite of marketing products that include inbound marketing, lead management, social marketing, CRM, and marketing analytics tools. The company raised about $108M since being founded.

SugarCRM
SugarCRM was founded in 2004 and was one of the first companies to provide open source marketing software. With an initial $2M investment, the company expanded quickly and gained 25,000 users in its first year. It raised $46M in venture funding shortly thereafter. SugarCRM is notable in that its founders left the company by 2009 and the company became cash flow positive for the first time in 2011. The company now offers a suite of CRM software.

ZenDesk
ZenDesk was initially founded in 2007 in Denmark, by IT consultants. In search of capital, they moved to the US and raised funds from Charles River Ventures. The company essentially offers a help-desk solution that allows customers either access a knowledge database or a support community. It also provides software for service support teams. The company has so far raised over $85M with its latest round of financing in September 2012.

Tableau
The company traces its roots to academic research at Stanford between 1997 and 2002 and offers fast analytics and visualization software. The product queries relational databases, cubes, spreadsheets, and can generate various graphs to present data. The company only raised about $15M in venture funding and today generates almost $130M in revenue.

Atlassian
Atlassian was founded in Australia in 2002 and offers a suite of project management and collaboration software. The company raised its first institutional funding from Accel in 2010 and now has some $100M in revenue.

Opower
Opower is a Software-as-a-Service company that partners with Utility providers to promote energy efficiency. The company’s software creates individual energy reports for utility customers to analyze usage and make recommendations to save energy. Opower claims the average customer has cut usage by over 2.5%. The company has contracted with over 75 utilities covering 15M homes. Opower has raised $65M since founding.
Palantir
Palantir is a cybersecurity software firm founded in 2004 by several PayPal alums and Stanford computer scientists. The concept grew out of technology developed to detect fraud at PayPal. Early investments came from the CIA’s venture arm In-Q-Tel and from The Founders Fund. Palantir’s software allows human analysts to quickly explore available data through intelligence augmentation. The software has a wide range of applications from fighting fraud to prosecuting crimes to fighting terrorism. The company has so far raised over $301M in funding and carries a $4B valuation on $350M in revenue.

Cloudera
Cloudera provides Apache-Hadoop based software and services for data-driven enterprises. The company was founded in late 2008 by leading big data experts from Facebook, Google, Oracle, and Yahoo and was called the quintessential Silicon Valley story by the New York Times. Additionally, the company’s early angel investors come from the current and former CEOs of VMWare, MySQL, and LinkedIn. The company raised $65M in December for total financing to date of $140M and now carries a valuation of about $700M.

Sumo Logic
Sumo Logic was founded in 2010 by a technical leadership team with experience in log management, big data, and security. The company offers a log management and analytics service that leverages big data for real time IT insights. Log data generally is used on the back end to enable IT professionals monitor and diagnose IT systems. The company’s architecture is fundamentally based on a distributed data retention architecture. Borrowing from Google’s playbook, Sumo Logic uses advanced machine learning algorithms to whittle down mountains of log file data into common groupings. The company raised $45M last year.

Appendix – Large Cap Company ISO Curves

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