Tech IPO Pipeline Report by cbinsights


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									 1                                                                                           Tech IPO Pipeline | 2012

The Tech IPO Pipeline
There are 472 venture capital- and private equity-backed technology companies in the
United States today with valuations, real or rumored, of greater than $100 million. This
report will help shed some light on what industries the most promising private
companies are targeting, where they are based, who has invested in them and more.

Before we dive in to the data, it should be clearly noted that not all 472 of these firms will make it to an IPO. Some have just
crossed the $100 million valuation threshold and still have a lot of work to do before they are deemed public market worthy.
Others among this 472 will be acquired along the way or will never actually breakthrough to the level needed to be
considered IPO-worthy. And some will just falter and get out-executed and will never see a liquidity event.

But as of this moment, these 472 companies represent the cream of the crop within VC and private equity portfolios, and if
they continue their product, market and financing momentum, they may be on their way to an IPO. Below is a breakdown of
some of the trends observed across these firms:

Building Big Companies Requires Big Money                           Sequoia Capital and Intel Capital Lead

 Capital efficiency is the mantra of tech investors and while         The top 10 investors (based on # of tech IPO pipeline
 it is certainly true that building v1.0 of an internet or mobile     companies they have invested in) includes many of the
 company has become cheaper and easier than in the                    storied firms of venture capital and is led by Sequoia
 past, becoming big requires money.                                   Capital and Intel Capital. Interestingly, the only non-VC
                                                                      institution in the top 10 is Goldman Sachs.
 And beyond your internet and mobile companies,
 companies in areas like telecom devices & equipment and            Private Equity’s Prominence
 semiconductors continue to require large investment.
                                                                      While tech is generally associated with venture capital,
 Distribution, sales and infrastructure cost money, and lots          almost 1/5 of the companies on the list are backed by
 of it as evidenced by the over $40 billion invested in these         private equity firms who either invested in large
 companies since 1998. The median funding amount per                  expansion capital rounds or in take-private transactions
 company on the list is $75.8 million and the average is              (such as Blackboard and Sabre Holdings). From a
 $84.7 million.                                                       valuation perspective, some of the largest companies in
                                                                      the tech IPO pipeline are funded by well-heeled PE
B2B Wins – Revenue Models Are Important                               investors.

 Whether it is selling to the enterprise or the SMB market,         Mobile & Telecom’s Ascent
 the Tech IPO pipeline clearly leans in favor of B2B
 companies with 80% of companies targeting their                      From an industry perspective, almost 50% of the tech IPO
 products and services at businesses.                                 pipeline is comprised of internet companies followed by
                                                                      mobile & telecom companies. Within mobile & telecom,
 While there is a lot of chatter today about the ascendancy           most of the companies are not at the application level but
 of the enterprise and the deceleration of interest in                at the telecom services and infrastructure level (think
 consumer-focused companies, the reality is that B2B                  wireless connectivity and broadband services).
 companies have been a place where investors have
 allocated money for some time.                                     California Sits at the Top. NY and Mass vying for #2.

Valuation Diversity                                                   Not surprisingly, California is home to nearly 50% of the
                                                                      Tech IPO pipeline companies. NY which overtook
 The companies in the pipeline cover a wide spectrum of               Massachusetts as the #2 destination for tech VC funding
 valuations with some just entering nine figure valuation             was one company ahead of Massachusetts (41 to 40)
 territory through to firms valued in the billions (for               putting the two east coast states in a virtual dead heat.
 example, Palantir, SurveyMonkey,                        Texas and Washington rounded out the top 5 followed
                                                                      somewhat surprisingly by Florida which was just one
                                                                      company behind Washington (17 vs. 16).
2                                              Tech IPO Pipeline | 2012

    Want the list of
    all 472 Tech
    IPO Pipeline

    Get the full list in Excel in the CB
    Insights DataStore. Just visit:
 3                                                              Tech IPO Pipeline | 2012

$40 Billion Has Been Raised by Tech IPO Pipeline Cos.
Getting to the $100 million valuation level and beyond as several of the companies
have done requires significant capital as evidenced by the significant amounts of
capital these companies have had to raise. The average and median amounts raised
by companies in the Tech IPO pipeline stands at $84.7 million and $75.8 respectively.
 4                                                              Tech IPO Pipeline | 2012

Software-Oriented Businesses Are Most Capital Efficient
When we peel back the median amounts raised by sector, we see that software and
internet companies in the Tech IPO pipeline have raised the least amount of total
funding. This is not terribly surprising given the manufacturing, R&D and other
infrastructure costs associated with areas like computer hardware, telecom services
and chips & semiconductor firms.
 5                                                                     Tech IPO Pipeline | 2012

Sequoia and Intel Capital Lead the Pack
Sequoia Capital and Intel Capital are tied having the most tech IPO pipeline companies
in their portfolios. The graphs below illustrate when each of the top 5 investors first
invested in a tech IPO pipeline company. As can be seen Accel and Sequoia are the
best at getting in early (seed and Series A). Also worth noting, a total of 444 investors
have invested in at least two tech IPO companies.

          1.                                               1.

     3.                                                    4.

               5.                              Investors that round out the top 10:

                                               6. DAG Ventures (25)
                                               7.   Goldman Sachs (23)
                                               8.   Greylock Partners (22)
                                               9.   Benchmark Capital (21 – tie)
                                               9.   Menlo Venture Partners (21 - tie)
                                               9.   Institutional Venture Partners (21 - tie)
6                                                             Tech IPO Pipeline | 2012

B2B Crushes B2C
Whether they are targeting enterprise or SMBs, the companies in the Tech IPO
pipeline are heavily B2B focused (where the path to revenue is much clearer). Less
than 20% of companies are B2C focused and among those, many are in the e-
commerce space where the revenue model is also clear. Ad-driven models generally
are few and far between.
 7                                                               Tech IPO Pipeline | 2012

Great Cos Take Time. And Can Survive Nuclear Winters.
A look at when companies first raised financing reveals some interesting stats. The
highest # of companies in the Tech IPO Pipeline were first financed in 2007 – right
before the recession and Sequoia Capital’s now famous “RIP Good Times”
declaration. Getting funding prior and ultimately surviving a nuclear winter seems to
yield good results.

On the perhaps more sobering side, 1/3 of companies first received financing more
than 7 years ago. Not breaking news, but building a company is hard work.
 8                                                              Tech IPO Pipeline | 2012

Is Private Equity Crashing the Tech Party?
While tech is often synonymous with venture capital, the tech IPO pipeline sees almost
20% of companies backed or owned by private equity firms. Generally, most of the
pipeline is mid- to later-stage companies – with 90% being Series C or later.
 9                                                              Tech IPO Pipeline | 2012

Internet Companies Are ~50% of the Pipeline
As might be expected, internet companies are the biggest portion of the Tech IPO
pipeline. Mobile & telecom companies are second with the majority being
infrastructure/service plays versus application companies.

                                                             (more industry details on next page)
10                                                                                        Tech IPO Pipeline | 2012

The Tech Industry Landscape is Extremely Diverse
Looking at the internet and mobile sectors, we see that while a few industry
categories have the most deals (eCommerce, ad tech, telecom services), the overall
picture is quite diverse.

 Note: We track over 50 industry categories on CB Insights. Those companies falling into industry categories that did not
 have at least 4 companies were grouped together into ‘Other’.
11                                                               Tech IPO Pipeline | 2012

California Wins. NY and Mass Battling for #2.
Not surprisingly, California is home to nearly half of the Tech IPO pipeline companies.
81% of the state’s 222 tech IPO pipeline companies call Silicon Valley home. 43 are
based in Southern California so on a standalone basis, Southern California actually
has more tech IPO pipeline companies than either NY and Massachusetts.

When California is considered in aggregate, New York edged out Massachusetts for
the #2 spot. Florida which is typically not in the league tables for VC funding had
several private-equity backed tech companies on the list making them the somewhat
surprising #6 market behind traditional VC power Washington state.
12                                                                  Tech IPO Pipeline | 2012

Sector Diversity? Cali Reigns. NY All-in on Web/Software.
A breakdown of the top 3 geographic markets by sector highlights the multi-headed
monster that California is with significant exposure to internet companies as well as
electronics and computer hardware & services. Massachusetts also shows diversity,
albeit less, with representation in all tech sectors. NY as it is in VC financings/deals is
an internet/software-focused town with 90+% of deals in those spaces. Specifically,
within the internet, NY is very ad tech and ecommerce driven.
13                                           Tech IPO Pipeline | 2012

A selection of Tech IPO pipeline companies
14                                              Tech IPO Pipeline | 2012

     Want the list of
     all 472 Tech
     IPO Pipeline

     Get the full list in Excel in the CB
     Insights DataStore. Just visit:

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