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. The Tech IPO Pipeline sheds 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
Capital efficiency is the mantra of tech investors and while it is certainly true that building v1.0 of an internet or mobile company has become cheaper and easier than in the past, becoming big requires money.
And beyond your internet and mobile companies, companies in areas like telecom devices & equipment and semiconductors continue to require large investment.
Distribution, sales and infrastructure cost money, and lots of it as evidenced by the over $40 billion invested in these companies since 1998. The median funding amount per company on the list is $75.8 million and the average is $84.7 million. Capital intensiveness varies by sector as can be seen below:
B2B Wins – Revenue Models Are Important
Whether it is selling to the enterprise or the SMB market, the Tech IPO pipeline clearly leans in favor of B2B companies with 80% of companies targeting their products and services at businesses.
While there is a lot of chatter today about the ascendancy of the enterprise and the deceleration of interest in consumer-focused companies, the reality is that B2B companies have been a place where investors have allocated money for some time.
The companies in the pipeline cover a wide spectrum of valuations with some just entering nine figure valuation territory through to firms valued in the billions (for example, Palantir, SurveyMonkey, Coupons.com)
Sequoia Capital and Intel Capital Lead
The top 10 investors (based on # of tech IPO pipeline companies they have invested in) includes many of the storied firms of venture capital and is led by Sequoia Capital and Intel Capital. Interestingly, the only non-VC institution in the top 10 is Goldman Sachs.
The graphs below show when both Sequoia and Intel Capital first invested in the companies that figure into the Tech IPO pipeline. Overall, Sequoia and Accel Partners (not pictured but in the report) were best at getting in early to tech’s rising stars.
Private Equity’s Prominence
While tech is generally associated with venture capital, almost 1/5 of the companies on the list are backed by private equity firms who either invested in large expansion capital rounds or in take-private transactions (such as Blackboard and Sabre Holdings). From a valuation perspective, some of the largest companies in the tech IPO pipeline are funded by well-heeled PE investors.
Mobile & Telecom’s Ascent
From an industry perspective, almost 50% of the tech IPO pipeline is comprised of internet companies followed by mobile & telecom companies. Within mobile & telecom, most of the companies are not at the application level but at the telecom services and infrastructure level (think wireless connectivity and broadband services).
California Sits at the Top. NY and Mass vying for #2.
Not surprisingly, California is home to nearly 50% of the Tech IPO pipeline companies. NY which overtook Massachusetts as the #2 destination for tech VC funding was one company ahead of Massachusetts (41 to 40) putting the two east coast states in a virtual dead heat. Texas and Washington rounded out the top 5 followed somewhat surprisingly by Florida which was just one company behind Washington (17 vs. 16).