The comeback kids of the tech IPO market

Contact: Brenon Daly

If there’s going to be a recovery in the tech IPO market, information security (infosec) looks like it will lead the way. According to 451 Research’s recently launched M&A KnowledgeBase Premium, one-quarter of the 72 startups that we think are of a size and mind to go public in the near future come from the infosec industry. The ‘shadow IPO’ pipeline is one of the key features of the new premium version of 451 Research’s industry-leading M&A KnowledgeBase.

The premium version of our M&A KnowledgeBase features a full financial profile of the candidates, as well as 451 Research’s qualitative assessment of each company’s technology and its competitive positioning in the market. For instance, the profile of Veracode includes our proprietary estimates of the application security startup’s bookings for both 2015 and 2016, plus our analysis of its expansion into the new growth market of mobile apps. Altogether, KnowledgeBase Premium has a shortlist of 18 infosec vendors that could be eyeing an upcoming IPO, including Carbon Black, LogRhythm and ForeScout.

Although the IPO market has been mired in a slump recently, with just three enterprise-focused offerings so far this year, many private companies have matured to the point where their business models are comparable to their publicly traded brethren. Further, many are putting up growth rates that leave Nasdaq and NYSE firms in the dust. That’s particularly true in the infosec space, where a recent survey of 881 IT budget-holders by 451 Research’s Voice of the Enterprise found that 46% of respondents had more to spend on security in the coming quarter, compared with the start of the year. That was 10 times the percentage who indicated that their infosec budgets were shrinking.

Of course, merely having a business that’s ready to go public doesn’t necessarily mean that the company needs to file an S1. Most of the infosec companies have plenty of cash in their treasuries, with the 18 pre-IPO vendors having raised about $2bn in venture backing. (KnowledgeBase Premium not only tracks fundings, but in some cases it also notes the valuation of the funding.) Additionally, many of the publicly traded infosec names – including both of the sector’s most recent debutants, Rapid7 and SecureWorks – haven’t necessarily found bullish investors on Wall Street.

But as the Twilio offering and its subsequent aftermarket trading has shown, a company with a strong growth story can almost always find buyers, regardless of what’s happening in the overall market. With that in mind, we’ll watch for more of the 72 names on our M&A KnowledgeBase Premium IPO shortlist – particularly those in the bustling infosec arena – to move from the pipeline to Wall Street in the coming quarters.

IPO pipeline by sector

Source: 451 Research’s M&A KnowledgeBase Premium