Big money, behind closed doors

Contact: Brenon Daly

Who needs to go public when there’s so much late-stage money sloshing around out there? That question hit us in the head this week after two startups announced, separately, that they were each raising $50m in new funding. First, it was marketing automation vendor Marketo saying it pulled in $50m in a new round led by Battery Ventures and then on Thursday, vulnerability management company Rapid7 also drew in that amount from Technology Crossover Ventures.

The latest round for Marketo, which effectively doubles the amount of capital it has raised, is particularly noteworthy. After all, Marketo has seen two of its main rivals track to the public market. Eloqua is currently on file for a $100m offering, while Responsys went public in late April, an offering that raised $79m.

In the case of Responsys, it may well consider itself fortunate that it raised money when it did. The company recently indicated that business through the end of the year is likely to be substantially slower than it had been. The warning knocked the stock about 25% below where it priced in April and half the level it had hit in the summer.

Another marketing maker heading to market?

Contact: Brenon Daly

Will Eloqua respond to Responsys? Does the rival on-demand marketing vendor perhaps have an IPO of its own planned? We couldn’t help but wonder that last Thursday as investors showed that they could hardly get enough of the Responsys offering, which priced above range and then tacked on another 28% in its first day of trading. The IPO created some $680m in market value for Responsys.

Responsys’ rather heady valuation (roughly 7x trailing sales and 5x projected sales) undoubtedly has to have generated more than a little interest from folks at Eloqua. And the company certainly has been taking steps in recent years that could indicate that it is eyeing the public market. For instance, three years ago it moved its headquarters from Canada to the Washington DC area while also hiring a raft of senior executives, most of whom have experience at public companies.

According to our understanding, Eloqua is a bit less than one-third the size of Responsys, which generated $94m in sales last year. Also, we gather that Eloqua lags a bit behind the 40% compound annual growth rate that Responsys has put up over the past half-decade. Still, the company offers a fairly compelling profile, with predictable subscription revenue flowing from its more than 800 customers. The strong debut from Responsys, plus the fact that shares of fellow on-demand marketer Constant Contact are trading around all-time highs, clearly suggest that Wall Street is in the market for marketing vendors.

A warm welcome on Wall Street

Contact: Brenon Daly

Against a backdrop that has the major stock market indexes at their highest level in about three years, investors have apparently signaled that they are ready to take a chance again on new issues. A pair of IPOs came to market Thursday at significantly higher-than-expected prices, and promptly surged in aftermarket trading. Collectively, the offerings for Responsys and 21Vianet raised a healthy $274m for the two companies.

In the hotter of the two IPOs, Chinese hosting company 21Vianet Group sold 13 million American Depository Shares at $15 each. (That raised $195m for the company, half again as much money as it originally planned to raise based on the midpoint of its initial range.) In the aftermarket, shares were changing hands at about $21 each. (We’ll have a full report on the company and its outlook in tonight’s Daily 451.)

Meanwhile, on-demand marketing software vendor Responsys also found a warm welcome on Wall Street. The offering, which we expected to be strong, raised $79m for Responsys. The company priced its 6.6-million-share offering at $12 each, roughly 30% above the midpoint of the initial range. Investors bid up the stock to about $15.50 in afternoon trading. With 44.1 million shares outstanding, Responsys garners a value of some $680m, slightly more than 7 times 2010 sales and almost 5x our projection for 2011 sales.

A responsible debut valuation for Responsys

Contact: Brenon Daly

Reversing a trend that has seen many of the major marketing software providers disappear inside larger players, Responsys is ready to step out onto the public market. The on-demand company, which filed its IPO paperwork just four months ago, plans to sell 6.6 million shares at $8.50-10 each. It is likely to begin trading Thursday. (See our full preview of the offering.)

At the high end of the range, Responsys would be valued at roughly $450m. That appears to be a fairly conservative valuation, at least when compared with recent acquisitions and even current trading multiples in the sector. We might suggest that Responsys – a company that’s solidly in the black and posting 40% growth – would garner a premium on its debut.

If it does indeed hit the market in the neighborhood of a half-billion dollars, Responsys will essentially match the exit prices over the past eight months of two of its main rivals. Last August, Unica got taken out by IBM for $523m (equity value), while Aprimo sold to Teradata for $525m in December. However, when we compare the three vendors, Responsys is growing at more than twice the rate of either of the two companies that went in a trade sale. (Aprimo had been on file to go public back in 2007, but the Credit Crisis scotched those plans.)

Despite the premium that we might expect for Responsys’ growth rate, the company is likely to start life on the Nasdaq at about 5.5 times trailing sales, roughly the midpoint of the valuations in the sales of Unica and Aprimo. Further, it would just match the current market valuation of Constant Contact, a low-end multichannel marketing firm that went public in October 2007.