Those who cannot learn from history are doomed to repeat it -- George Santayana
I would usually put IPO filings in the nonevent category but as I dug deeper into the company and financial performance, it did raise some interesting questions for me. First and foremost, the traditional rule of thumb that most investment bankers have quoted me in the last couple of years was that in order to go public a company needs to have an annual run-rate of $40-50mm of revenue and a couple quarters of profitability. While the Salary.com numbers are strong (read the S-1 here), they are not close to those metrics. In fact, during the last 3 fiscal years for the company, it did $6.4mm, $10mm, and then $15mm in revenue. The trailing twelve month number is closer to $20mm in revenue. While slightly cash flow positive, the company is not GAAP profitable. So the natural question for me is to ask whether or not the barrier for a private company to go public is much lower today and whether or not this will signal an ongoing trend in the future. This is obviously relevant for a number of reasons. Outside of a few outliers, most of the returns generated for VCs have been from M&A transactions. If the IPO markets open up again, it would give investors and entrepreneurs another option to create value. ...[continued]
While the domestic equity markets have been showing signs of life, the IPO environment has remained a tough row to hoe. As a public equity investor, I've been comforted by the stagnant IPO market because it's evidence of some measure of financial scrutiny. I can still remember the day TheGlobe.com (TGLB) came public and had a tenfold rise intraday from its offering price. That was the symbolic start of a period of financial ignorance that lined a lot of pockets (investment bankers, entrepreneurs, VCs, fund managers) but ultimately had devastating consequences that we're still feeling the shock waves from five years later.
Let me be clear, Salary.com may in point of fact be a fantastic little company that is on a growth trajectory that warrants money from the public markets. But I applaud Ed and others like Jason Corsello for calling attention to this deal if for no other reason than it being a clear sign that, at the margin, it's becoming easier to get to the IPO market again.
One has to wonder whether the Nasdaq's recent drubbing at the hands of the London Exchange is playing a role here [Note: Late today the Nasdaq made overtures to acquire the LSE]. Take a look at another recent deal, E-Future Technologies (EFUT) which listed on the Nasdaq in late October and had a whopping $18mm market cap. That kind of deal wouldn't have had a prayer of getting to market even a year ago, but now it's not only public, but the stock has had a significant rise to boot.
- Tech IPO market getting healthy? [Jason Wood]
- A look at recent software IPOs [Jason Wood]
- Is the bar lower for tech IPOs? [Ed Sim]
- Salary.com files for IPO [Jason Corsello]
Note: At the time of this writing I, and/or funds I maintain discretionary control over, did not maintain a position (long or short) in any of the companies mentioned.