During my morning reading today I was surprised to read articles about one, then two, then three mid-sized software companies filing to go public. The three are Eloqua, Jive Software and Brightcove, all decent businesses with good reputations, but they are not juggernauts like LinkedIn, Zynga or Facebook.
I was surprised at this news because the stock markets have taken such a pummeling recently, and many tech stocks have been hit particularly hard. Last night I had dinner with the CEO of Zeus Technology, our portfolio company that was recently acquired by Riverbed, and he was describing how Riverbed’s share price has dropped 50% over the last month or so, and how Zeus’s competitors F5 and Cisco have seen similar drops. Going public now seems unlikely to maximise valuation, and it will be interesting to see whether there is appetite for these issues at all and if there is at what level they price.
These facts will tell us whether the IPO remains open as a route to liquidity for venture backed businesses at all and also at what sort of valuation metrics. If the news is good it will help underpin the valuation of investment rounds in equivalent but less mature tech companies.
We are in a funny market right now, with signs of chaos and meltdown in government circles and financial markets but relative stability in the private sector, for now at least. In times like this people are always on the look out for signs of green shoots and often ready to invest heavily when they find them. Additionally, the world is desperately in need of the growth offered by many technology companies.
My best guess is that the overall economy will lurch from mini-crisis to mini-crisis for the next few years without hitting severe problems or achieving much in the way of growth (there are downside risks to this scenario though). During those years I think we might see a couple of periods similar to the one we’ve just been through where investors and corporates chase valuations for tech companies up to exciting levels.
If Eloqua, Jive and Brightcove get away at good valuations then we may get into one of those periods sooner than I would have thought.