Investments

Enterprise Software IPOs To Lead Charge In 2017

Snap Inc. and a handful of lesser known software companies are gearing up for IPOs in 2017 in a sign that the IPO market could finally be on the upswing.

According to a report in Malay Mail, expected IPOs out of Snap, Apttus, Tintri and Okta are a leading indicator that there is wider demand for software IPOs heading into the new year. The report cited investment bankers and investors as saying that these enterprise software companies make money through subscriptions, which gives them a reliable stream of revenue. The contracts are typically signed for several years, which means more predictability in terms of a returns for investors. What’s more, the enterprise software companies tend to have valuations in the moderate range of from $500 million to $4 billion. Even though they aren’t high-value IPOs, they account for the lion’s share of the tech IPO market, noted the report.

“Most of the technology IPO activity is actually not big, large-cap companies going public,” Will Connolly, Goldman Sachs Group Inc.’s head of U.S. technology equity capital market, said in the report. “It’s small- and mid-cap-growth companies going public that are innovators in their own markets and are helping drive the next generation of technology.”

Citing data from Reuters, the report noted there are more than a dozen enterprise software companies in the U.S. that are gearing up for an IPO in 2017.  That compares to six in 2016. The report noted that the enterprise software companies may be making IPO moves in 2017 to raise capital ahead of the IPOs of Airbnb and Uber, which is going to require a lot of investment dollars and will garner a lot of attention. If the expected enterprise software IPO market doesn’t manifests in 2017, the report noted that some venture capitals could face an unhappy investor base while hurting companies’ efforts in recruiting and retaining top-notch workers.

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