Small, loss-making tech companies with under $30m in revenues were not meant to find their way to Wall Street anymore.
Heavy-handed regulation imposed by the Sarbanes-Oxley Act and greater caution on the part of investors who had had their fingers burnt before had supposedly closed off the option of an IPO. Any internet start-up worth its salt could expect instead to find itself swallowed whole by Google, Microsoft or IBM. Silicon Valley has been working on the rule-of-thumb assumption that a company needs at least $100m in revenues, and some experience of operating at a profit, before contemplating a public listing.
Someone seems to have forgotten to tell that to Constant Contact, which just filed for an IPO (registration statement here.) An on-demand email marketing company that hasn’t made a profit in its first 12 years, Constant Contact notched up losses of $11.6m last year on sales of $27.6m. And this in the same week that Netsuite, Larry Ellison’s on-demand software company, also registered to go public. Netsuite lost $23m on sales of $67m last year.
Little by little, tech IPOs have been bouncing back, making this (so far) the best year since the beginning of the decade (though the M&A action has fallen off at the same time – and as the National Venture Capital Association points out, M&A will always be a more likely exit route for most start-ups.) The message: this may be nothing like the tech bubble of the 1990s, but the froth that has been building up in the private tech finance markets is finally spilling over to Wall Street.
