Technology companies have recently experienced a resurgence in the IPO market, but not all initial public offerings (IPOs) succeed - one notable IPO was WeWork's which faced intense scrutiny and criticism regarding its business model, valuation and governance practices.
Google stands out as an example of a successful tech company that prioritized growth over profits when going public.
1. Snowflake
Snowflake caused waves in the tech-software sector when it made its debut last week, when its stock doubled from its initial public offering price on day one of trading - marking one of the highest ever valuation increases for an IPO of any software company ever seen before. Based in eight-years old data warehousing provider that boasts customers like Salesforce and Warren Buffet's Berkshire Hathaway as customers.
Snowflake's initial public offering (IPO) proved lucrative for Snowflake's venture capital investors as Altimeter Partners, ICONIQ Capital, Redpoint Ventures, and Sequoia all participated in the $79 Million Series C round in June 2015; Altimeter Partners led this round.
Investors were won over by Snowflake's revenue growth of 124% year over year and its ability to meet surging demand due to the COVID-19 pandemic. Snowflake is meeting this surge with ease by meeting all their services as companies digitally transform.
2. Airbnb
Investing in tech IPOs can be an exhilarating experience, offering the chance to make big bucks. But investing also comes with risks - so it is wise to consult a financial advisor first in order to gain clarity of both sides and ensure your investment goals align with overall financial objectives.
Studies of tech IPOs taught us many important lessons. Profitability was central to their success; many private market investors overhyped tech unicorns that weren't profitable or had an established path toward becoming so. When these companies went public, their share prices experienced massive drop offs - providing investors a wake-up call that proved costly for investors.
Importantly, having an effective business model is key. Companies with high revenue growth year-over-year typically see stronger post-IPO share price performance; Airbnb (short for "Air Bed & Breakfast") was able to attract many guests and generate over $100 million in revenues prior to going public.
3. DoorDash
Establishing your company as public can bring additional revenues and access to capital, but successfully navigating the IPO process can be challenging. From creating clear corporate governance practices and developing efficient financial systems, to conducting due diligence before going public can take significant time and work.
An effective tech IPO requires taking an organized, strategic approach and knowing what drives investors. Prioritize sustainable growth while simultaneously growing profitability. Rapid scaling without profit growth could become problematic, so any tech company contemplating an IPO must carefully examine their current growth strategies before considering an IPO.
DoorDash is a technology company that connects people to local businesses across over 25 countries. To enhance TikTok performance and achieve their goals more quickly, they utilized Skai's budget pacing solution to lower cost per action and increase conversion volume. For more insight into their journey read their case study!
4. Snap Inc.
Snap's ability to connect with millennials was instrumental in its valuation. Furthermore, its strong investment base allowed it to develop and launch products and features designed to keep its user base engaged.
Tech IPOs can provide startups with massive infusions of capital. But not every startup should pursue one; founders should carefully consider their growth strategy before embarking on this path, as an unsuccessful IPO could have serious repercussions for both their brand and reputation.
Profitability has become an essential driver in investor interest among companies seeking a public offering, with startups such as Arm, Instacart, Klaviyo and Astera Labs sparking enthusiasm with strong revenue growth. Since investors prioritize profitability over other metrics when selecting new investments, tech IPO hopefuls must provide comprehensive financial reports to investors including costs breakdown and key revenue drivers in order to entice investors - in the case of Snapchat this means demonstrating its camera-based product beyond social media and messaging to stand out in an increasingly competitive marketplace.
5. Google
While tech IPOs of 2021 did not perform to expectations, they still offered many surprises. Reddit and Astera Labs quickly entered the public market successfully while new banks like Nubank quickly built an impressive customer base.
These IPOs demonstrate that investors seek more than simply profitability when it comes to investing in technology companies. Revenue growth is an integral component, evidenced by Klaviyo and Instacart's recent public offerings - each boasted strong year-over-year revenues upon going public.
As tech startups face the challenges of becoming publicly listed companies, it's vital for them to consider all of the complexities involved with becoming public companies. Governance needs to be optimized while rigorous oversight must be implemented, along with managing extensive amounts of sensitive data. Utilizing Diligent Boards board management software can assist companies with these complexities, helping the transition as smooth as possible while providing secure communication among dispersed teams - essential elements for successful tech IPOs - and ultimately enable compliance and reduce risks for them all.