DC Inno’s ‘Why DC’s Tech Scene Could See a Surge in IPOs’ features insights from Andrew Moses
This article originally appeared on January 12th, 2016 in DC Inno.
Why DC’s Tech Scene Could See a Surge in IPOs
A company’s road towards “going” public, to become a publicly traded company on the New York stock exchange, is a journey fraught with numerous road blocks, challenges and complexities. Today, tech companies who carry massive valuations tend to remain private for longer because there is greater access to capital than in years prior, among other things. In looking ahead at 2016 in full — a year during which analysts predict headline defining IPO’s from tech giants like Uber and Airbnb — we’re interested in knowing what will happen in the D.C tech scene.
Brian Leaf, a partner at Cooley LLP that specializes in preparing east coast-based private companies for life as public entities, and Andrew Moses, MorganFranklin Consulting’s leader of business development for Growth Markets, know exactly what it takes to go public. So we spoke with both about what 2016 may look like in D.C., Maryland and Virginia.
In predicting what companies will go public on a macro level, the first step is to determine what industry sectors are hot in a given area — in other words, understanding what the region is good at producing. In Maryland, as DC Inno has previously noted, the biotech, pharmaceutical, health-tech and cloud data storage spaces are especially strong. In D.C., it’s all about media and content management empires — similar to 2015 NBC Universal investment darling Vox Media. Across the Potomac river, in Virginia, it’s all about security, defense-centric federal contractors, telecommunications, data analytics and B2B software businesses.
Interestingly, during 2015, 7 D.C. area companies filed plans with the Securities and Exchange Commission (SEC) to go public.
Just 3 crossed the finish line though: Alarm.com Holdings (cybersecurity), TerraForm Global (alternative energy) and Evolent Health (healthcare IT).
The year prior, in 2014, 6 companies filed plans while 5 went public, including Arlington, Va.-based utility management giant Opower and Bowie, Md.-based Inovalon Holdings, a cloud-centric data analytics software firm.
Leaf and Moses say that they think the tide is turning when it comes to private companies refusing to go public. Enormous private company valuations and perhaps more importantly, access to venture capital investment is “cooling down” and in tandem it could mean a resurgence in companies opting for an IPO move.
“That’s the hypothesis a lot of people close to the public markets have,” Moses told DC Inno, “people use the word bubble a lot, but my thesis is that the bubble won’t pop but instead it will slowly correct at a macro level to position the private market for an IPO surge.”
Leaf agreed, but added that the tech sector typically sees more companies start their IPO process before pivoting towards a private investment round before again restarting their SEC filing. Virtually every company today, he said, runs down a dual exit path where they could either be acquired or eventually go public — in short, this “dual path” gives organizations more flexibility to appease investors and employees that are pushing for liquidity. And that’s what makes the tech sector unique, among other things; a prominence in dual path companies.
More specifically though, certain local industries will feel the aforementioned macro-correction that Moses mentioned differently. For example, the biotech space has long been underlined by a need for excess capital to fund massively expensive clinical trials, by which success and corporate survival is decided. When it comes to a correction, evident by a lack in accessible capital from venture capitalists and dragged valuations, an IPO may be the only option to fund research.
Generally speaking, Leaf and Moses said that 2015 should see an increase in D.C.-area IPO activity over 2014 and 2015 due to the local concentration in promising industries like data analytics, cybersecurity and e-commerce firms.
Leaf and Moses declined to name specific clients, due to ongoing SEC regulation that prohibits information from being disseminated early. But based on things we’re hearing related to the local market, here’s some notable, high growth D.C.-area companies worth watching:
Message Systems Inc. (Columbia, Md)
email infrastructure software
Appian (Reston, Va)
BPM and enterprise application software development platform
Optoro (Washington, D.C.)
e-commcerce platform (blinq), liquidation retail channel (Bulq) and OptiTurn (cloud-based software that processes and remarkets returned, overstock and open-box products)
Sweetgreen (Washington, D.C. & Los Angeles)
fast casual salad restaurant food franchise
Cava (Rockville, Md.)
fast casual meditaranean food restaurant food franchise
Clarabridge (Reston, Va.)
data analytics collection software focused on customer experience management
SATMAP Inc (Washington, D.C.)
big data and AI enabled business intelligence services for call centers
CustomInk (Fairfax, Va.)
online retail company selling custom order apparel
Tenable Network Security (Columbia, Md.)
vulnerability detection cybersecurity company
ScienceLogic (Reston, Va.)
IT operations and cloud management software developer
Sonatype Inc (Fulton, Md.)
software supply chain automation systems
Bambeco (Baltimore, Md.)
e-commerce platform selling eco-friendly furniture, apparel, accessories and other home decor. Perhaps the farthest from an IPO of the companies mentioned.
Vox Media (Washington, D.C.)
news media publication and the developer of a next generation content management system (CMS)
About MorganFranklin Consulting
MorganFranklin Consulting (www.morganfranklin.com) is a global management and technology consulting firm that works with leading businesses and government. The firm helps organizations solve their most pressing challenges and address critical finance, technology, and business objectives. MorganFranklin is headquartered in the Washington D.C. area with regional offices in Atlanta and San Francisco, and supports clients across the globe.
MorganFranklin Consulting is the brand name referring to the global organization of MorganFranklin, Inc. and its subsidiary MorganFranklin Consulting, LLC.