Following the negative reaction to the IPOs of numerous technology companies, most notably Facebook, Zynga and Groupon, the general public’s attitude towards technology companies has noticeably cooled. This is most evident in the decisions by CEOs such as Kayak’s Steve Hafner to delay the IPOs of their companies, as few companies wanted to test investor confidence in the tech sector. However, while the price of Facebook remains down almost 50% from its IPO price of $38, numerous technology companies in the Boston market are positioning themselves for IPOs in the next 12-18 months.
Boston companies such as Cyber-Ark Software and Bit9 are two examples of technology makers that are successfully raising the capital necessary before an IPO. Cyber-Ark, which provides IT security from internal threats, raised $40 million in a round of financing led by Goldman Sachs in December 2011. Similarly, Bit9, a maker of security software for large enterprises, raised #34.5 million in a July venture capital round. According to Bit9 CEO Patrick Morley, “When you raise a round this big, it suggest that you’re going to build something that has enough size and mass to go public.”
The most significant difference between these two companies and those such as Facebook, Zynga and Groupon is the target market for their products. While the companies struggling to remain profitable post-IPO create consumer-facing products, Cyber-Ark and Bit9 focus on B2B clients. In fact, the Boston technology market is known for its strong B2B and biotech companies, as opposed to the market in Silicon Valley or Palo Alto, providing a strong explanation for the confidence that investors are showing in Boston’s technology companies.
Similar Boston companies to watch in months ahead include Basho, which produces database technology, Rapid7, creators of software for vulnerability management, and Aveska, which manages user access to internal company information. All of these companies have either raised significant rounds of funding or have publicly stated their intention of approaching an IPO in the future. And, keeping with the theme, each of these companies focuses on creating software for businesses, not individual consumers.