Bill Gurley’s excellent piece on Silicon Valley IPO Anxiety inspired me to take a companion look at the East Coast, particularly Massachusetts and New York, and evaluate the health of the local IPO economy and prospective pipeline. Today I’ll cover Massachusetts—tomorrow New York.
I first came across Bill when he was a Wall Street analyst and covered my company Open Market (IPO 1996). I always admired his perspicacity, even if he didn’t like our stock all the time! For purposes of this blog post, I am only focused on companies involving technology, whether software, Internet, health care or energy – which I’ll define as members of the Innovation Economy. Note also that, for obvious reasons, I leave out any Flybridge Capital portfolio companies in my analysis.
First, let’s look at my home state of Massachusetts. By my count, there are 33 Innovation Economy companies with market capitalizations of greater than $1 billion (see chart here). Some of these are important companies, leaders in their field, and full of great future prospects (EMC, Thermo, Genzyme, Akamai). Others have seen slower growth, are a bit more tired, and may get gobbled up in the years ahead (Parametric, Novell, Progress). A number of them are recent IPOs who are growing nicely and may become multi-billion dollar companies in the years ahead (Acme Packet, VisaPrint, Athenahealth).
Other recent IPOs, like Constant Contact ($720M), A123 ($960M), Insulet ($520M) and EnerNOC ($600M), are sub $1 billion in market cap, so not listed here, but are representative of a number of small market cap players in the community who have > $1 billion potential. The headquarters of each company is within 30-45 minutes of each other, so the degree of talent concentration and social interaction is very high. Further, acquisitions in the last 12 months such as Unica (IBM $480M), ATG (Oracle $1B), Netezza (IBM $1.7B), Phase Forward (IBM $685M) and Starent (Cisco $2.9B) show that there’s a vibrant M&A market for small cap technology companies in 2010 and will likely be a catalyst for talent to be recycled. Yet, when you evaluate the pipeline of IPO candidates, the results in MA are less inspiring.
One interesting ranking comes from Business Insider’s list of the 100 most valuable private digital companies. Although this is only one and skewed towards one industry sector, it contains only one company from MA in its ranks: Brightcove. In an informal survey of a number of Boston VCs and entrepreneurs, the same 10-15 names come up as IPO candidates in the next 2-3 years (the criteria I asked folks in my informal survey was to name companies growing fast, revenue runrate > $30m, profitable or converging on profitable and probably worth > $100M today).
They include (note – all estimates are my own judgment and highly disputable; for obvious reasons, I did not include any Flybridge Capital portfolio companies, so we are not investors in any of these):
Antenna Software (estimated $40-50m revenue in 2010)
CSN Stores ($300-400m)
Glasshouse ($90m) – registered for IPO
ITA ($150-200m) – Google acquiring for $700m
Kayak ($150m) – registered for IPO
Kiva Systems ($80-100m)
Name Media ($50-60m)
Zipcar ($130m) – registered for IPO
There are numerous divisions of public companies that historically resulted from acquisitions – like TripAdvisor/Expedia ($400-500m revenue), Shoebuy/IAC ($200-300m revenue) and Rue La La/GSI Commerce ($150-200m revenue) – but those are not included here as they’re not relevant to this analysis in case they get spun back out.
The conclusion? There is a robust public company ecosystem in MA which should serve as an inspiration and catalyst for other local private companies. Strong public company talent is easily recycled at the most senior levels (see, for example, Akamai’s hiring of former Digitas CEO David Kenny as COO) and when you gather at networking events and see other CEOs who have taken their companies public, it is a wonderful inspiration. But, sadly, the private company ecosystem in MA is less inspiring, with roughly a dozen companies that could possibly be public companies, and only a half dozen with revenues greater than $100 million.Tomorrow, I’ll analyze the New York market, which yields a quite different picture by comparison.
Jeff Bussgang is a general partner at Flybridge Capital Partners and an Entrepreneur-in-Residence at Harvard Business School. He is the author of Mastering the VC Game, writes the blog Seeing Both Sides, and can be followed on Twitter @bussgang.