The software as a service initial public offering market in the U.S. has been heating up with a bevy of startups successfully becoming public companies.
One only needs to look at DocuSign and SmartSheet’s recent IPOs for evidence. Since going public in late April DocuSign’s stock has gained more than 10% while SmartSheet’s stock is 60% higher since its April debut. In the first quarter alone software companies dominated the list of the ten IPOs. Since then there’s been even more activity as investors seem insatiable when it comes to the software market.
The allure: lots of these software companies have recurring revenue, making it easier to value than a tech startup that may have a brand name but complex sales. At the same time, the SaaS stocks provide growth and stability. With the enterprise-focused software companies, investors know what they will get and as a result are clamoring to get in on the IPOs. In April alone five software companies that have a subscription-based business model went public, with investors sending the stocks higher including DocuSign and SmartSheets. At the time DocuSign Chief Executive Dan Springer put it like this in an interview with MarketWatch: “One component from an investor standpoint is the predictability of the revenue because it’s a subscription-based business. That was a piece that was underlying a lot of our conversations.” DocuSign makes electronic-signature software.
That interest in SaaS IPOs leads us to Elastic, the latest SaaS company to join the IPO fray. Last week the company debuted as a publicly traded company, soaring as much as 106% in its first day of trading. It came as the markets were down. All told Elastic raised $252 million in its IPO. It sold 7 million ordinary shares and underwriters have the option to buy an additional 1.05 million within thirty days of the IPO. It first filed to go public in early September, setting its price range for the IPO to between $26 and $29. In early October it raised that to between $33 and $35 a share. The stock debuted at $36 a share, even higher. Just like some of the other popular SaaS companies, Elastic’s product is open-sourced and downloadable for free, allowing companies to search structured and unstructured data including forms, websites, and databases. The software has been downloaded more than 350 million times since it went live six years ago and has more than 100,000 members. It’s operating in a market that is poised for high growth and is why there has been so much investor demand.
Next up in the IPO SaaS market: Anaplan, the cloud-based business planning software company that filed its IPO prospectus with the Securities and Exchange Commission last week. The company has a little intrigue behind it. Its Chief Financial Officer Dave Morton, who will play a key role in the IPO, lasted a month at Tesla as chief accounting officer, leaving recently because executives including Elon Musk weren’t heeding his advice. The company has set its IPO in the $13 to $15 a share range. It could raise $232.5 million giving it more than a $1.8 billion valuation, according to a MarketWatch calculation.