Boosted By Big Wins, Cloud IPO Window Opens Wider

The IPO market for software startups was already hot, and this month it’s poised to get even hotter.

Over the next few weeks, public market investors are gearing up for multiple debuts of cloud companies with initial valuations around or above the $10 billion mark.

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Already this week, two closely watched enterprise SaaS companies—restaurant software provider Toast and customer support-focused Freshworks—have set initial price ranges for IPOs with reported target valuations around $16.5 billion and $9.6 billion, respectively. A few other software players are planning smaller offerings via SPAC or traditional IPO.

The upcoming enterprise-focused cloud software IPOs follow a bullish streak for the space, with overall gains far exceeding the already buoyant broader market. Bessemer Venture Partners’ Emerging Cloud Index, which tracks over 50 public companies, is up 49 percent in the past year, outperforming the Nasdaq, S&P and Dow Jones indexes by double-digit percentages.

While many of the top-performing cloud players are longstanding public companies, some are relative newcomers. Several top revenue gainers, per Bessemer, are companies that have gone public in the past year, including Snowflake (104 percent revenue growth rate) and Asana (72 percent revenue growth).

Public investors seem to like the cloud newcomers too. Among cloud companies that made market debuts in the past year, several have also posted dramatic post-IPO gains. They include:

• Asana, an enterprise SaaS provider focused on work productivity tools, has seen its share price roughly quadruple since its direct listing debut in late September 2020. The San Francisco-based company was recently valued around $19 billion.
• Snowflake, the data warehousing technology provider, was already a very big deal a year ago, when it carried out its record-breaking software IPO. Shares have nearly tripled from the initial offering price, with the company’s current valuation around $96 billion.
• monday.com, a developer of work management software, has seen shares roughly double since the Tel Aviv-based company went public on Nasdaq in June. It’s valued around $16 billion.
• SentinelOne, a cybersecurity provider, has seen shares rise about 75 percent in value since the company priced its June 30 initial public offering. Recently, the Silicon Valley company had a market cap around $16 billion.
• Confluent, a provider of tools for enterprises to manage and integrate continuously flowing data, has seen shares soar 80 percent above where it priced its late-June IPO. Its recent valuation was around $17 billion.

Tech stocks have been up for so long now, it’s easy to get jaded about big market caps. And with Apple and Microsoft now valued around $2.5 trillion and $2.3 trillion, respectively, maybe $10 billion or $20 billion doesn’t sound like such a big deal.

But based on historical metrics, most of the valuations above are stunningly large for recently public companies of their size. It’s an ongoing trend we’ve tracked a bit at Crunchbase News, with valuations getting much higher relative to staff size over the past few years.

Given all these skyward-reaching trajectories, one can see why now might be an appealing time for a maturing enterprise software player to go public. As the public offering pipeline fills up again after a summer lull, don’t be surprised if the list of software names gets much bigger.

Illustration: Li-Anne Dias