The enterprise is red-hot now, but pragmatic investors have been quietly investing for decades.
According to technology research firm CB Insights, these investors will reap the rewards in the next few years. The firm’s Tech IPO Pipeline report found that 80 percent of the technology companies that will likely file for an initial public offering by the end of 2013 aim their products at businesses, rather than consumers.
Business-to-business (B2B) companies like Workday and Splunk experienced stellar IPOs this year, fueling interest in the space. When Facebook and Zynga’s IPOs failed to meet expectations, the enterprise was declared “sexy.”
“The chatter about enterprise startups is more a function of the fact that consumer startups look less appealing [to investors] more than anything else,” said CB Insights’ CEO Anand Sanwal. “Folk are saying now that enterprise is the place they should be playing.”
All eyes are on high-performing startups like Box, Github and Square, which are rumored to go public in the next few years. Ones to watch also include Stripe, Palantir and Hubspot. “These companies are all attacking different spaces from infrastructure to payments,” said Sanwal on a phone interview. “But they have one thing in common: they are all targeting businesses.”
The average amount raised to date by companies in CB Insights’ report is $84.7 million, which proves that it takes significant capital to build technology for businesses. Investors backing the companies include Intel Capital and Sequoia Capital, as well as Goldman Sachs. About a fifth of the companies were backed by private equity firms.
The 472 companies on CB Insights’ list are all currently valued at $100 million or above. When compiling the report, the firm also took into account hiring patterns, and the quantity of media articles.
According to Sanwal, venture firms that have recently began paying attention to B2B are a little late to the party. Many of the companies that he expects will IPO in the coming years were founded in the late 1990s and throughout the 2000s.
Overnight success isn’t the norm; many of the most successful B2B companies have been around for decades, and have experienced ups and downs. The most common year the startups on the list received financing is 2007, which is significant, as this marks the beginning of the global economic recession.
“It’s telling that these companies go through tough times and emerge stronger,” said Sanwal.
$100 bill image via Shutterstock