Software maker MuleSoft shows promise of ‘meat-and-potatoes’ tech IPOs

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By Heather Somerville and Sweta Singh

<span class="articleLocation”>Software firm MuleSoft Inc kicked off
what is expected to be a string of technology offerings from
relatively obscure companies that sell business software and
promise to satisfy the appetite of public investors after a
protracted IPO drought.

San Francisco-based MuleSoft on Friday closed out its first
day on Wall Street with shares trading at $23.80, a 40 percent
pop that valued the company at nearly $3 billion, about double
the valuation it commanded at its last private financing event
in 2015.

The offering of 13 million shares was priced at $17 each on
Thursday, above the expected range of $14 to $16. Shares opened
Friday up 43 percent, debuting at $24.25 apiece.

The strong debut signals robust investor appetite for what
are referred to as “meat-and-potatoes” technology offerings –
enterprise software firms with moderate valuations but solid
business models – and confidence in their ability to perform
well in the public markets.

Snap Inc, the owner of the popular social media app
Snapchat, grabbed attention when it went public earlier this
month at a stunning $24 billion valuation.

But “meat-and-potatoes” firms are a more accurate barometer
of how so-called “unicorn” technology companies – firms worth $1
billion or more – will fare in the public markets, say investors
and analysts. Snap’s debut was an outlier in many respects and
dwarfs any technology IPO expected this year.

“There is significant demand for enterprise software
companies with a good track record and private valuations
between $1 billion to $5 billion,” said Rohit Kulkarni, managing
director and head of research for SharesPost, an online
marketplace for secondary transactions.

That bodes well for the dozen or so enterprise software
companies prepping to go public this year, according to sources
and IPO filings.

Cyber security company Okta and Yext, which helps businesses
manage their location-based internet profiles, both filed for an
IPO this week. Data analytics software
company Alteryx Inc filed in February.

Reuters has identified about a dozen other companies
preparing to go public this year, including cyber security firms
Carbon Black Inc and ForeScout Technologies Inc, flash storage
company Tintri, sales software firm Apttus, advertising
technology company AppNexus and big-data company MapR.

“There is a significant backlog,” Kulkarni said.

MuleSoft makes software that automatically integrates
disparate data, devices and applications to help businesses
networks run faster. The company is not profitable, and last
year shaved its losses to $50 million from $65 million the year
prior, according to IPO filings. Its revenue in 2016 was $188
million, a 70 percent jump from the year before.

The company has more than 1,000 customers, including
Coca-Cola Co, McDonald’s Corp, Inc
, Spotify and Unilever.

MuleSoft raised $221 million in its public offering, a
modest sum next to Snap, which raised $3.4 billion, making it
the largest U.S. technology debut since Facebook in 2012.

Coming on the heels of Snap may have lessened the limelight
for MuleSoft, but some investors say Snap’s unusual corporate
governance and slowing user growth that rattled IPO buyers
helped position MuleSoft for a successful debut.

Snap did not provide voting rights to new investors and
required that some investors keep their shares for a year,
unusual stipulations that did not sit well with many investors.
By comparison, MuleSoft offered voting rights and its
subscription business model makes revenue more predictable,
which investors like.

“Investors will see them and say ‘Yes, this is what we were
looking for,” said Kate Mitchell, co-founder and partner at
Scale Venture Partners, which did not invest in MuleSoft. “If I
were a meat-and-potatoes company, it would be great to follow

(Additional reporting by Liana Baker in San Francisco)

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