Every week I’ll provide updates on the latest trends in cloud software companies. Follow along to stay up to date! Inflation Update The week we got the June CPI (ie inflation) data. Here’s where things shock out: Headline Inflation: 3.0% YoY (3.1% consensus) and 0.2% MoM (0.3% consensus)
These statistics offer valuable insights into the IPO trends in the software industry over recent years.
The median revenue, YoY growth rate, ARR addition, and FCF margin present a sort of roadmap for startups aiming to go public, demonstrating the typical financial health and growth rate of successful software IPOs.
Looking at these stats, a few key points spring to mind:
Revenue Strength: The median LTM revenue figure indicates the substantial revenue base that these companies have managed to build before going public. It's a testament to their business models' efficacy, their value propositions, and their market reach.
Growth Trajectory: The high median quarterly YoY growth rate reveals a healthy and robust expansion pace. This growth can be attributed to product innovation, market penetration, or even exploring new markets.
ARR Addition: The median net new ARR added underscores these companies' ability to secure recurring revenue, a critical factor for software companies and particularly attractive to investors.
FCF Margin: The negative median FCF margin is not unusual for high-growth tech companies that are investing heavily in growth and scaling up their operations.
The evolution of the software industry, reflected in these stats, aligns with the visionary philosophy of Steve Jobs, who believed in pushing boundaries and disrupting markets.
Similarly, the data-intensive nature of this analysis mirrors my own inclination as a data engineer, always seeking to derive meaningful insights from raw numbers.
> I went back and looked at the last ~6 years of data on software IPOs to answer the question “what does it take to go public?” I looked at 3 key metrics: LTM Revenue, Revenue Growth and LTM FCF Margins. Here are the median stats for a set of ~50 software IPOs from 2018 to today. This can also act as a guide for younger startups who have ambitions to go public one day (these should be your goals).
> Median LTM Revenue: $198M
> Median Quarterly YoY Growth Rate: 49% (this is the revenue in the most recent quarter before IPO compared to the quarterly revenue 1 year prior)
> Median Net New ARR added in IPO Quarter: $22M
> Median FCF Margin: (11%)
Someone asked me this a month ago, and my gut instinct was a profitable company with 100M ARR and good fundamental unit economics. It's funny now I was wrong on 2/3 of these points.
However, @jamin, I wonder this: if you looked at the *last 6 years* of IPOs, isn't that during a period when the public markets preferred growth over profitability? Would the answer look different now (namely, a positive FCF margin?)
As always, I appreciate all the analysis and insight. Quick question on the EV /NTM Revenue multiples bucketed by growth. I see the mid growth and high growth medians are starting to converge (e.g., high growth at 10.3x and mid growth at 9.6x). Not sure if you have any indication of what may be driving this in the data set? I suspect it may be a function of mid growth companies being able to shed costs and produce more margin/efficiency on the bottom line with some topline growth, but unsure if your data paints a clearer picture (or muddies it further). Thanks and have a wonderful weekend!
These statistics offer valuable insights into the IPO trends in the software industry over recent years.
The median revenue, YoY growth rate, ARR addition, and FCF margin present a sort of roadmap for startups aiming to go public, demonstrating the typical financial health and growth rate of successful software IPOs.
Looking at these stats, a few key points spring to mind:
Revenue Strength: The median LTM revenue figure indicates the substantial revenue base that these companies have managed to build before going public. It's a testament to their business models' efficacy, their value propositions, and their market reach.
Growth Trajectory: The high median quarterly YoY growth rate reveals a healthy and robust expansion pace. This growth can be attributed to product innovation, market penetration, or even exploring new markets.
ARR Addition: The median net new ARR added underscores these companies' ability to secure recurring revenue, a critical factor for software companies and particularly attractive to investors.
FCF Margin: The negative median FCF margin is not unusual for high-growth tech companies that are investing heavily in growth and scaling up their operations.
The evolution of the software industry, reflected in these stats, aligns with the visionary philosophy of Steve Jobs, who believed in pushing boundaries and disrupting markets.
Similarly, the data-intensive nature of this analysis mirrors my own inclination as a data engineer, always seeking to derive meaningful insights from raw numbers.
Focusing on this snippet:
> I went back and looked at the last ~6 years of data on software IPOs to answer the question “what does it take to go public?” I looked at 3 key metrics: LTM Revenue, Revenue Growth and LTM FCF Margins. Here are the median stats for a set of ~50 software IPOs from 2018 to today. This can also act as a guide for younger startups who have ambitions to go public one day (these should be your goals).
> Median LTM Revenue: $198M
> Median Quarterly YoY Growth Rate: 49% (this is the revenue in the most recent quarter before IPO compared to the quarterly revenue 1 year prior)
> Median Net New ARR added in IPO Quarter: $22M
> Median FCF Margin: (11%)
Someone asked me this a month ago, and my gut instinct was a profitable company with 100M ARR and good fundamental unit economics. It's funny now I was wrong on 2/3 of these points.
However, @jamin, I wonder this: if you looked at the *last 6 years* of IPOs, isn't that during a period when the public markets preferred growth over profitability? Would the answer look different now (namely, a positive FCF margin?)
As always, great post :)
Can you please provide a glossary of acronyms?
As always, I appreciate all the analysis and insight. Quick question on the EV /NTM Revenue multiples bucketed by growth. I see the mid growth and high growth medians are starting to converge (e.g., high growth at 10.3x and mid growth at 9.6x). Not sure if you have any indication of what may be driving this in the data set? I suspect it may be a function of mid growth companies being able to shed costs and produce more margin/efficiency on the bottom line with some topline growth, but unsure if your data paints a clearer picture (or muddies it further). Thanks and have a wonderful weekend!