2018 Tech IPOs: Is Enterprise a Game-Changer?

Image: greentechmedia.com

Jon Swartz’s recent piece in Barrons asks “Is This the Year Tech IPOs Stage a Comeback?” Prior year IPOs did not meet expectations, with consumer companies like Snap and Blue Apron the poster children for a miserable performance.

But the speculation among the smart money is that 2018 tech IPOs will surge, and they’ll be driven by enterprise companies.

So, is enterprise the game changer for tech IPOs in 2018?

My answer: “Yes” and “No”. Does that help?

Enterprise companies differ from consumer companies in that one can validate revenue streams. It’s a no-brainer, really. So that is comforting to investors looking for solid growth.

But the downsides to enterprise companies is that the very revenue streams that make them look juicy are also very vulnerable to disruption from upstarts offering a better deal.

The reason the 2017 consumer tech IPO market was a miserable failure from an investment perspective is that everyone fixated on hyping a big name, Snap or Blue Apron. The more they repeated it, the more they assumed consumers would flock to use it, justifying the IPO.

That didn’t happen, because, unlike FaceBook which did an extensive global lockup of the market, companies like Snap didn’t bother to do that hard footwork. But it was necessary to continued success after the spinup to IPO. They got lazy.

Now we’re in 2018, and extreme views change extremely. Consumer plays are anathema. Enterprise is the ticket. Getting some traction for revenue in an enterprise company is possible and desirable.

But the problem for enterprise companies is understanding the quality, consistency, and dependability of revenue as new guys offer better deals.

In particular, I wonder about Dropbox post-IPO. Is their enterprise story really that deep? Honestly, I can think of several different ways one can do a Dropbox one better, and I’m not even trying hard. Imagine if some investors got serious about this area, instead of playing low dog on the deal flow. Would it be an easy one for newbies to crowd in and offer enterprise customers a better deal? We shall see.