If you noticed that this year's SV150 looks different than last year's, you can in part chalk it up to a hot IPO market.

Nearly 10 percent of the names on the latest list of top-grossing Silicon Valley tech companies weren't there a year ago because they weren't yet public. But with outfits like Workday, Yelp and Palo Alto Networks -- not to mention Facebook -- having scored initial public offerings in 2012, other companies from last year's index have been shouldered aside.

It was the biggest number of newly public companies joining the SV150 in at least a decade. And these weren't dot-com type IPOs that went public merely on the whisper of revenues: Looking at the 10 companies whose sales grew the fastest last year, five were newly public; three more went public in 2011 or 2010.

Some experts say the numbers reflect a trend that's seeing companies wait longer to court Wall Street. Instead, many chief executives are choosing to focus on building sustainable revenues and put off the headaches of pleasing regulators and public shareholders.

Tim Guleri of Sierra Ventures in Menlo Park, said that because many startups are waiting until their annual revenues approach or top $100 million, "They're really public before they're public." The relative ease and abundance of private financing is part of that, but so are the business models created by new technologies.

"Every 10 years some new tech trend hits, and that creates a lot of activity," he said, pointing to previous shifts from mainframes to client-server computing to the Internet. What's different this time, he added, is there are "multiple, billion-dollar trends that are breaking simultaneously."


Advertisement

Cloud computing, big-data analytics and ubiquitous mobile connections have dramatically lowered costs for business; given them more customer data to mine than ever; and created recurring, subscription-based sales models that let young companies show Wall Street fast-growing and predictable revenues.

"That's really attractive when companies come out," Guleri said.

Also driving the trend of startups going public with meaningful revenues, he said, is the presence of more seasoned CEOs at the helm. Both Palo Alto Networks and Workday, for example, were headed by men who'd previously been public-company CEOs. That not only boosts Wall Street's comfort level, he said, but helps top executives avoid rookie mistakes.

"In the early part of the decade, you went public and it was very common to miss" quarterly revenue expectations, Guleri said. "These days, that doesn't happen."

While Facebook stole the headlines last year -- and reaped the lion's share of IPO dollars -- the class of 2012 was dominated by enterprise software companies, including Palo Alto Networks, Workday and Splunk. And 2013 has thus far followed that trend, with Marin Software and Model N among those having recently gone public in soaring fashion.

Still, a hoped-for slew of new issues has yet to materialize, in part because those companies, and others, have seen their stocks return to earth after initial run-ups. Shares of Marin Software, for instance, closed Friday 8 percentage points below last month's first-day finish of $16.26.

In other words, "show me the money" seems still very much to be the mood on parts of Wall Street. And that makes it tough to predict whether 2013 can build on last year's IPO success, despite a healthy pipeline of companies that have filed registration paperwork with the Securities and Exchange Commission.

"A lot of companies that are IPO-ready are waiting," said Peter Solvik, a venture capitalist at Sigma West in Menlo Park. Like Guleri, he notes the importance of hitting the public runway with recurring yearly revenues of $100 million -- or even $200 million.

"We want our companies to come out with a solid market cap," he said. A mid-cap market value of $400 million to $600 million, Solvik said, makes it hard for public companies to catch the eye of stock analysts and continue the momentum for long-term growth.

Or, as Justin Timberlake's character put it in "The Social Network": You know what's cool? A billion dollars.

Nevertheless, Doug Chu of the New York Stock Exchange admits to feeling a little puzzled by the past month's slowdown in initial public offerings. Chu, a senior vice president who heads the Big Board's Silicon Valley office in Palo Alto, argues that the most recent tech IPOs actually have maintained most of their value. "They're not supposed to go up 20 to 40 percent" right away, he said.

Chu says his conversations with investment bankers and institutional investors reveal a pent-up demand for good IPO candidates, especially given the past decade's relative dearth. And, he said, many companies the NYSE has recently consulted on going public have indicated a willingness to do so later in the year.

Jeffrey Vetter, a securities attorney at Fenwick & West who worked on the IPOs of Workday, Marin Software and Model N, said he too expects things to pick up in coming months.

"Remember," Chu said, "last year it was start-and-stop" when it came to IPO runs. "I'm actually expecting the year to be more or less on pace" with 2012.

"Everyone benefits," he added, "if we have a fully functioning market."

Contact Peter Delevett at 408-271-3638. Follow him at Twitter.com/mercwiretap.