September 18, 2006 The Software IPO Outlook By Tom Taulli (Continued) IPO Trends for the Year to Come New filings have been somewhat scarce. However three new offerings will hit the markets in the coming months. Table 2: Recent Software IPO Filings The recent IPO activity and filings points to some major themes: Innovative Solutions: Wall Street wants unique approaches - in terms of business models and delivery methods. This usually means Software-as-a-Service approach; that is, a combination of hosted software and subscription fees. Although, in some cases, the latest IPOs are using a hybrid model - involving a mix of subscription and transactional fees. An example is DealerTrack, which charges a fee for every loan application within its network. B2B in Vogue: There is renewed interest in B2B marketplaces, as seen with DealerTrack (autos) and Loopnet (commercial real estate). These companies build competitive advantages from the "network effect." Basically, as more members participate in the marketplace, the more valuable it becomes. Revenue Hurdle: "An IPO candidate needs to be a rocket," said Gebaide. "The revenue should be at least $50 million and growing at high double-digit rates. There must also be a diverse installed base of customers. There cannot be dependence on one customer." Big Market Opportunity: The company must target an addressable market of at least $1 billion. What's more, the market must be growing at a healthy clip - or have lots of inefficiency. For example, InnerWorkings's target market is the $367 billion commercial print industry. In fact, the market is growing about $8 billion per year and his highly fragmented, with about 39,300 printing plants in the U.S. Or look at MEDecision. The company is focused on the massive healthcare industry, which is expected to account for $4 trillion by 2015 (which will be roughly 20% of GDP in the US). If you drill-down to MEDecision's addressable market, it is currently over $1 billion and growing at 15.8% annually. Many software vendors are pursuing the above strategies above - to varying levels of success, no doubt. This drive to reposition companies combined with heightened levels of software investment will undoubtedly lead to a resurgence in software IPOs over the coming year. Tom Taulli is the author of various books, including the Complete M&A Handbook . He operates InvestorOffering.com and writes a blog at www.taulli.com. Pages: 1 2 3 Article URL Copyright © 2006 Sand Hill Group, all rights reserved.