Over a year and a half ago, I did a two-part blog post on the East Coast IPO malaise - one focused on Boston (Massachusetts more broadly), another focused on New York. In these two posts, I expressed optimism that there was a strong pipeline of companies that would result in public offerings if the macroeconomic environment was stable enough. And in assessing the two markets, my conclusion was that the New York market had a stronger pipeline of pre-IPO companies that would be attractive to the public markets than Boston.
On the heels of the successful Kayak IPO, I thought I would do a retrospective look back. In doing so, I realize I was dead wrong. In the last 18 months, Boston has produced far more IPOs than New York, and the remaining pipeline in Boston seems to be quite strong (see Boston Business Journal's IPO Watch), arguably stronger than New York for the next 6-12 month window.
There have been eleven Boston-based technology IPOs since my blog post, including: Brightcove ($430M market cap), Carbonite ($240M), Demandware ($740M), EXA ($130M), Kayak ($1.2B), Merrimack Pharma ($730M), Synageva Biopharma ($1.2B), Tesaro ($360M), TripAdvisor ($6.0B), Verastem ($210M) and Zipcar ($730M). A few of Boston-based the companies that I highlighted as potential IPO candidates in 2011-2012 have chosen to sell instead, including Endeca ($1.1B, Oracle), Kiva ($775M, Amazon) and ITA ($700M, Google).
Meanwhile, not a single New York technology IPO has taken place. Maybe I'm mistaken, but in reviewing the data, I couldn't find a single one. There was one big exit from my list of NY IPO candidates - Buddy Media ($700M, Salesforce.com) - but no others.
11-0 in IPOs and 3-1 in big M&A in favor of Boston? What's going on here? Is this a law of small numbers or a fundamental issue?
I'm not sure of the answer, but a few theories have surfaced as I talk to others:
- The IPO culture hasn't fully permeated NYC? There are only very few public technology companies based in NYC: I count AOL as the only one with >1 billion market capitalization, whereas Boston has 30-35 innovation economy companies with greater than >1 billion market capitalization. Perhaps Boston CEOs, CFOs and boards feel more pressure to go public sooner and/or are comfortable with the IPO process because they community has done it so many times. Honestly, this theory doesn't totally resonate with me as NYC is the heart of Wall Street - all the relevant bankers, accountants and advisors are there. If any technology hub can build a strong middle market public company ecosystem, it should be NYC.
- NYC's tech sectors are out of favor with public markets? This theory suggests that the sectors that NY is particularly strong in - consumer, advertising technology, media - are out of favor for some reason. Perhaps the poor performance of the Facebook IPO soured Wall Street on the consumer sector and advertising-based business models? But then why have consumer plays like Boston-based Kayak, TripAdvisor and Zipcar done so well? As for the adtech sector, why did DC-based Millenial Media, a mobile advertising network, have such a strong public offering if the sector is out of favor? Again, I'm not sure this theory holds water.
- NYC companies are more sizzle than steak? This theory is that because NYC companies are so heavily covered in the mainstream media, they are perceived to be ahead of where they really are in terms of actual business progress. E-commerce companies like Etsy, Gilt Group and Rent the Runway get a lot of ink compared to, say, Boston-based Wayfair and RueLaLa. But if you objectively examined their financials in terms of actual revenue scale and profitability, who is really closer to being ready to file their S-1? This theory resonates somewhat with me. For example, there is no TechCrunch reporter in Boston, but a number in New York and Business Insider is a strong local publication that does a nice job cheerleading for the local sector.
My firm, Flybridge Capital, operates with both offices and portfolio companies in both cities. We are seeing amazing things going on in the NYC start-up ecosystem and are investing heavily there in 2012. My summary view is that the outperformance is due to a more vibrant seed and Series A environment in 2003-2006, which is when many of these companies were started. Given how strong the seed and Series A environment has been in NYC for the last few years, the results should even out over time.
Unfortunately, I can't say the same for my Red Sox this year...