Dec 29, 2015 ยท 5 minutes

Last week, CB Insights released its annual IPO Pipeline report.

It was both great timing because reporters like me are looking for insightful “what to expect in 2016!” stories. But also lousy timing because reporters like me are taking a much deserved break and probably haven’t dug into some of the more interesting details and trends.

One thing that makes the report particularly interesting is CB Insights’ “Mosaic” algorithm that selects the companies who are most likely to go public in 2016. The list is comprised mostly of companies we don’t write or hear much about: Actifio, MuleSoft, Nutanix, Okta, and Zuora. 

Huh? Exactly. 

The Mosaic algorithm works by using “non-traditional” signals from new customer signings to hiring activity to media centime to mobile app data. It seeks to look beyond sex appeal to judge the underlying health of a business. In the case of the study, all five companies were enterprise — which is to say real enterprise not like the time the New York Times called Uber an enterprise company because your company might  allow you to expense your ride.

MuleSoft and Okta had the highest “Mosaic” scores. In an age replete with mega rounds, the two have raised “just” $258 million and $229 million respectively. 

Okta has been the sexier of the two— and in this cluster of companies that’s a relative term. It claims to make cloud security stronger, and has always had name brand investor support from the likes of Andreessen Horowitz, Floodgate, SV Angel, Greylock, Khosla Ventures and Sequoia and hasn’t raised money since 2015. [Disclosure: Marc Andreessen, SV Angel and Greylock are investors in Pando.] None other than Aneel Bhusri— Workday founder and one of the top enterprise thinkers of this wave— talked Okta up to me years ago when I first met them. Not a household name like Snapchat, but certainly a company a lot of very smart people bet on.

MuleSoft, which has the same Mosaic score, makes software that promises to help companies better connect applications, data, and devices. At the risk of being unkind, their VCs are a bit more the hit makers from years past, including Hummer Winblad, Morganthaler Ventures and Lightspeed Venture Partners. Then again, they were started back in 2006 and haven’t raised money since 2015. 

Next in the ranking is Zuora which provides billing and subscription services and boasts Greylock, Benchmark, Shasta, Redpoint and Tenaya Capital as backers, followed by Nutanix, which makes datacenter infrastructure and has Blumberg Capital, Lightspeed Venture Partners, Khosla Ventures and Battery behind it. Zuora hasn’t raised cash since March of last year and was founded in 2007. Nutting was founded in 2009 and hasn’t raised money since 2014.  

Actifio ranked last of the five. It makes data virtualization software and is backed by Greylock, North Bridge Ventures, Andreessen Horowitz and 83 North. It was founded back in 2009 and hasn’t raised capital since 2014.

I’d guess Mosaic ranks these companies as highest prospects for a 2016 IPO because they don’t have to have a funding event to survive the year, but they have serious enough investors who’d probably like an exit right about now. Bankers love to say companies that don’t need the market and have great fundamentals can always get out.  

A few other things jump out looking at these five companies we rarely hear about: The top firms in these deals — most notably Andreessen Horowitz and Greylock— are ones that never left enterprise and certainly didn’t just waltz back into it post Microsoft buying Yammer for $1 billion when it all suddenly became hot again. Also, these companies have been comparatively capital efficient. Nutanix has raised the most at $317.6 million. Four of the five had a “mega round” as their last round, but all were under $150 million and were very late stage rounds. 

I wanted to look deeper at their prices and terms, so I asked Pitchbook to dig into them. One thing jumped out quickly: These were all unicorns but just barely. The most recent valuations were as follows: 

  • Actifio’s last post-money valuation was $1.2 billion and has been profitable since its Series a round.
  • MuleSoft’s last post-money valuation was $1.5 billion and has been generating revenue since its series B
  • Nutanix’s last post-money valuation was $2 billion and has been generating revenue since series B
  • Okta’s last post-money valuation was $1.2 billion and has been generating revenue since Series C
  • Zuora’s last post-money valuation was $1.12 billion and has been generating revenue since Series D

When Pitchbook looked deeper into terms, they found that most don’t have any downside protections, which isn’t a surprise because the valuations don’t seem to be too much of a stretch, given the fundamentals. 

So what does this all mean? Well for one thing, it shows there’s a lot more diversity when we talk about unicorns than the press usually allows. But what it means to you ultimately it depends on who you are in relationship to anxiety about next year’s IPO market. 

A VC wants the big home run, and it’s important not just to have an IPO that performs well, but also one that has “sizzle” name recognition. These are companies likely to go out and do well, with little drama. But they won’t be the massive elephants that return a fund. There’s a reason these same VCs have bet heavily on the decacorns, but at the same time, companies like these are certainly nice backups to the crapshoot that is enterprise. 

And let’s face it, even with an IPO like Square that underperformed its last private round, early stage VCs still made money. If you’re a late stage investor nervous about some of the recent prices paid, there are probably some downside protections for you. 

It’s really the companies themselves (and even arguably their customers) and the employees who stand to be smacked in the gut if a wave of companies are forced to go public because the hot money has left, and they don’t have the fundamentals to get the terms they’d like. 

Employees at these companies may have to explain what their company has to do again when they gather with families on the holidays, but they also just may have options that are likely worth cash. They may actually end up with the Silicon Valley dream that so many employees of unicorns think they’ve been living.