Categories
bill.com crowdstrike direct listing Enterprise Fundings & Exits IPO TC

CrowdStrike’s CEO on how to IPO, direct listings and what’s ahead for SaaS startups

A few days before Christmas, TechCrunch caught up with CrowdStrike CEO George Kurtz to chat about his company’s public offering, direct listings and his expectations for the 2020 IPO market. We also spoke about CrowdStrike’s product niche — endpoint security — and a bit more on why he views his company as the Salesforce of security.

The conversation is timely. Of the 2019 IPO cohort, CrowdStrike’s IPO stands out as one of the year’s most successful debuts. As 2020’s IPO cycle is expected to be both busy and inclusive of some of the private market’s biggest names, Kurtz’s views are useful to understand. After all, his SaaS security company enjoyed a strong pricing cycle, a better-than-expected IPO fundraising haul and strong value appreciation after its debut.

Notably, CrowdStrike didn’t opt to pursue a direct listing; after chatting with the CEO of recent IPO Bill.com concerning why his SaaS company also decided on a traditional flotation, we wanted to hear from Kurtz as well. The security CEO called the current conversation around direct listings a “great debate,” before explaining his perspective.

Pulling from a longer conversation, what follows are Kurtz’s four tips for companies gearing up for a public offering, why his company elected chose a traditional public offering over a more exotic method, comments on endpoint security and where CrowdStrike fits inside its market, and, finally, quick notes on upcoming debuts.

The following interview has been condensed and edited for clarity.

How to go public successfully

Share often

What’s most important is the fact that when we IPO’d in June of 2019, we started the process three years earlier. And that is the number one thing that I can point to. When [CrowdStrike CFO Burt Podbere] and I went on the road show everybody knew us, all the buy side investors we had met with for three years, the sell side analysts knew us. The biggest thing that I would say is you can’t go on a road show and have someone not know your company, or not know you, or your CFO.

And we would share — as a private company, you share less — but we would share tidbits of information. And we built a level of consistency over time, where we would share something, and then they would see it come true. And we would share something else, and they would see it come true. And we did that over three years. So we built, I believe, trust with the street, in anticipation of, at some point in the future, an IPO.

Practice early

We spent a lot of time running the company as if it was public, even when we were private. We had our own earnings call as a private company. We would write it up and we would script it.

You’ve seen other companies out there, if they don’t get their house in order it’s very hard to go [public]. And we believe we had our house in order. We ran it that way [which] allowed us to think and operate like a public company, which you want to get out of the way before you come become public. If there’s a takeaway here for folks that are thinking about [going public], run it and act like a public company before you’re public, including simulated earnings calls. And once you become public, you already have that muscle memory.

Raw numbers matter

The third piece is [that] you [have to] look at the numbers. We are in rarified air. At the time of IPO we were the fastest growing SaaS company to IPO ever at scale. So we had the numbers, we had the growth rate, but it really was a combination of preparation beforehand, operating like a public company, […] and then we had the numbers to back it up.

TAM is key, even at scale

One last point, we had the [total addressable market, or TAM] as well. We have the TAM as part of our story; security and where we play is a massive opportunity. So we had that market opportunity as well.


On this topic, Kurtz told TechCrunch two interesting things earlier in the conversation. First that what many people consider as “endpoint security” is too constrained, that the category includes “traditional endpoints plus things like mobile, plus things like containers, IoT devices, serverless, ephemeral cloud instances, [and] on and on.” The more things that fit under the umbrella of endpoint security, CrowdStrike’s focus, the bigger its market is.

Kurtz also discussed how the cloud migration — something that builds TAM for his company’s business — is still in “the early innings,” going on to say that in time “you’re going to start to see more critical workloads migrate to the cloud.” That should generate even more TAM for CrowdStrike and its competitors, like Carbon Black and Tanium.


Why CrowdStrike opted for a traditional IPO instead of a direct listing

Categories
consumer crowdstrike Enterprise Eric Feng Fundings & Exits Seed Investing sprout social Startups TC

Seed investors favor enterprise over consumer for first time this decade

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

It’s the second to last day of 2019, meaning we’re very nearly out of time this year; our space for repretrospection is quickly coming to a close. Before we do run out of hours, however, I wanted to peek at some data that former Kleiner Perkins investor and Packagd founder Eric Feng recently compiled.

Feng dug into the changing ratio between enterprise-focused Seed deals and consumer-oriented Seed investments over the past decade or so, including 2019. The consumer-enterprise split, a loose divide that cleaves the startup world into two somewhat-neat buckets, has flipped. Feng’s data details a change in the majority, with startups selling to other companies raising more Seed deals than upstarts trying to build a customer base amongst folks like ourselves in 2019.

The change matters. As we continue to explore new unicorn creation (quick) and the pace of unicorn exits (comparatively slow), it’s also worth keeping an eye on the other end of the startup lifecycle. After all, what happens with Seed deals today will turn into changes to the unicorn market in years to come.

Let’s peek at a key chart from Feng, talk about Seed deal volume more generally, and close by positing a few reasons (only one of which is Snap’s IPO) as to why the market has changed as much as it has for the earliest stage of startup investing.

Changes

Feng’s piece, which you can read here, tracks the investment patterns of startup accelerator Y Combinator against its market. We care more about total deal volume, but I can’t recommend the dataset enough if you have the time.

Concerning the universe of Seed deals, here’s Feng’s key chart:

Chart via Eric Feng / Medium

As you can see, the chart shows that in the pre-2008 era, Seed deals were amply skewed towards consumer-focused Seed investments. A new normal was found after the 2008 crisis, with just a smidge under 75% of Seed deals focused on selling to the masses for nearly a decade.

In 2016, however, a new trend emerged: a gradual decline in consumer Seed deals and a shift towards enterprise investments.

This became more pronounced in 2017, sharper in 2018, and by 2019 fewer than half of Seed deals focused on consumers. Now, more than half are targeting other companies as their future customer base. (Y Combinator, as Feng notes, got there first, making a majority of investments into enterprise startups since 2010, with just a few outlying classes.)

This flip comes as Seed deals sit at the 5,000-per-quarter mark. As Crunchbase News published as Q3 2019 ended, global Seed volume is strong:

So, we’re seeing a healthy number of deals as the consumer-enterprise ratio changes. This means that the change to more enterprise deals as a portion of all Seed investments isn’t predicated on their number holding steady while Seed deals dried up. Instead, enterprise deals are taking a rising share while volume appears healthy.

Now we get to the fun stuff; why is this happening?

Blame SaaS

As with many trends long in the making, there is no single reason why Seed investors have changed up their investing patterns. Instead, there are likely a myriad that added up to the eventual change. I’m going to ping a number of Seed investors this week to get some more input for us to chew on, but there are some obvious candidates that we can discuss today.

In no particular order, here are a few:

  • Snap’s IPO: Snap went public in early 2017 at $17 per share. Its equity quickly spiked to into the high 20s. By July of that same year, Snap slipped under its IPO price. Its high-growth, high-spend model was under attack by both high costs and slim gross margins. Snap then went into a multi-year purgatory before returning to form — somewhat — in 2019. It’s not great for a category’s investment pace if one of its most prominent companies stumble very publicly, especially for Seed investors who make the riskiest bets in venture.