We looked at the revenue trends of 146 tech companies prior to their IPO and discovered that while fast growth in the year of IPO is critical, so is consistent growth from the prior year. In other words, tech companies that exit have very consistent year over year growth, not just fantastic growth in the year of exit. The data is below:
The trend is across industries. SaaS companies grew 55% in the year leading up to IPO and 51% the year before that. Social media companies had similar trends (151% and 154% respectively), as did marketplaces (53% and 67%), subscription (63% and 59%), and e-commerce companies (70% and 74%). What strikes us is not only the strong growth but the very consistent growth year over year. Even though these companies got bigger, management was able to maintain the growth nearly perfectly from the prior year.
If your growth is going to slow, make sure it’s still very impressive. For instance, gaming posted 95% growth in the year leading up to IPO but 157% growth in the year prior. Even though growth slowed, 95% is still very impressive, especially when median revenue in the year of IPO was $778mm. New hardware showed similar slowing trends, but again the growth was impressive: investors will not fault you for growing 62%, down from 125% in the prior year.
The data shows consistent growth leading up to the year of IPO/exit may not be a coincidence; it may be every bit as important as big growth to achieve exit.
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