• Triton

Here’s one way to think about Zuora

Yawn.  It’s so predictable.

Another running of the playbook for venture-backed enterprise saas platforms in which we take a manager from a name-brand success story (like for example Salesforce.com) pick a buzzy theme (“the subscription economy”) give it a bunch of money ($263 million in 6 fundraising rounds) put a bunch of VCs on the Board (from Benchmark and Redpoint and Shasta and Index) et voila, the VC ideal of capital formation and IPO liquidity.

Zuora’s 6.51 Triton Score places it right in the middle of the pack overall, and specifically right between solid citizens MuleSoft (6.47) and Okta (6.56), two near-perfect examples of the above-mentioned playbook.  Both of those deals worked fine – at first.  

After 270 days, Okta was up 51% from its IPO price, but only up 9% from its first-day opening price.  For Mulesoft, buyers of the IPO were up 29% after 270 days, but buyers at the first-day open were down 9%.  Both deals had nice pops and then went sideways for many months, and neatly canceled each other out at the 270-day mark for percentage return.

That is until recently when Okta (whose CEO, like Zuora’s, is a veteran of Saleforce.com) beat estimates for Q4 and traded up more than 30%, while Mulesoft jumped almost 30% the old-fashioned way: by getting bought last month by (wait for it…) Salesforce.com.

This conforms to the overall pattern we have seen in the last four years of tech IPOs: almost all of the intrinsic return is captive in the institutional IPO discount.  Some companies with very high Triton Scores (e.g., 58.com with an 8.16 Triton Score) have anchored the high end of the distribution, while low-Scoring companies (e.g., Snap with a 5.91 Triton Score) helped define the other extreme.   But across the broad basket of tech IPOs almost all of the first-year gains happen between the IPO price and the first trade.

And this was largely true for both Okta and Mulesoft, until one found a performance catalyst and the other found an M&A outcome.

If Zuora conforms to this pattern, then the gains will never be so good for institutional IPO buyers as on the first trading day, and after that a long thesis relies on internal operating mojo or external rendering of a control premium.  

And if Zuora doesn’t conform to that pattern it will matter not to the VCs running the table with this playbook – as long as the stock goes no worse than sideways until the lockups come off.