The parade of successful software companies making their way to Wall Street was interrupted on Friday by the arrival of a less familiar beast: a seriously wounded unicorn, limping on to the stock market with a valuation nearly 85 per cent below where it stood a year ago.
The initial public offering of Domo, a data analytics company that was once one of the big hopes of Utah’s budding tech scene, was a reminder of the severe deflation suffered by some highly valued private tech companies. Known as unicorns, the companies have been able to delay a move to Wall Street far longer than earlier generations of start-ups, thanks to a wave of private capital.
Domo’s investor list boasts some of the tech world’s most savvy names, including venture capital firms Benchmark and Institutional Venture Partners, as well as BlackRock. They were attracted largely by the pedigree of the company’s founder. Joshua James, 45, once helped start another software company, Omniture, which went on to be sold to Adobe for $1.8bn.
Mr James was credited by one early Domo investor with being one of the software industry’s best salespeople — but the company’s product did not live up to the billing, this person said.
Domo was valued at about $2.1bn in April last year, when it raised its final round of private capital. By contrast, its IPO on Nasdaq valued it at $331m, before including the $193m it raised by selling new shares to the public this week.
Investors who have suffered most from the contraction include BlackRock and GGV Capital, who paid $126.47 a share in sales that continued until June last year — a long way from the $21 that Domo priced its shares in its IPO this week.
The collapse in valuation reflects a pending cash shortfall that has forced Domo’s investors to turn to Wall Street for an infusion of money. Domo had $71m in the bank at the end of April and had drawn down everything that was available under its credit facility. It has burnt through an average of $46m a quarter in negative operating cash flow since the beginning of last year, and warned that without a fresh injection of capital it would have started to “significantly reduce operating expenses” in August.
Founded in 2010, Domo is already long in the tooth by the standards of software start-ups. It did not launch its platform until 2015, and has struggled to attract enough business despite heavy spending. Its sales and marketing costs were equivalent to 124 per cent of revenues in the latest quarter. Despite that, its growth rate slowed to 32 per cent, from 46 per cent for all of last year.
Domo has also attracted attention for its spending with businesses linked to its founder. This has included $300,000 a year paid to Cubby’s Chicago Beef, a company jointly owned by Mr James and his brother Cubby, and $200,000 spent on furnishings from a company in which another James brother is chief executive.
Domo’s bumpy ride to Wall Street was at least rewarded with a benign first day of trading on Friday. Its shares rose 30 per cent to $27.30.