NEA Notches 3,000 Percent Return on Tableau Software Investment as Digital Chart Valuation hit $950 Million on Nasdaq Debut

NEA Notches 3,000 Percent Return on Tableau Software Investment

For New Enterprise Associates Inc., its investment return on Tableau Software Inc. (DATA) was off the charts.

NEA’s $29.2 million investment in the digital-chart provider, which made its stock-market debut today, was valued at more than $950 million at the close in New York, making the venture-capital firm the top winner so far this year, Bloomberg.com reported on its Tech Deals blog.

As any Silicon Valley pundit knows, the vast majority of venture-capital bets fail. What makes the business work is the very rare gain of more than 3,000 percent on an investment, like the return NEA has thus far achieved on Tableau.

NEA first backed Seattle-based Tableau in 2004, a year after the company was founded, gaining two board seats and providing $5 million to “expand sales operations and invest in product development,” according to a statement at the time. NEA, with offices in Menlo Park, California, and Chevy Chase, Maryland, put in another $10 million in 2008 and $14.2 million in 2010.

More than 10,000 companies including Apple Inc. (AAPL) to Bank of America Corp. have used Tableau’s software to create easy-to-use charts out of complex data.NEA sold 2 million of its 19.6 million Tableau shares at the initial public offering price of $31. The stock closed at $50.75 today.

NEA’s gains are mostly on paper for now. Insiders are beholden to a so-called lock-up period that keeps them from selling any additional shares for six months from the time of the IPO.

Business Intelligence

The venture-capital firm knows all too well what can happen in the interim. NEA was the biggest venture investor in Groupon Inc. (GRPN), which lost half its value in the six months after trading began on Nov. 4, 2011, as the daily deals market proved to be more hype than substance. NEA still owns all of its Groupon shares, according to Bloomberg data, and the stock is now down 65 percent since the offering.

NEA is hoping Tableau performs more like Workday Inc. (WDAY) than Groupon. Taking on Oracle Corp. (ORCL) with web-based human resources software, Workday has more than doubled in value since first selling shares in October.

“The big parallel here is that for the first time in 20 years, there are opportunities to disrupt large segments of the software business,” said Scott Sandell, a partner at NEA who sits on the boards of Workday and Tableau. “In this case, it’s business intelligence.”

To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net

Finding Patterns in the DATA (Tableau) IPO

May 19, 2013, Glenn Solomon

As featured in TechCrunch.

Stanford-born and Seattle-based Tableau Software (ticker symbol: DATA) enjoyed a tremendous debut on the public markets on Friday, closing on its first day of trading at over $50/share, up over 60% from its $31/share IPO price. The company raised over $250M through the sale of approximately 14% of the company, and its enterprise value now sits at approximately $2.5 billion.

For the pundits who’ve been arguing that the tech IPO landscape is in crisis, deals like Tableau serve as a powerful reminder that the public market is eager for certain tech companies. In fact, over the past year or so, there have been several other high profile tech IPO winners such as Workday, Splunk, Palo Alto Networks and ServiceNow.

What lessons can aspiring tech entrepreneurs learn from Tableau and these other Wall Street success stories? Here are few.

Stand Out in the Crowd. Tableau has built a highly attractive business. Growth has been very strong – March quarter revenue growth was over 60%, to $40M. The company is operating in a huge and proven market – the data analytics and visualization space has produced big winners across several software generations and remains interesting as big data pushes the limits of existing solutions. Finally, Tableau has been able to show profits, albeit modest, as the company has grown rapidly. For all these reasons, public investors flocked to Tableau.

If you’re considering an IPO for your company in the future, recognize that public fund managers have MANY companies from which to choose. More specifically, small-cap growth managers have between 500-1,000 companies in their universe. Given the enormity of this number, a typical manager will only follow 50-100 companies closely and, depending on strategy, will likely only invest in 25-50 of these in any one year. Tableau stands out in this sea of stock tickers. Does your company stand out? If not, what investments do you need to make to help you rise above the noise?

Price Your Company Right. Cynics will suggest that Tableau left money on the table. Since the stock popped over 60% on the first day of trading, the company clearly could have set its IPO price higher and raised more money. This misses the point. Tableau smartly recognized its IPO is a chance to establish a new shareholder base. By pricing the IPO at $31, the company surely had its pick of new investors since most everyone, seeing the obvious good deal, wanted to get in. I’m sure Tableau’s management team spent time evaluating who was most likely to hold their IPO stock and add to their ownership over time. If the company has done its job well, Tableau has stacked its shareholder list with the best, long-term oriented fund managers. This will serve the company well for years to come.

Similarly, you should spend time getting to know potential VC investors before you take money into your company. Consider prioritizing things like alignment of outlook and ability to help add value ahead of price. Taking the highest price limits dilution in the short-term, but if you add a VC who either can’t help or has a different vision that you for your company, you’ll likely regret the decision down the road.

Patience is an IPO Virtue. Tableau deferred its IPO for several quarters. In fact, had Tableau used $100M in revenue run rate as a threshold for IPO timing, as many others do, the company would have now been public for over a year. Because Tableau waited longer, the company was able to continue to invest in its business. With more time and investment likely came increased visibility and predictability, which is critical to performing as a public company. Also, Tableau has become more valuable during the past year as it has grown and solidified its leadership position in the market. With a higher valuation, Tableau’s IPO brought in more money and established a larger public float than would have been possible a year ago. Public fund managers dislike small, or “thin,” float deals; such thin float IPOs often lead to more stock volatility, which is difficult to manage.

As you build your company for IPO readiness, consider waiting until you have predictability well under control and your valuation allows you to sell a larger amount of stock without taking more than 15-20% of dilution.

Clearly Tableau is a remarkable company. Emulating these three traits will help you succeed as well.