Which Hyperlocal Startup Will Be Next to IPO? | Street Fight

Which Hyperlocal Startup Will Be Next to IPO?

Which Hyperlocal Startup Will Be Next to IPO?

Initial public offeringThe hyperlocal industry made a splash in the public markets a year and a half ago when Groupon, Angie’s List, and Yelp each filed to go public in quick succession. However, it’s been all-quiet on the IPO-front since.

Part of the reason we’ve seen a drought is that the climate for tech IPOs has cooled considerably. The dismal performance of both Groupon’s and Zynga’s shares, along with a less-than-stellar performance from Facebook’s IPO led high-growth tech firms like Twitter and Square to raise massive late-stage venture rounds in order to delay a public offering.

But even while Groupon’s share price swung wildly down (and then recovered somewhat), the other two companies in that IPO class have put together an impressive run. Yelp’s shares are up 40% from their IPO price, outperforming both the S&P 500 and Dow Jones Industrial Average over the same period. Meanwhile, shares of Angie’s list have jumped by 76%, besting Google as well as the two indexes, since it went public in November of 2011.

What Investors Look for in Local IPOs
Between plummeting revenue, accounting mishaps, and PR fumbles, Groupon’s torrid run has undoubtedly drawn the ire of many analysts. But it’s unlikely to turn investors off from the local space as a whole thanks to solid growth by other (public and private) firms in the space, says Todd Van Fleet, vice president at private equity firm First Analysis.

“[The markets] are probably as, or in many cases, more open to [hyperlocal companies] today, largely because they’re seeing some early success in other models. They know it can be done; it’s just a question of having the right model,” said Van Fleet. “Whereas Groupon may have created a disconcerting tone across the space, you have had the success of Angie’s List, Yelp and even mobile payments players like Square prove that a portion of the [local business marketplace] can be won.”

In addition to common metrics like top-line growth and operating leverage, investors tend to focus on a company’s ability to sustainably acquire and retain customers in the local space. For companies eying the local business marketplace, Fleet says the cost of customer acquisition and the lifetime value of that relationship are the two key metrics to watch.

Here are a few key companies in the local space that could potentially find their way to the public markets in the near future.

1) Square
Launched: 2009
Funding: $341 million

The dongle-maker-turned-local-commerce-firm is arguably the most likely to find the public markets in the near term. Late last year, the company raised a $200 million round to scale its existing product, and the company has released a series of new products which position Square to compete in highly competitive and capital-intensive markets like point-of-sale, loyalty, and e-commerce. Although Jack Dorsey’s other startup, Twitter, has managed to hum along as a private company, the intense capital requirements of selling to small businesses means that Square will likely take a quicker route to an IPO.

2) Yodle
Launched: 2005
Funding: $40 million

A veteran of the local marketing space, Yodle has found a vital business managing SEO and other digital marketing programs for small businesses. The company grew revenue by 50% in 2012 to the tune of $130 million, and earlier this year snapped up relationship management firm Lighthouse360. In a conversation with Street Fight earlier this year, Court Cunningham, Yodle’s chief executive, said the New York-based company was “strongly considering” a run at the public markets.

It’s unclear how things will pan out after a potential IPO, however. There’s a ton of competition in the local marketing space, and one of the company’s closest competitors, ReachLocal, has struggled to sustain investor interest as a public company.

3) Seamless/GrubHub
Launched: 1999, 2004
Funding: $51 million, $40 million

Two years after Seamless was spun off from Aramark with a $50 million venture round, and the food delivery firm is back in potential IPO talks, thanks to a recent merger with its largest competitor, GrubHub. Together, the two companies have the footprint and consumer traction to dominate a well-funded local delivery space.

The question for Seamless/Grubhub however, is whether food delivery is a large enough market to pique the interest of the public markets. To make an IPO run, the newly formed company would likely have to expand horizontally, pitching itself as a local marketing firm that taps into a still-nascent-but-rapidly-growing local services sector.

4) Datasphere
Launched: 2006
Funding: $28.8 million

One of the few hyperlocal publishing plays that has found a lasting model, Datasphere has grown rapidly over the past few years. The company, which provides digital news production and local marketing as a service for large media companies, has secured contracts with a number of large legacy players like Gannett and Fisher communications. Executives from the company told Street Fight last year that the company was considering an IPO, however the recent travails of hyperlocal media projects like Patch and Daily Voice may concern investors.

The company likely has the runway for another venture round but don’t be surprised to see Datasphere in the conversation for an IPO over the next few years.

Steven Jacobs is Street Fight’s deputy editor.

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