- An IPO involves offering shares of a private company to the public.
- The cybersecurity industry’s growth is driving new IPOs annually.
- Cybersecurity IPOs have requirements startups must meet.
- Five private companies are likely to go public in 2022.
Cybersecurity is becoming a massive industry because corporations are experiencing all kinds of new threats to their data and infrastructure. These threats are creating a riskier online landscape for businesses, and they’re doing everything they can to combat them.
The current work-from-home environment also adds to the risk. More workers are using company networks remotely, and cybersecurity firms must keep up with this trend to keep clients safe.
An influx of cybersecurity startups is creating more IPOs, with five firms reaching unicorn status and going public in 2021 alone. This guide will take you through some cybersecurity requirements for IPO and discuss five cybersecurity IPO companies to watch in 2022.
What Is a Cybersecurity IPO?
IPO stands for initial public offering, which is the process of offering shares of a formerly private organization to the public in a new stock issuance. This issuance starts the transition from a private startup to a publicly traded company on a stock exchange.
Cybersecurity IPOs are simply companies in the cybersecurity space that offer stock to the public. The result is an exciting time for startup investors because they can sell their shares to the public and cash out as the company becomes more valuable.
The Requirements of a Cybersecurity IPO
Every organization that goes public has requirements to fulfill before and after its initial public offering. All public companies are subject to the SEC’s Marketplace Rules. They must also meet four standards before an exchange such as NASDAQ lists them:
-Qualifying Bid Price
The company’s stock should have a regular bid price of at least $4 per share. There are exceptions, though, as some businesses might qualify with a closing price of $2 or $3, depending on other criteria. The stock should also have at least three market makers.
-Minimum Shares Outstanding
Another requirement for NASDAQ to list a company is a minimum of 1.25 million publicly traded shares outstanding. This number excludes anything held by those with more than 10% of company ownership, such as directors, officers, or beneficial owners.
A company that’s going public should have at least 2,200 total shareholders, 550 shareholders with 1.1 million in average annual trading volume, or 450 round lot shareholders. Meeting one of these conditions is enough to satisfy this requirement.
The company must meet specific financial and cash flow standards. These standards vary greatly, but generally, the organization should avoid losses and negative cash flow while posting revenues of at least $110 million or pre-tax earnings of $11 million or more over the previous three years.
The cybersecurity requirements for IPO follow the same rules as the rest of the market. Most IPOs in this industry also have a valuation of at least $1 billion before going public.
5 IPOs to Watch for in 2022
The cybersecurity market size should eclipse $155 billion, causing an increase in cybersecurity IPO for 2022. The companies that will likely go public are already successful and have a unique angle that could drive them to new heights:
Snyk is a cybersecurity vendor with an $8.5 billion valuation. It has also raised $850 million, including $600 million in late-stage funding, and acquired CloudSkiff, an open-source tool that will boost its product capabilities. All signs point to Snyk going public sometime in 2022.
Lacework produces cloud security products and could be a future star in the cybersecurity space. The company had a record-breaking $1.3 billion funding round in November 2021, following up on a then-record $525 million Series C funding in January 2021. Lacework is valued at $8.3 billion and will draw significant interest from investors if and when it hits the market.
Netskope is one of the most valuable private tech organizations on the planet, raising more than $300 million during its tenth funding round in July 2021. The firm raised more than $1 billion in total during its funding rounds and has a valuation of $7.5 billion. The company’s CEO has been noncommittal about the possibility of an IPO, but it could happen in 2022.
Cybereason is an endpoint security vendor that provides extended detection and response services. The company has collected over $713 million in funding, including $50 million from Google Cloud, and has a current value of $3 billion. The company’s CEO is looking at an IPO as the next step in its growth.
Illumio is more of a niche vendor than the other cybersecurity firms on this list, as they focus on segmentation as organizations adopt zero-trust security solutions. The company has a valuation of $2.75 billion and finalized a $225 million Series F funding round in the summer of 2021. All signs point to this firm going public in the coming months.
Cybersecurity is a rapidly growing industry, so we’re sure to see more growth from startups and their eventual IPOs in the coming months and years. Learning what to watch for in the early stages of organizational development gives investors a better chance of getting involved with the right companies.
Making the Most of Your Investments
Investing in startups can be risky, as about 90% of these companies won’t make it to the IPO stage. The firms that make it to this point can produce significant returns for their investors, though, making them worth their while. The cybersecurity industry is booming, and investors should watch for startups with a product and market fit that could see them become the next cybersecurity unicorn and IPO.
Option3 helps bring investors together with cybersecurity startups. We’re a private equity firm with significant experience in the cybersecurity industry, helping us create returns for our investors while pushing startups to reach new heights. Contact Option3 to learn more about cybersecurity IPOs and how early identification can be advantageous.