GO
Loading...

Twitter effect? Expect a barrage of tech IPOs, experts say

A trader watches Twitter stock at the closing bell the day of its IPO.
Adam Jeffery | CNBC
A trader watches Twitter stock at the closing bell the day of its IPO.

If you thought 2013 was a big year for tech IPOs, you ain't seen nothing' yet.

Thanks to a recent string of successful tech IPOs and a market that looks full of promise, investors should expect an uptick in the number of tech companies going public next year, industry experts say.

"There is a strong showing of bellwether companies coming out into the market, and that momentum will carry us forward," said Bryan McLaughlin, a partner in PwC's Silicon Valley deals practice.

Call it the Twitter effect

Since Twitter's public offering last week, a number of names—including Square, Box.com and Seamless—have been floated in the media as planning to file an IPO next year.

(Read more: Twitter IPO sparks speculation on who could follow )

And while companies may not be basing their IPO future on Twitter's debut, that offering probably has influenced how they're gauging the market.

(Read more: Five memorable tech IPO moments )

"The recent success of tech IPOs, from Twitter to even a company like Tableau is showing a strong demand from the investing public for these companies," said Adley Bowden, director of analysis for PitchBook Data, a private equity and venture capital research firm. "The markets are also currently doing very well, so it's an attractive time to go public."

This has been a strong year for tech IPOs, with 28 completed, according to PitchBook's data. By year's end, the number is likely to match or pass the 31 done in 2012, Bowden said.

In fact, 10 tech companies have registered their IPOs, and a number with large valuations and significant capital are potential candidates, he said. Not to mention that more tech companies could be planning to go public but are following Twitter's lead in keeping their intentions private under the JOBS Act.

(Read more: Tech IPOs 'beginning to bubble up,' says Art Cashin )

"Based on the current rate of IPOs, the potential number of IPO candidates and the healthy demand for these offerings, I fully expect to continue to see a similar level of tech IPOs to what we have seen the last couple of years, and actually see a strong chance" for the number to reach between 40 and 50 range," Bowden said.

The new normal

But more tech IPOs on the horizon may be a cause for concern, according to Aswath Damodaran, professor of finance at New York University's Stern School of Business.

(Read more: Want to invest in IPOs? Here's what to know )

If market conditions continue, more tech companies—specifically Web businesses that rely on online ad revenue—could file for IPOs, he said. And if they are all valued like Twitter, investors should be worried.

"Investors need to be asking themselves, can all these companies coexist at the same time and make as much money as they are making now?" Damodaran said. "There will be winners and losers. It could be Twitter, Facebook, Google or someone we haven't heard of yet."

(Read more: Hashtag creator: Don't expect a flood of tech IPOs)

McLaughlin said that the increased IPO activity doesn't reflect frothiness but the market.

"We are generally seeing something like 10 to 15 tech IPOs a quarter, that actually seems like the new norm in a sense," he said. "Of course you are going to end up with really popular IPOs, which can skew valuations or cash that flows in the quarter, but if you take a broader look at tech IPOs, it looks like a new like a strong and stable market."

Most tech companies leading the IPO shift are enterprise rather than consumer-focused, said Anand Sanwal, founder and CEO of CB Insights, which collects venture capital and angel investment data.

Look for lots enterprise-tech IPOs

Though there was a period when VCs were looking to get a piece of consumer companies such as Snapchat, he said, more dollars are now pouring into enterprise-centric companies with clear business models and solid revenue streams.

"When the consumer side is showing momentum, we see money flow very quickly," Sanwal said. "Snapchat is the biggest example of this and getting late-stage investment. And while the chatter will be about Snapchat and the Twitters of the world, there is a great pipeline of enterprise companies ready to IPO."

This group includes software services providers, as well as ad-tech, big data and cloud service companies, Sanwal said. In fact, in the third quarter only 3 percent of VC investment in Internet businesses was going to social companies.

In fact, most of the names in the pipeline already have positive cash flow and don't need capital to sustain themselves, said Dan Winnike, a partner at the law firm Fenwick & West, which specializes in tech and health sciences IPOs.

"You hear some people talking about the market getting a little frothy," he said. "We're lawyers, not experts in valuations, but companies actually going public in 2013 by and large have notable amounts of revenue ... and are viable candidates."

"The notion of frothiness," Winnike said, "doesn't overwhelm me at all when you look at the companies."

By CNBC's Cadie Thompson. Follow her on Twitter @CadieThompson.

Contact Technology

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More

Squawk Alley