SAN FRANCISCO -- Silicon Valley breathed a sigh of relief Thursday morning when Zendesk barreled forward with its initial public offering, with shares in the cloud-software company jumping in their debut and bringing calm to recent market turbulence.

What would have been a relatively routine IPO last year or even a few months ago, was highly anticipated and carefully watched by the tech community as a barometer of the tech market, which tanked in April. As Zendesk stock opened above its initial pricing of $9 a share, and soared almost 49 percent higher in morning trading, not only did the company's three founders cheer, but so did the many tech companies waiting on the sidelines for their turn to go public.

Zendesk CEO & Founder Mikkel Svane rings the Opening Bell at the New York Stock Exchange on May 15, 2014 in New York City.  (Photo by Dario Cantatore/NYSE
Zendesk CEO & Founder Mikkel Svane rings the Opening Bell at the New York Stock Exchange on May 15, 2014 in New York City. (Photo by Dario Cantatore/NYSE Euronext)

San Francisco-based Zendesk, which makes business software, had forged into uncertain waters and proved that some companies -- those with customers, revenue and the promise of being the next tech giant -- can still go public and do well.

"There's still an appetite," said Brent Gledhill, global head of investment banking for firm William Blair. "We still see IPOs being successful. We're still getting them done. There's just a higher bar."

Zendesk's stock, under the ticker symbol ZEN, opened at $11.89 on the New York Stock Exchange and closed at $13.43, 49.2 percent higher than the IPO price.

"Zendesk IPO is about reopening the IPO market," said Venky Ganesan, a managing director and venture firm Menlo Ventures who is not a Zendesk investor.


Advertisement

But a market that once allowed companies with meager revenue to make initial public offerings at eye-popping prices remains somewhat constricted, and some companies that had planned to do an IPO soon have decided to wait. Most experts agree that the change is healthy, saying the IPO market was overheating.

The correction came in April, when the tech-heavy Nasdaq composite index suffered its biggest loss since 2011. Large Silicon Valley tech companies that went public in the past two years have lost roughly 50 percent of their peak market value, according to a Mercury News analysis.

The plunge spooked some companies that recently filed IPOs to hold off on pricing, including Los Altos-based Box, which sells software for businesses to store and manage files in the cloud. For the last two week of April, there was not a single IPO, a startling change from the breakneck speed of IPOs that opened the year. The first two weeks of May saw only seven IPOs, according to data from William Blair, compared with 93 from January to mid-May.

"Yes, there has been a chilling of the IPO (market)," said Josh Green, chairman of the National Venture Capital Association. "You look and go 'Oh my goodness, they're below their IPO prices.' But this is a very healthy market, a very discerning market, and one that is not about to allow another bubble."

Zendesk never stalled its plans to go public, according to sources close to the company.

"We, as a company, have been extremely determined about going public," Zendesk co-founder and CEO Mikkel Svane said in an interview with this newspaper. "We believe that to go out and try to change the business software industry, it does require us to go public and be a public company."

Svane, along with Alexander Aghassipour, and Morten Primdahl, founded Zendesk in 2007 in Copenhagen, Denmark, and moved the company to San Francisco in 2009. Zendesk provides software-as-a-service, or SaaS, for companies to answer customers' questions and manage customer support through email, chat, voice, social media and websites. The company that started in Aghassipour's loft now has 40,000 customer accounts in 140 countries.

"It's a pretty big task to scale a product from a couple hundred customers to tens of millions of end users, but I think it went pretty well," said Christoph Janz, a co-founder of German investment firm Point Nine Capital and the first outside investor into Zendesk.

The company's revenue for 2013 was $72 million, almost double the revenue for 2012 and a 362 percent increase from 2011. Its growth rate is about 88 percent, year to year; however, it also Zendesk posted accumulated losses in the past three years of more than $54 million.

Experts say Zendesk's strong debut will start a parade of IPOs, and that the market is likely to heat up in the fall, when China's Internet giant Alibaba is expected to begin trading in the U.S.

"You will see a mad scramble of companies in the Bay Area (filing IPOs) within the halo of Zendesk," Ganesan said.

But in these new market conditions, not every company will do well, and some will have to price their stock lower than they might have in 2013. Zendesk revised downward its offering price twice before it began trading. Other founders planning take their companies public can expect to do the same, and work much harder to sell their products to investors.

"In a tighter market, the IPO is more highly scrutinized," Gledhill said.

Contact Heather Somerville at 510-208-6413. Follow her at Twitter.com/heathersomervil.