money exiting the market in prior periods. There have been concentrations of deals in recent months, he says, in growth-oriented consumer technology and technology-enabled financial services.
Cutler also says a number of growing companies in enterprise technology have broken through the $100 million and $200 million revenue threshold. “Companies that meet that profile typically are very healthy over the next 18 to 24 months,” he says. “These are companies that have found their foundations outside of the financial crisis.”
That might be reason to cheer the innovation scene, but companies that want to play in the public markets must make money while developing and expanding their technology. Groupon’s recent challenges, Cutler says, demonstrate why it is crucial for companies, particular with consumer-facing operations, to find ways to generate profit. “They’ve unfortunately been in the public markets while trying to figure out the ideal model for the company,” he says. “It could still be a very successful platform, but it’s been a painful year for them in the public markets.”
Other companies, he says, with massive consumer platforms and applications must also answer questions about what their revenue models will look like. Companies that are pre-revenue might look for exits through merger and acquisition deals, he says, because the public markets require companies—regardless of their “great ideas”—to make money on a certain scale. “Instagram was years and years away from an IPO, at least until they would have figured out a monetization model,” Cutler says.
There is an ongoing debate in technology, he says, about whether businesses should initially grow for scale or for profit, and at what juncture those objectives change. “A lot of people believe in [creating] technology that is first to market, first to significant scale, and then will figure out monetization later,” Cutler says. “We have public companies like that; Amazon would be a great example.” He says Amazon (NASDAQ: [[ticker:AMZN]]) has massive scale with razor-thin margins, but it is going after a big market with an infrastructure that few can compete with at that level.
As technology companies weigh their prospects of going public in 2013, Cutler foresees the U.S building on momentum from last year and reasserting its claim as the place of prominence for raising capital. “This will be the primary destination for IPOs,” he says. “It’s a deep pool of liquidity with a lot of investors and money sitting on the sidelines, and the performance of the market has been pretty strong.”
