Public Telco Software Provider Makes a Run

Admittedly, I was skeptical when telecommunications software firm BroadSoft filed an initial public offering just over a year ago.

I’ve done business with the company, and Strategic Communications Group (Strategic) developed the initial concept and editorial strategy for BroadSoft’s corporate blog, themed “Broadband Ignite.”  It’s a good company populated with talented professionals.

My skepticism was based on two fundamental (and related) concerns about their business: 1) although they are a dominant provider, BroadSoft’s market (telecommunications carriers) is relatively defined and niche, and 2) as a result, they would have difficulty dramatically scaling their revenue to meet investor expectations.

I sure was wrong about BroadSoft’s prospects in the public markets.  After languishing a bit after its IPO, the stock went on a run jumping from $7 to more than $50 a share.  It currently rests in the mid-30s.

Jim Tholen, BroadSoft

Last week, I attended a presentation from BroadSoft’s CFO Jim Tholen to the Association for Corporate Growth’s (ACG)National Capital Chapter.  Here are a couple of quotes from Jim that resonated with the audience:

--It’s important to play offense even in tough times.

--There is still magic in being a US, venture-backed technology company.

--VoIP is no longer a science experiment by Vonage.  It’s the technical path of choice by most telecommunications providers.

--Entrepreneurial organizations are defined by never being satisfied.  We break the safety of success.

--We have an acquisition strategy, rather than a strategy around acquisitions.

A Call for Tech Exuberance

Fortune Magazine’s July cover story entitled “Don’t Call It the Next Tech Bubble…Yet” is a must-read for anyone who plays in or supports the growth and development of the US technology community.

Contributing writer David Kaplan ponders the sustained viability of the current rush of Web 2.0 IPOs and venture capital funding within the context of the psychology that is now defining Silicon Valley and Wall Street.  He concludes:

The consensus is that there remains sufficient fear in the marketplace -- be it on Sand Hill Road or Wall Street -- to prevent exuberance from becoming totally irrational. For there to be a bubble, the wisdom goes, greed must overcome fear. And for the moment fear still rules, which means the memory of 2000 lives.

Image Source:  Fortune

While I understand Kaplan’s rationale, what scares me about this current financial frothiness is that it’s based on unrealistic investor expectations.  For instance, LinkedIn is trading at 750 times its estimated 2012 earnings, while the rest of the market stands at 12 times forward earnings.

Now consider real estate site Zillow’s arrival last week in the public markets with an IPO that jumped 120 percent on its first day of trading.  After leveling off a bit, the stock still trades 79 percent higher than its initial listing price.

Last time I checked the residential real estate market that Zillow depends upon remains flat and lifeless.

Personally, I’m putting this fear aside because the continued long-term success and global leadership of our country’s technology, biotech, science and engineering communities is based on big bets.  And it takes money to fund that betting.

If Zynga, LivingSocial and Groupon can each potentially raise$1B from the public markets…amen.   Put that money to good use through investments in technical and product development.

These Web 2.0 dynamos will serve as a breeding ground for innovation, as well as the creation of the next generation of entrepreneurial, executive and engineering talent.

Let’s be realistic, yet embrace a healthy shot of exuberance.