Cloudera IPO a win for ‘unicorns’ on the road to going public

Plain and simple, Intel (Nasdaq: INTC) vastly overpaid for Cloudera.

It was May 2014 and large tech may have felt the pressure of being left behind….or not wanting to miss the boat on being a part of new tech.

It was chaos and the birth of the ‘unicorn’ — a term for a company with a minimum of $1bn private valuation with substantial growth in terms of revenue while still operating at a loss.

The latest ‘shiny-object’ at the time was Cloudera — a company that commercialized an open source programming framework called Hadoop, which helps businesses process large amounts of disparate data. At Cloudera’s peak (which was the Intel investment), the company had a valuation of around $4.1bn or roughly $30/share.

The thought: it was a game-changing company with little competition.

But since that time, other large tech (and small tech alike) have established products and services to compete and challenge Cloudera. Competition is excellent in the marketplace for advancements but also have a dramatic effect on valuation. When one of its smaller competitors, Hortonworks (Nasdaq: HDP), went public…the optimism was still ‘in the clouds’. ‘HDP’ opened with a 50% boost to its $16.00 offering price. But as of this writing, that same company is now trading roughly 35% below that offering price  with a secondary offering in the books in February 2016 that priced 8.4 million shares at $9.50.

So, how will Cloudera be a win for ‘unicorns’?

Many angel investors are sweating on the sideline.. getting a front row seat to Intel’s investment hair-cut. In the short-term, it will sting. But in the long term…it is most important for Intel to get their investment (Cloudera) out the door at the right price to influence and sell a long-term story. Large, pre-IPO investors are currently seeing value of the Cloudera offering as the deal, according to our sources, is more than 20x oversubscribed with current price guidance coming in $1.00-$2.00 above the prevailing $12.00-$14.00 range.

One syndicate source called this a “typical technology home-run”.

Cloudera, and Intel for that matter, is looking for the pre-IPO investors to stabilize the stock in the short term and possibly buy more into the story in the long term. Do not be surprised that if 6-12 months down the road you hear of a Cloudera secondary offering. But with the IPO coming out as a (presumed) success, the follow-on will likely be an easier sell given the positive sentiment in the name.

And by the way, Intel is not holding the bag without a fight. They still very much believe in this company as they are indicating interest in purchasing up to 10% of the IPO. Is this the beginning of averaging down at the IPO for companies who made bad bets?

Whether it is or not, it will be a good blueprint on how to handle an investment gone wrong once it hits the public markets.