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Arctic Wolf will hold off from a public listing until there are clear indications the market has improved, which may not happen until 2025, according to the head of the $4.3bn cyber security company.
Chief executive Nick Schneider told the Financial Times that the Minnesota-based group, valued at $4.3bn in a 2021 funding round, wanted to see concrete signs of stabilising or falling interest rates and renewed investor appetite in fledgling tech stocks before launching an initial public offering.
Arctic Wolf is a bellwether for highly valued private start-ups, the bosses of which have anxiously waited for signs that the “IPO window” is opening, after spiralling interest rates and souring investor sentiment forced it closed towards the end of 2022.
Those hopes have largely been in vain, with only a trickle of IPOs last year and, according to Schneider, respite for start-ups in need of liquidity may not come this year. “There are folks who believe there will be a window in 2024, but they are the same who thought there would be in 2023,” said Schneider. “It’s a rolling calendar.”
Schneider is seeking “positive” indications from “our business, and from the Fed, and from the publicly traded companies” to push ahead with any IPO. “It’s the confluence of those things that will give folks confidence that an IPO will be successful and continue to be successful afterwards,” he said.
But his company could push forward sooner if the US Federal Reserve begins to cut interest rates, which have risen sharply over the past 18 months as the central bank has sought to tackle high inflation.
The Fed held rates at a 22-year high in mid-December, though central bank officials accompanied that move with new forecasts indicating that rates could be cut by 75 basis points in 2024.
But minutes from the Fed’s December meeting, which were published on Wednesday, showed that most officials want to keep rates high “for some time.”
The most important thing for start-ups such as Arctic Wolf, said Schneider, was certainty about where rates would go next.
The group, which provides cyber security software and expertise to businesses, has raised about $900mn from investors to date, almost half of which came in the form of a convertible note raised in October 2022.
It is among a group of tech start-ups being watched by venture capitalists as potential IPO candidates in 2024. Social media company Reddit as well as data management and security start-up Rubrik are among those that are more likely to launch a public offering this year, according to venture investors.
“There are rumours of folks going out early [in 2024],” said Schneider. “We’ll pay attention to those, but we’re not in a rush.”
Investors were hopeful that a trio of IPOs in 2023 — chip designer Arm, online grocery company Instacart and marketing automation start-up Klaviyo — would encourage others towards their own stock market debuts.
But the mixed share performance of those three companies have had the opposite effect, with many start-ups reluctant to risk a listing process that would bring their theoretical valuation into contact with the reality of public markets. Arm has since rallied to trade at about $70 a share, having priced at $51 at IPO, but shares in venture-backed Klaviyo and Instacart are down between 10-20 per cent since their debut.
In the meantime, Arctic Wolf is expanding in Europe and Australia, has doubled its staff numbers in the past two years and is scanning for further acquisitions after buying Revelstoke, a security operations company, in October.
Arctic Wolf did not disclose how much it paid for Revelstoke, but the company was last valued at $75mn post-money in March 2023, according to PitchBook.
“We’re using the market turbulence where we can with regard to M&A,” Schneider added. “There are a lot of opportunities presenting themselves and we have a really good cash balance . . . I think we’ll have some meaningful announcements in the first half of [2024].”
The company did not disclose up-to-date revenue figures, but in 2021 it reported annual recurring revenue of $200mn. “There’s no need for us to raise again prior to an IPO,” said Schneider.
Arctic Wolf, founded in 2012, sells a software platform that monitors potential threats across customer networks, and employs consultants to monitor that data and tailor the service to individual companies — something it claims sets it apart from established rivals such as Cisco.
The company operates services in the cloud and claims to monitor trillions of “security events” each week, winnowing those down to a handful deemed worthy of reporting to its business customers.
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