AlwaysOn
July 17, 2006
Hot private companies and trends in technology—these companies prove that tech is back in a big way.
Tech is back. This list of the 2006 AlwaysOn 100 Top Private Companies reflects that more clearly than ever. Each of these companies has the potential to become—or already is—a leader in its space. Their products and plans are progressive, their technologies are groundbreaking, and they've got the teams, customers, funding, and passion to succeed.
This is the fourth year that AO editors and industry leaders teamed up with KPMG LLP's Emerging Markets Services practice to recognize the 100 most compelling private companies in technology. Besides AO editors and KPMG, the selection panel also drew on input from Bridge Bank, Lewis PR, PayPal, and Manatt, Phelps & Philips. By surveying industry influencers, entrepreneurs, VCs, and investment bankers we garnered hundreds of company nominations, which we then rigorously evaluated on the criteria of innovation, market potential, customer adoption, media buzz, and investor value creation. The companies that made the AO100 list are the ones that truly stood out.
Geographically, California has an even stronger presence on the list than in previous years: 71% of this year's winners are headquartered in the Golden State. However, besides companies from other parts of the United States, the list also includes companies headquartered in Canada, China, Finland, and Germany—and several of our winners have offices all over the world.
This year's list featured fewer incumbents—41% of the companies from the 2005 AO100 returned this year—compared to last year, when 50% returned from the 2004 AO100 list. Some of this is due to acquisitions—for example, last year's Top Innovator Skype was acquired by eBay, FrontBridge by Microsoft, and Virsa Systems by SAP—and with the technology market constantly evolving, we expect to see more M&A activity in the coming year. Another factor affecting the makeup of AO100 could be the creation of AlwaysOn's OnHollywood 100 list, which exposed the selection committee to a number of new entertainment and mobile contenders strong enough to win a spot on the AO100.
Each one of these companies is a winner for having made it onto the list, but we also recognized a few companies for their notable achievements. This year's pick as Top Innovator was online ad network BlueLithium. Using sophisticated algorithms to optimize placement, this company is growing rapidly in an increasingly active sector. Photobucket was selected as Top Newcomer to the list. The image hosting provider is attracting millions of adopters—including members of the IM Generation, who use it to serve images on their MySpace and LiveJournal pages.
In the Consumer & Entertainment category, it's clear that the interest in eyeballs (and eardrums) is back. The appeal of video sharing service YouTube continues to grow, and the increase in online advertising budgets is helping many young companies prosper. Our list includes pure plays like BlueLithium, as well as new kinds of advertising startups, such as in-game advertising player IGA Worldwide and ad-supported directory assistance companies InFreeDA and Jingle. In the e-commerce area of the consumer space, several panel members used their personal experience to vouch for the merits of online shoe seller Zappos.com.
Security in various forms is well-represented on the list. In the Devices & Components category, we were impressed by several providers, including newcomer 3VR Security, which offers digital recording, data filtering, and indexing to create a powerful video surveillance solution. Compliance and risk mitigation haven't lost ground as viable market needs, demonstrated by the return of Approva and Axentis from last year's list and the addition of newcomers Qualys, Vontu, and LogLogic.
Networking security company Sourcefire also returned, and online identity theft prevention newcomer Bharosa showed well in the Enterprise category. We were also intrigued by ShotSpotter, which uses sensors and geolocation technology to help law enforcement determine where shots have been fired.
Enterprise software remains a vibrant sector. Open source in the enterprise is achieving substantial momentum, illustrated by the popularity of such AO100 contenders as Enterprise DB, MySQL, and Sugar CRM. CollabNet, in the Services & Enablers category, also offers synergy between open source and commercial software. Other companies of note in the Services & Enablers category include Chinese location-based services company Lingtu Software, and voice-based telephony services provider Tellme.
In the Mobile & Wireless category, the panel remained pleased with OnHollywood 100 winner Ampd Mobile, and additionally saw promise in mBlox and Mobile 365. In the Network & Infrastructure category, Blue Lane Technologies and its patch proxy technology for enterprise servers looked interesting.
Another area to watch is companies that combine mobile, consumer, and entertainment applications. We covered many in the OnHollywood 100 list, but we expect more of them to come of age and make their way onto the AO100 list in years to come. We anticipate the same for social networking and other "Web 2.0" companies. By observing the momentum of Web 2.0/enterprise plays like Zimbra, we are starting to see market potential for Web 2.0 companies serving the enterprise space.
After having survived one of technology's more challenging periods, a number of these companies have been able to mature and flourish—64 of this year's AO100 were founded between 1998 and 2002. More than 70% of this year's winners are shipping product, and almost a quarter are profitable. With the IPO window remaining open, some of them may go public, while others may become M&A targets.
In addition to recognizing the outstanding business models, leadership, product offerings, and customer adoption of each company, we should also touch on the funding and capitalization characterizing the AO100. This year's winners have received a significantly greater amount of funding than last year. The 2005 AO100 list had a total capitalization of $1.2 billion, whereas this year's list raised more than $5.5 billion. The average amount of total funding per company has grown to almost $64 million—almost double the average funding per company on the 2005 list. And given the dynamic state of the emerging markets sector, next year's list could continue the trend.
Packy Kelly is a partner with the Silicon Valley office of KPMG LLP and is the Partner-in-Charge of the Emerging Markets Practice. Packy can be reached at pkelly@kpmg.com.