AMERICAN FORK — One of Utah's most valuable innovation companies filed paperwork late last week for an upcoming initial public offering, a move that is often the endgame for tech entrepreneurs and one typically met with great enthusiasm and anticipation.
But Utah's Domo — a cloud-based, business analytics platform founded in 2010 by serial entrepreneur Josh James — is in rough financial waters and the move appears to be more about casting a fiscal lifeline than marking mushrooming success.
According to its filing with the U.S. Securities and Exchange Commission on Friday, Domo has accumulated over $800 million in debt since its founding in 2010, has tapped out its credit options and, without the cash infusion of an IPO, will be looking at widespread cost slashing.
"To the extent additional capital is not obtained through an IPO, management will seek other forms of financing," reads a section of the S-1 form. "If other equity or debt financing is not available by August 2018, management will then begin to implement plans to significantly reduce operating expense."
James has built a highly regarded reputation for tech success, taking Orem-based web analytics company Omniture, which he co-founded in 1996, from nothing to a $1.8 billion buyout by Adobe in 2009. Domo operated somewhat off the greater tech radar until 2015 when a $210 million funding round, led by New York City-based investment giant BlackRock Inc., resonated widely, thanks in part to a $2 billion valuation attached to the deal.
But following news of Domo's IPO filing, numerous industry pundits have been highly critical of both the IPO effort in general, and James specifically.
Under the headline "Hype and plunder: This high-tech company may be setting a new low for self-indulgent IPOs," the Los Angeles Times Monday pilloried James for his "apparent predilection for using Domo as his personal piggy bank." The piece cited details from the company's SEC filing that included $1.8 million in expenses related to operating a private jet owned by James over the last two years, $600,000 in catering expenses with another company he owns and spending $200,000 on furnishings from yet another company he co-owns.
The Times also critiqued the structure of Domo's stock offering deal, highlighting that James would retain more than 90 percent control of the company via retention of Class A stock worth 40 votes per share, versus the publicly offered Class B stock, representing a single vote per share.
Bloomberg headlined its Domo story from last Friday, "Here's the poster child for Silicon Valley excess" and, like the Times, detailed the expenditures that went to James or companies he's involved with. The financial news website also highlighted the company's deficit operations, with information in the SEC filing showing losses of about $176 million last year, $183 million the year before and a current cash backup of just under $72 million. The article noted the numbers provided by the company reflect a "precarious financial position" and that, as a windup to a stock offering, "Desperation is not a good look for a company trying to pitch itself to public investors."
Domo was not able to offer comment for this story as the company is prohibited from speaking to media ahead of an IPO, under SEC guidelines.
While likely more a function of geography than product similarity, Domo's pre-IPO positioning is being compared to tech education company Pluralsight's own stock offering last month. The Farmington-based firm's IPO rolled out with much fanfare, earned the company over $300 million and saw a 33 percent price jump when markets opened on its new stock. And, in spite of the rampant critiques of Domo's fiscal health and management, not all the prognostications for the company's stock offering prospects are negative.
Weber State University professor Dave Noack, who teaches entrepreneurship and is also the executive director of the Hall Global Entrepreneurship Center, said digital enterprise endeavors like Domo are, by their structural nature, easier to turn around than more traditional companies.
"From a functionality perspective, digital, web-based companies like Domo can make great gains quickly," Noack said. "Their margins are higher than companies that manufacture a product or rely on retail sales and overhead expenses much lower.
"And, they have scale on their side when it comes to IPO-ing … they'll be hoping to not just get everyday investors but looking for big, institutional investors and mutual funds. If they're successful, those types of investors will help maintain the health of their stock."
Noack said investment trends have been tilting heavily in favor of technology and bio-tech/big pharma stocks, which should bode well for Domo. Overall investment in businesses in those sectors has tripled since 2010, he said.
Noack also noted that companies turning to stock offerings as an investment vehicle of last resort is not uncommon. He cited Snap and Blue Apron as companies that have engaged recently in similar strategies.
Domo has not yet disclosed a targeted share price for their offering, but Noack said that was not unusual and was likely a function of the company getting a "weather reading" ahead of the effort.
"I'm guessing this is about them testing the waters a little bit," Noack said. "It will be part of the process to better arrive at a price."
Noack said, pending a successful IPO, Domo's ability to turn the corner on their current financial challenges will likely be closely tied to the overall economy. The company reported some 1,500 business clients and those companies, as well as future clients, will be making spending decisions that reflect the relative positivity, or negativity, of the markets.
"It isn't totally unlike how we make spending decisions as individuals," Noack said. "When we're doing well, maybe we buy a country club membership or a Lagoon pass. If money is tight, we make tougher decisions about what we can, and can't, live without."