Israeli technology company JFrog, which went public on September 16, was received warmly by Wall Street, and shot up by 47% on its first trading day - a day that began at the IPO price of $44, and ended at almost $65, giving a market cap of over $5.7 billion. The company raised $352 million, an amount that could increase by $76 million, while its shareholders realized shares for$157 million.
Speaking with "Globes" over Zoom, at the end of the long day, from his office in Sunnyvale, California, Shlomi Ben Haim, CEO of JFrog and one of its founders (along with CTO Yoav Landman and Chief Data Scientist Fred Simon), sums up the experience, particularly the IPO which began at 3am, included a special event held in the JFrog parking lot, and ended with the giant leap in share price.
"Our morning started with driving to the office in Sunnyvale at three in the morning," says Ben Haim. "Nasdaq told us that if we came to New York, we could only have three people on the podium (at the opening of trade ceremony), but the company wasn’t built by the founders alone, but by the whole team, so that wasn’t an option for us.
"We decided to do the IPO at the company offices, and if we couldn’t travel to Manhattan, we would bring it to us. We built a replica Manhattan in our driveway. Nasdaq cooperated with us and sent a production team, and the event at JFrog's offices was broadcast to Times Square.
"It was exciting. The stock opened for trade very nicely, and from that moment on, we were moving from one interview to the next. My apologies for a moment of Zionist schmaltz, but I miss Israel, and seeing the Israeli flag on stage next to the JFrog banner while being issued on Nasdaq made it all worthwhile. "
JFrog was founded in 2008. It provides a technological solution that facilitates continuous software updates. The company initially planned to raise capital at a share price of $33-37, but raised the price range to $39-41, and eventually exceeded that upper range as well, and as mentioned, also soared on the first trading day. At the same time, another technology company, Snowflake, also went public and rose more than 100% on its first trading day.
How do you know your IPO price is right?
"Over the last 4-5 months, since Covid-19, the IPO world has gone haywire," says Ben Haim. "The jump of the first day - I call that irresponsible. I don’t understand companies that make 100% and 200%. This is not about leaving money on the table; it’s about not knowing where you’re going.
"We built a model with the underwriters, and I said that whatever happens beyond the share price, which I honestly believe reflects the company's value, what happens in the market is beyond my control. Secondly, when a company like JFrog comes to the market - profitable, with positive cash flow and enough money in the bank - an IPO is a milestone in its growth, not a way fo raising money."
Could there be a bubble here?
"As far as Snowflake is concerned, it's a great company, and its mega-IPO is no surprise. The market multipliers are not per company. There are some companies where I can’t understand why they’re traded at all, let alone understand their multipliers. Markets with very low interest rates have a need to invest in software, because the other, more legacy industries have been hit harder by Covid-19.
"What you call a bubble could have an effect. It could be that the US election will have an effect, maybe the recession that hasn’t really hit us yet will also have an effect. If a company goes up and down with the market - that makes sense. If the company blows up a bubble and then bursts, and no one understands why they invested in it - that’s an operational problem in the company. That is a very significant difference."
How does a road show actually happen during a pandemic?
"I wish every CEO in the world could have a roadshow like the one we had. CFO Jacob Shulman and CRO Tali Notman and I did five days of a very short, very packed road show with daily webinars in which investors from smaller funds would get online.
"The digital efficiency, clarity and accuracy of the thing was just amazing. I think about what people told me I was in for: flights, dinners… it’s so unnecessary. We saved so much time. In five days, the demand we built was insane. I wish it for everyone, and by the way, I don’t think things will go back to the way they were before."
What were investors concerned about? What questions did they ask you?
"A lot of people talked to us about the competition. The DevOps market was built right for the right need. There are markets where you can’t understand what companies do, and there are markets where you understand there’s a need, and know it will happen, even if it takes another year or two. When large investors see Microsoft and Amazon enter a race, they want to make sure they invest in the right companies.
"They were also interested in how Covid-19 has affected us. When you look at JFrog's numbers - I read the prospectuses of seven companies that had IPOs along with us - we published our half-year figures with pride. You look at the numbers, retention rates, growth, efficiency, focus, products. Investors want to make sure that the competition and Covid-19 won't run away with their money and leave them down the tubes."
Do the investors understand the technology?
"In the end, the anchor investors are also the ones who invest in Snowflake, Google and Microsoft. The other smaller investors may understand less, but in the end, they look at who’s coming in after putting a few hundred thousand dollars into research, and realize it's the right thing to do.
"Things didn’t start with this roadshow. We did a non-deal roadshow before the coronavirus. The amazing thing is that big investors like Fidelity and T. Rowe Price are JFrog customers. They don’t have to bother me with questions - they can just ask one of their people about what JFrog does and how important that is. When they see our 98% retention rate for the coronavirus period, they know this isn’t just another CEO saying this is a ‘mission critical’ system.
"It was also nice to see that there were Israeli investors, relatively large funds for Israel. You need a basic level of understanding of the market, the product and value proposition, how the competition looks, and the company’s roadmap. When we started talking about where the company is headed, you saw the spark in the investors' eyes."
Where is it going? "When we look at the DevOps world we created - we were part of the global community that built this movement. If you really look at the pain we are trying to cure, it's software updates for people like us. Because, in the end, if you needed to update your Zoom software just before our meeting, that would be painful.
"In the coming years, there will be continuous software updates for various devices - your iPhone, car and coffee machine won’t need updates. The security issue has also grown; security as part of every software build and release. We’ll invest a great deal in R&D, DevSecOps, and IoT security, and will continue to invest in our market leading products.
"We raised a lot of money and also have cash reserves. Clearly that’s what’s needed at times like these. As I promised my employees, we’re not just going to survive the coronavirus period - we’re going to beat it. JFrog was born in 2008 during a recession, we’re dealing with Covid-19, and we always come out stronger".
Did you receive an acquisition offer in the weeks before the IPO?
"No".
You currently hold shares worth about $335 million. How does it feel?
"This morning feels the same as yesterday morning. I get up to a meeting, wear a JFrog logo T-shirt, and make no plans except for the company. Bottom line, the company's valuation is a nice thing for me, but, as I tell our employees and management, this company isn’t worth $8, $10 or $15 billion until we have those amounts in sales. We built the company on a stable business model. Millions or not, we work very hard, and that is Israeli pride."
Published by Globes, Israel business news - en.globes.co.il - on September 24, 2020
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