In a deal that could help signal a revival in the innovation economy, Boston software maker Klaviyo became the first local tech company to go public in two years this week.
Klaviyo’s initial public offering Tuesday night raised about $345 million to fuel its growth. In its first day of trading on the New York Stock Exchange Wednesday, Klaviyo’s stock closed at $32.76, giving it a valuation of about $10 billion.
Tech companies have been all but shut out of the stock market since the Federal Reserve started raising interest rates early last year, and venture capital backing also plummeted. That’s led to multiple rounds of layoffs and cutbacks at tech companies across the country, and a wait-and-see approach by startup investors.
But the debut of Klaviyo (pronounced clay-vee-oh), alongside the successful IPOs of San Francisco-based grocery delivery service Instacart on Tuesday and British chip designer Arm last week, could indicate that the cycle is starting to reverse.
“We’re definitely seeing signs of life,” Derek Steinhiser, US-East IPO leader at Ernst & Young, said. “I’ve had five conversations in the past three days with companies thinking of going public. Before that, it was probably five conversations in the past 20 months.”
Unlike Instacart and Arm, which are very different kinds of companies, Klaviyo may encourage more business software firms to go public, a strength of the Boston area (see Akamai, HubSpot, Rapid7). That pool could potentially include cybersecurity company Snyk, data analytics company Starburst, or marketing software firm Drift, local venture capitalists have said.
Founded 11 years ago, Klaviyo is also distinct from the trendy young startups that captured Wall Street’s attention during the heady days of past bull markets: It is profitable. The company reported $15 million in profits for the first half of the year, with revenue growing 54 percent, to $321 million in the six-month period.
Steinhiser said a new crop of IPO companies will need to follow a similar model and emphasize profitability over growth at all costs. “The expectations of investors have gotten more stringent,” he said. “Profitability or a path to profitability is carrying a lot of weight.”
For a newly public company, Klaviyo has kept a low profile in the tech community. Even some local techies don’t know much about the company, from what its name means to what it actually does.
Klaviyo’s software helps online retailers send and track marketing pitches across websites, emails, and text messages. It was initially focused on small online sellers, and about 78 percent of Klaviyo’s subscription revenue from its 130,000 customers comes from sales made on e-commerce company Shopify’s platform. (The companies struck a formal partnership last year and the Canadian company owns about 12 percent of Klaviyo.)
Klaviyo’s backstory is classic Boston tech, from its origins to the kind of unsexy database infrastructure it sells.
It was started by chief executive Andrew Bialecki, 37, a Harvard grad who grew up in the Boston area, and chief product officer Ed Hallen, 41. The pair met about 15 years ago at Applied Predictive Technologies, a data analytics company in Virginia. In 2012, they hatched the idea for their own business after Bialecki returned to Boston to work at another startup and Hallen went to MIT to get an MBA.
Their original idea was for software that could collect companies’ customer data and perform analysis in real time. They started Klaviyo, named after the Spanish word for a spike used in mountain climbing, initially as a database service. The name signified that the company wanted to make “tools to get hard things done,” Bialecki told an interviewer in 2021.
But early customers such as Blank Label, a Boston seller of bespoke men’s clothing, started connecting the app to their marketing and sales platforms, convincing Bialecki and Hallen to add new features, such as the ability to send emails and texts and tie into loyalty programs. As the company started to gain traction, some tech observers called it “the next HubSpot,” referring to the Cambridge online-marketing firm that is now one of the biggest tech companies in town.
Today, Klaviyo’s software helps retailers send customers emails that won’t be blocked by spam filters and texts at times when they’re primed to make purchases. (So you probably have Klaviyo to thank for those retailers bombarding you with texts for their latest sales.) The company’s rivals include Mailchimp, Blaze, and Adobe.
“The goal was to stitch all these different systems together so businesses could better understand their customers,” Hallen said in an interview Wednesday. “This is a really exciting day, but we’re only 1 percent done.”
About 1,000 of Klaviyo’s 1,500 employees are located in the Boston area. “We’re super bullish on Boston,” Hallen said.
Bialecki owns about 99 million shares of Klaviyo after the IPO, worth $3.4 billion at Wednesday’s price. Hallen owns 33 million shares, worth $1.1 billion. Early investors in the company, including venture capital firm Summit Partners, cashed out $230 million in the deal.
Klaviyo’s underwriters priced its shares at $30 on Tuesday evening, slightly higher than the company had projected, thanks to strong demand from investors, and in the early minutes of trading the stock shot up to $37.
The last local tech company to go public via IPO was payments software firm EngageSmart in Braintree, which started trading on Sept. 23, 2021. That was the day after restaurant-tech company Toast’s $1 billion debut. But tumbling tech stock prices and sharply higher interest rates shut down the tech IPO market until this month.