RPX, Defensive Patent Firm, Goes from Zero to $160M IPO in Less than Three Years—Thoughts from Boston Investor CRV
As examples of ultra-fast growth in the tech world, people like to talk about Groupon and Zynga. While they are phenomenal success stories, neither of those companies is publicly traded yet—nor, for that matter, are Twitter or Facebook. Well, how about a different kind of tech company that started in 2008 and held its IPO today?
That would be RPX, a San Francisco-based “defensive patent aggregation” company with Seattle roots, whose venture investors are in Boston, London, and the Bay Area. RPX filed for an initial public offering in January and says today it has raised $159.6 million in an offering underwritten by Goldman Sachs and Barclays Capital. The firm sold about 8.4 million shares at $19 per share, with trading to begin on the Nasdaq today. (Pricing above the anticipated range of $16-$18 was announced this morning.)
What’s remarkable is how fast a ride it has been for RPX (NASDAQ: RPXC) and its investors, which include Kleiner Perkins Caufield & Byers, Charles River Ventures, and Index Ventures. The patent rights firm was co-founded just under three years ago by John Amster and Geoff Barker, both former execs at Bellevue, WA-based Intellectual Ventures, the controversial invention and patent licensing company led by Nathan Myhrvold.
RPX’s approach is different from IV’s. As Amster told me last year, RPX focuses much more narrowly—on acquiring patents that its corporate customers pay for access to and can use for defensive purposes, to deter or beat back patent infringement lawsuits. Members pay a subscription fee—a fixed percentage of their operating budget, typically between tens of thousands and a few million dollars—to access the RPX portfolio. And RPX pledges not to sue anyone, unlike IV.
Here’s why RPX is so interesting financially. Its revenue tripled from about $33 million in 2009 to about $95 million in 2010. The firm has been profitable since 2009, with nearly $14 million in net income last year. What’s more, it has the potential for a billion-dollar market cap after its IPO. And its membership group has grown to 80-plus companies and now includes giants like Cisco, Google, Nokia, Samsung, Sony, Verizon, and Zynga.
It’s a simple proposition—to help companies lower their patent-litigation costs or avoid them altogether. And paying licensing or access fees seems to be getting more popular among big companies and startups alike, who want to avoid getting sued, or at least cut their losses. (For example, mobile startups Dashwire and Vlingo have cut patent-licensing deals with Intellectual Ventures in the past year.)
“RPX is like an insurance play,” says Izhar Armony, a partner at Charles River Ventures who led that firm’s investment. “It has catapulted itself to a leadership position.” Vis-à-vis Intellectual Ventures—in which CRV is also a big investor—Armony thinks the dynamic has similarities to what happened with Oracle and Salesforce.com over the last decade. Salesforce was co-founded by a former Oracle exec, and the two firms have had competing yet complementary approaches.
“Salesforce did not kill Oracle, it actually made Oracle more competitive,” Armony says.
The bottom line on today’s IPO for Charles River and its co-investors should be a good one, although they haven’t disclosed how much money they put into RPX. “I think we’ll have an EqualLogic-scale exit here,” Armony says. EqualLogic, a data storage firm, was bought by Dell for $1.4 billion in 2007, after raising more than $50 million from venture investors (including CRV). So, not bad for less than three years of work on RPX.
RPX being a public company should also be helpful for observers trying to sort out what’s going on with all the patent-protection companies that are popping up. Perhaps this IPO will bring some much-needed transparency to the fast-moving field of tech intellectual property rights.