IPO Preview: Varonis Systems

| About: Varonis Systems (VRNS)

Based in New York, NY, Varonis Systems (NASDAQ:VRNS) scheduled an $86.4 million IPO on the Nasdaq with a market capitalization of $429 million at a price range midpoint of $18 for February, Friday 28, 2014. Update: the price range mid-point has been raised to $20. The rating is the same.

The full IPO calendar is available at IPOpremium.

SEC Documents
Manager, Joint managers: Morgan Stanley, Barclays, Jefferies, RBC Capital Markets

Co-Managers: Needham & Co.


VRNS provides specialized enterprise software. 2013 revenue grew 40% to $75 million from $53 million, gross margin remained constant at 91%, and losses increased 54% to -$7.5 million from -$4.8 million.

42% of revenue is recurring from maintenance and services.



Valuation Ratios


Price /

Price /

Price /

Price /

% offered

Cap (MM)





in IPO

Varonis Systems








There is considerable demand for tech companies with 40% and higher revenue growth if they have 91% gross margins. VRNS fits that profile and in that profile losses are not as important as top line revenue increases and gross profit margins.

VRNS is the first tech company of the year and if it does well, then we can expect the tech category to take over for the biopharma category, which recently ran out of steam.

The conclusion is buy on the IPO.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above:


VRNS provides an innovative software platform that allows enterprises to map, analyze, manage and migrate their unstructured data.

VRNS specializes in human-generated data, a type of unstructured data that includes an enterprise's word processing documents, spreadsheets, presentations, audio files, video files, emails, text messages and any other data created by employees.

This data contains an enterprise's financial information, product plans, strategic initiatives, intellectual property and other forms of vital information. VRNS' proprietary Metadata Framework technology enables enterprises to gain actionable insights from their human-generated data by intelligently extracting critical metadata, or data about data, from an organization's IT infrastructure and constructing a map of functional relationships among employees, data objects, content and usage through this contextual information.

VRNS has been a pioneer in developing a software platform that allows enterprises to realize the value of their human-generated data in ways that are not resource-intensive and are easy to implement.

The revolution in internet search occurred when search engines began to mine internet metadata, such as the links between pages, in addition to page content, thereby making the internet's content more usable and subsequently valuable.

Similarly, VRNS' Metadata Framework creates advanced searchable data structures and provides real-time intelligence about an enterprise's massive volumes of human-generated content, making human-generated data more valuable to the organization.

IT and business personnel deploy VRNS' software for a variety of use cases, including data governance, data security, archiving, file synchronization, enhanced mobile data accessibility and information collaboration.


VRNS started operations in 2005 with a vision to make enterprise human-generated data more accessible, manageable, secure and actionable.

VRNS began offering its flagship product, DatAdvantage, which provides centralized visibility for all of an enterprise's human-generated data, in 2006.

Since then VRNS has continued to invest in innovation and has consistently introduced new products to its customers, including DataPrivilege, which was introduced in 2006, as its self-service web portal for business users.

In 2009, VRNS introduced the IDU Classification Framework for sensitive data classification. VRNS further enhanced its DatAdvantage offering by releasing DatAdvantage for Exchange governance in 2010 which enabled its customers to exercise control over the information being transferred through corporate e-mails.

In 2011, VRNS introduced DatAdvantage for Directory Services for increased visibility into Active Directory.

More recently in 2012, VRNS released the Data Transport Engine for intelligent data migration and archiving and DatAnywhere for secure hybrid cloud collaboration.

Growth Plan

Growing VRNS' salesforce will be essential to achieving its customer base expansion goals.

The salesforce and its approach to introducing products to the market has been key to VRNS' successful growth in the past and will be central to its growth plan in the future.

VRNS' model focuses on targeting customers of all sizes, industries, and geographies. The ability of VRNS' sales teams to support its channel partners to efficiently identify leads, generate evaluations, and convert them to satisfied customers will continue to impact its ability to grow. VRNS intends to expand its sales capacity by adding headcount throughout its sales and marketing department.

Intellectual Property
As of January 31, 2014, VRNS had 10 issued patents in the United States and 45 pending U.S. patent applications. VRNS also had two patents issued and 49 applications pending for examination in non-U.S. jurisdictions, and 42 pending Patent Cooperation Treaty, or PCT, patent applications, all of which are counterparts of the U.S. patent applications.

Dividend Policy

No dividends planned


While there are some companies which offer certain features similar to those embedded in VRNS' solutions, as well as others with which it competes in certain use cases, VRNS believes that it does not compete with a company that offers the same breadth of functionalities that it offers in a single integrated solution.

Nevertheless, VRNS does compete against a select group of software vendors, such as Symantec Corporation and Dell Software (formerly Quest), that provide standalone solutions, similar to those found in VRNS' comprehensive software suite, in the specific markets in which VRNS operates.

VRNS also faces direct competition with respect to certain of its products, specifically DatAnywhere, Data Transport Engine and DatAdvantage for Directory Services.

5% stockholders

Accel Europe Funds 25.6%

Evergreen IV, LP 23.1%

Pitango Venture Capital Funds 17.7%

J.P. Morgan Affiliated Funds 9.1%

EMC Corporation 6.4%

Yakov Faitelson 9.2%

Ohad Korkus 9.4%

Use of proceeds

VRNS expects to net $77.9 million from its IPO. Proceeds are allocated as follows:

general corporate purposes, including headcount expansion, working capital, sales and marketing activities, research and product development, general and administrative matters, and capital expenditures.

VRNS may also use a portion of the net proceeds for the acquisition of, or investment in, technologies, solutions or businesses that complement its business, although it has no present commitments to complete any such transactions at this time.

Disclaimer: This VRNS IPO report is based on a reading and analysis of VRNS's S-1 filing, which can be found here, and a separate, independent analysis by IPOpremium.com. There are no unattributed direct quotes in this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.