Israeli Startup JFrog Weighing Nasdaq IPO at $1.5 Billion Valuation

Sources told TheMarker that the company, which develops DevOps tools, has begun meeting with investment bankers

A JFrog advertisement on Rothschild Boulevard in Tel Aviv, October 26, 2019.
Netanel Gams

Anyone visiting Tel Aviv these days will find it hard to miss ads for the Israeli startup JFrog. The Azrieli Towers, Ayalon Highway and Tel Aviv Port all sport green and white signs emblazoned with the slogan “Imagine there’s no version.” It’s referring to JFrog’s technology for releasing software updates frequently without the user even being aware.

The 4-million-shekel ($1.1 million) campaign comes as the company opens a Tel Aviv office. Along with the company’s latest developers’ conference, the ad campaign signals a change in JFrog’s strategy and a bid to raise its profile. That, in turn, could be linked to plans that have emerged over the last several weeks for an initial public offering.

Sources have told TheMarker that executives at JFrog, a so-called unicorn startup valued at more than $1 billion, have started meeting with investment bankers in New York to choose an underwriter. The plan is to go public at a $1.5 billion valuation sometime next year for trading on the Nasdaq.

JFrog declined to comment on the reports, with a spokesman saying that “the company doesn’t respond to rumors or speculation.”

JFrog is profitable and widely regarded as one of Israel’s fastest-growing companies. Founded in 2008 by CEO Shlomi Ben Haim and Chief Technology Officer Yoav Landman, the company develops so-called DevOps tools for automating the process of building and maintaining apps.

JFrog currently has about 4,500 customers including Apple, Facebook, Twitter, Tesla, Google and Amazon. It employs around 400 people in several offices around the world, the biggest one in the Israeli coastal town of Netanya.

“JFrog’s vision is that the entire world of software updates will be done constantly and in the background – without any interference,” Landman told TheMarker in an interview last year. “A decade ago there would be a handful of updates every few weeks or months, but the time between updates has fallen to every few days or few hours to the point that it has become an almost unbroken stream.”

This year JFrog is expected to reach revenues of more than $150 million, putting it well above the $100 million sales target its executives talked about last year as the minimum to start thinking about an IPO.

JFrog has so far raised $220 million from investors in four rounds; the last one a year ago raised $165 million. That round was led by New York-based Insight Venture Partners, whose managing director, Jeff Horing, sits on JFrog’s board.

Before that, JFrog had raised $50 million from, among others, Scale Ventures and Battery Ventures of the United States and Israel’s Qumra Capital and Vintage Investment Partners. Before that JFrog raised capital from corporate investors like EMC and VMware.

At the start of this year Ben Haim said JFrog was valued at $1.2 billion. “We’ve started building relationships with public investors, but we’re still only testing the water,” he said. To help prepare the company for an IPO it hired Jacob Shulman from publicly traded Mellanox Technologies as chief financial officer.

Going public on the Nasdaq will better enable JFrog to cope with growing competition from Google and Amazon, which have started developing DevOps products similar to JFrog’s.

“It’s still not clear how the world in which we operate in will look …. Companies like ours will either grow to be giants or will be swallowed up by one of them,” Ben Haim said at the start of the year.

The market for tech IPOs has revived this year on Wall Street. Falling interest rates in the United States have been responsible for that, driving prices for Nasdaq technology shares up 25% this year. Valuations have become generous.

The result is that more and more tech companies have been going public rather than continuing to raise capital from private investment funds. Investment bankers have been quick to take advantage of the window of opportunity and are moving ahead with IPOs that were on their waiting list. Among the biggest this year have been the ride-sharing companies Uber and Lyft, the video conferencing company Zoom and the social network Pinterest.

But many of these IPOs have been flops. Shares in Lyft, for instance, have fallen from $78 at the time of its IPO to $44. Uber and Snap (Snapchat’s parent) have seen their share prices fall to below their offering price.

Last month, WeWork, which was co-founded by Israeli Adam Neumann, was forced to pull its IPO altogether and its failure has ruined Wall Street’s appetite for tech companies, especially those that aren’t yet showing profits.

Apart from JFrog, two other Israeli companies have begun the IPO process this year. The biggest is Lemonade, a digital-insurance startup that’s seeking to raise $500 million at a giant company valuation of $2 billion. If it succeeds, Lemonade will be one of the biggest offerings ever out of Israel.

Herzliya-based Zerto, which provides disaster-recovery and backup services for cloud-based computer networks, is considering an IPO at a company valuation of up to $600 million. Its executives met with U.S. investment bankers earlier this year, and it’s expected to raise about $150 million if the IPO happens. The company declined to comment.

The last Israeli company to go public on Wall Street this year was Fiverr, whose online platform matches freelancers with customers. Its June IPO on the NYSE valued the company at $650 million, far less than it had originally hoped to get. Its market value today is about $750 million.