Womp, Womp: Dell’s SecureWorks IPO Off to a Disappointing Start

The tech sphere has finally seen its first IPO of the year, and true to form in the 2016’s lackluster market, it fell short of expectations. Dell subsidiary SecureWorks (SCWX), a digital security provider, launched its initial public offering on Friday with an asking price of $14 per share, well below its expected price of $15.50 to $17.50 per share. The company sold eight million shares for a total of $112 million Friday, again falling short of its target of nine million. Stock closed right at $14 on Friday, and is trading at $13.69 as of the time of this writing.

Security companies, channel partners and investors are watching the SecureWorks IPO closely, hoping for signs that the market is warming up to future activity. But many of the security companies that went public last year are performing below expectations, and declining shares in those companies likely impact what investors are willing to pay for SecureWorks.

“Valuations are too high,” says Chris Lynch, partner at venture capital firm Accomplice. “There’s been an over-infusion of capital into the tech sector, which has created artificial valuations in companies that aren’t building real products and services.” The market is now going through a digestion period from that glut of funding, Lynch says, waiting to see what will perform and what will fail. In the meantime, investors are abstaining from new cybersecurity ventures.

Despite growing revenues, the company shares some worrisome key characteristics with the so-called unicorns—those private, venture-backed startups with valuations above $1 billion that caused so much ruckus last year—namely growing losses and an emphasis on top-line growth. At its closing share price Friday, SecureWorks was valued at more than $1 billion, and that was down almost half of what it was expecting when it filed for an IPO late last year.

Still, there’s hope that the SecureWorks IPO isn’t necessarily reflective of the market overall. The company differs from typical tech startups both in age (it was founded in 1999) and the fact that it’s a Dell subsidiary based in Atlanta rather than a scrappy startup founded in a Silicon Valley garage. We’ll be hearing a lot about those differences as other tech companies such as hyperconverged infrastructure provider Nutanix and Optiv Security try to time their IPOs just right.

So what lessons can the channel learn from all this?

“Channels invest a lot of money in picking up products on their line cards,” Lynch says. “In hyperactive markets, the natural tendency is to blow your line card, meaning carry a lot of stuff that waters down your expertise.” In times like these, he advises resellers and service providers to approach their product portfolios like venture capitalists approach their investment portfolios.

“It’s about being selective, being intellectually honest about what you have invested in over the last two or three years of this hypergrowth and really examining if these companies are delivering incremental, differentiated value to your customers.”