6 Companies on Disruption Watch

For years, I wrote a column called Baby Breaker Birth Announcements in which I'd profile venture-backed private companies poised to disrupt existing industries. With the IPO market alive and kicking again, I've taken a look back to see what some of yesterday's infants have grown up to be:

  • Yelp rebuffed Google's acquisition advances in 2009 and then partnered with OpenTable last summer. CEO Jeremy Stoppelman recently told Bloomberg that the business is "growing about 100% a year." An IPO seems likely.
  • Boingo Wireless (Nasdaq: WIFI  ) , a 2006 Baby Breaker, raised $78 million in a May IPO. (Though, to be fair, the stock trades below its debut price as of this writing.)
  • Friendster, which received $10 million in additional funding in August 2006, has since been made irrelevant by the rise of Twitter and Facebook. TagWorld seems to have suffered a similar fate. So have too many others to name.

Back to the crib
This is just a sampling, of course. But as I see it, as turbulent as tech investing can be, there are enough interesting stories here to resuscitate the column. Here's a closer look at three companies that recently received funding. As you'll see, each one is targeting an incumbent tech industry:

Company

Funding

What It Does

Who It Disrupts

Cotendo $17 million Network for accelerating Web delivery of software. Akamai (Nasdaq: AKAM  )
Flipkart $20 million Online superstore serving India. Amazon.com (Nasdaq: AMZN  )
Pulse $9 million Mobile e-reader that organizes headlines for rapid browsing. Yahoo! (Nasdaq: YHOO  )

Sources: TechCrunch's funding rounds database.

If you've read my coverage of Akamai, you know about Cotendo. The two companies are engaged in patent litigation, while Cotendo is working with Google on an open-source system called mod_pagespeed for accelerating the delivery of cloud-computing data. Citrix and Juniper Networks led Cotendo's $17 million funding round, with existing investors Benchmark Capital, Sequoia Capital, and Tenaya Capital also contributing.

Flipkart is establishing itself as India's Amazon.com before the original can establish a presence on the subcontinent. The company has sold some 2 million items across all categories, attracts roughly 4 million unique visitors per month to its site, and is on track to generate $50 million in annual revenue, TechCrunch reports. Private equity firm Tiger Global recently pitched in $20 million to fund Flipkart's growth plan.

Alphonso Labs raised $9 million from VCs to add to the engineering team for Pulse, a newsreading app that's become popular on both iOS and Android. Think of it as a magazine rack that stacks stories instead of periodicals. Topics are organized vertically; users then navigate horizontally, swiping right-to-left to browse headline blurbs. The idea attacks portals that combine news with email, IM, and other communications tools.

Adolescents
The thing about babies is that they always grow up. Here are three disruptors who've recently filed or updated S-1 forms ahead of planned public offerings:

Company

IPO Funding

What It Does

Who It Disrupts

Carbonite TBD Online data backup for PCs. Western Digital (NYSE: WDC  )
HomeAway $248 million Online marketplace for vacation rentals. Marriott (NYSE: MAR  )
Zillow $52 million Online real estate marketplace. Move (Nasdaq: MOVE  )

Sources: Securities and Exchange Commission filings.

Carbonite filed its first prospectus this week, which means a formal offering could still be months away. Yet it's never too early to take a closer look at a good company, and Carbonite's idea -- synchronized PC data backup in the cloud -- is a good one. Others in this business include Mozy, Box.net, and, well, too many more to name. You'd think the level of competition would hurt Carbonite, but the S-1 says otherwise. Customer retention teeters between 96% and 97%, and revenue has doubled in each of the last two years. The days of owning a library of backup discs may be coming to an end.

HomeAway's revised prospectus added pricing details for an IPO that could commence within weeks. The company expects to raise as much as $248 million in the offering, padding a balance sheet that's already flush with roughly $96.8 million in cash and short-term investments with no debt. (Click here for more on HomeAway's prospects.)

Finally, there's Zillow. The Web-based real estate tracker will be the first Nasdaq company to use a single ticker symbol: "Z." Its revised prospectus includes May traffic data, which was up almost 10% from April and 102% year-over-year. Zillow plans to raise $52 million in its IPO. Both HomeAway and Zillow should debut around the same time.

See anything I missed? Which Baby Breakers do you like most? Let me know using the comments box below. If you're interested in learning more about how the Internet is transforming business models and giving rise to new Baby Breakers, take a minute to watch this free video right now. You'll walk away with a stock idea from our Motley Fool Rule Breakers scorecard and a richer understanding of the cloud-computing revolution.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He owned shares of Akamai and Google at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of Google, Yahoo!, and Western Digital. Motley Fool newsletter services have recommended buying shares of Amazon.com, Akamai, Google, OpenTable, and Yahoo!; as well as shorting Juniper Networks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 08, 2011, at 6:53 PM, dlynwild1 wrote:

    Glad to see your column! Especially interesting following up on previous watch list performances.

    Couple questions -

    I recently read that in April this year: ListHub operator Move, Inc. and Zillow, Inc., entered into a long term content syndication agreement for the ListHub publishing network. ListHub is the largest online syndicator of real estate listings to real estate web sites and provider of performance reports for brokers, franchises, and Multiple Listing Services (MLSs). ListHub is Zillow's largest listings syndication partner.

    Can a company disrupt another company that it has a business agreement with?

    I also read that Zillow hasn't made a profit yet. How does that factor into the picture, in terms of it being a disruptor to watch?

    Thanks!

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