2016 IPO Prospects: Avast Software Preparing for a Listing, Yet Again

According to a MarketsandMarkets report, the global cyber security market is projected to grow 10% annually to be worth $170.21 billion in 2020. North America is expected to be the largest market on the basis of spending and adoption of cyber security solutions and services. But, the smaller Latin American and Asia-Pacific regions will witness rapid expansion.

Avast Software’s Offerings

Prague-based Avast Software was founded in 1988 by two Czech colleagues Eduard Kuçera and Pavel Baudiš, who started it as a cooperative in the last years of communism. Pavel was a chemist by profession and Eduard had a doctorate in Physics. At the time of founding Avast, Pavel was a researcher at Prague’s Mathematical Machines Research Institute. At his work, Pavel encountered a sample of the Vienna Virus and decided to write a program to remove it from computer systems. He showed his code and the capability to his colleague Eduard, and together the two decided to start ALWIL Software cooperative. Due to the political regulations at the time, they were not able to set up a company and had to operate as a cooperative. By 1991, things had changed and the two could form a joint partnership company called ALWIL Software.

ALWIL’s first product was the Avast Software. The anti-virus program had received good feedback and by the mid-90s, the program was licensed by McAfee before McAfee had their own product. As political tensions eased and the Czech Republic joined the EU, things began to improve further for ALWIL. The company decided to migrate to a massive online distribution model that started slowly before finally taking off.

ALWIL was one of the pioneers of the freemium models. It began its online model by offering a freely available product for home users along with a paid-for product that was quite similar to the free one. Initially, the company used to ask its users to pay for the software after 15 months of installation. The company obviously did not generate much revenues, but it did manage to build a loyal customer base. The model did change later on, when its current CEO Vince Steckler switched over to a registration period where the users installed the free product and were asked to register to continue using it. As part of that registration, the company offered an upsell that helped grow its business. As of 2015, Avast had more than 230 million active users and a strong market share in the US, Europe, and Latin American regions.

Unlike other new age companies, Avast does not spend extensively on advertising and marketing to get new customers. Personal recommendations account for 65% of its new users and it relies on building a strong product. It also has a very unique product support community that has also helped them develop the product. Its tech support is almost entirely run by volunteers who handle nearly 90% of the function with some of them having answered as many as 60,000-70,000 questions. Read more about the company’s journey in my interview with CEO Vince Steckler.

Avast Software’s Financials

Avast earns revenues through the subscriptions to its software along with the fee it earns when users install software like the Chrome browser. The company has seen rapid revenue growth. In 2008, it had earned $18 million in revenues. In 2014, revenues came in at $217 million and in 2015, it was expecting revenues of $300 million. Avast is also profitable. In 2014, it recorded an EBITDA of 70%, or $151.9 million.

Avast was bootstrapped initially and since 2010 has received some venture funding. It has raised $100 million in funds from investors including CVC Capital Partners and Summit Partners. Its last round of funding was held in February 2014 at an estimated $1 billion valuation. 

Avast is now working on taking the company public, yet again. Back in 2012, it attempted to go public, but the market conditions were not favorable and it decided to back out. The company is now hoping to list soon and is targeting to be listed latest by next year.

This segment is a part in the series : 2016 IPO Prospects