2017 started off as a strong year for tech IPOs but things have slowed significantly as we move into the second half of the year. Analysts are very interested in understanding how several aspects of today’s tech businesses, including huge sums of private investments, are affecting the public market.
Here are the facts: About two decades ago, we used to have 300 IPOs per year. Since then, that average has fallen by more than half, which means publicly listed stocks in the U.S. declined by 50% from 1996 to 2016. Even more troubling however is that (1) other developed countries experienced a 50% increase in listed companies over the same time period; and that (2) the type of IPO candidates have changed as well: “Small-cap IPOs” (< $50M revenue) have declined significantly over this same 20-year period. Besides fewer jobs, companies not going public and staying private longer to “quasi-IPO” in the private markets means all the spoils of new company creation are only going to private market investors. Public market investors, who rely on the growth to diversify risk, fund retirement obligations and so on, are being left out.
-Scott Kupor via Andreessen Horowitz
Some companies are also dreading the possibility of a “down round IPO,” where there’s a disconnect between the public market cap and the pre-IPO valuation. Early investors and employees still make money in this scenario, but the investors and employees who came along later can get burned. The stigma of losing people’s money can be hard to recover from.
But others in the IPO community remain hopeful that 2017 will finish strong.
-Katie Roof, TechCrunch
Perhaps the number of listed firms will stop falling. This year several trendy companies have floated, including Snap, a social-media firm, and Canada Goose, a maker of expensive winter coats beloved of Manhattanites. If the euphoria over tech firms fades somewhat it may become harder for unicorns to raise money privately. Continued decline in the number of listed firms would be bad news. It would be a symptom of the oligopolisation of the economy, which will harm growth in the long run.
-Schumpeter, The Economist
If this hesitancy to go public continues for tech companies, it may open up increased opportunities for start-ups to continue to favor private investments over the capital that typically comes with an IPO.
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