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Dropbox, Spotify Have Venture Capitalists Extremely Bullish About Tech IPO Market
Venture Capital, Capital Markets
In the end, 2017 did not turn out to be the big turnaround for the tech IPO market that many analysts had predicted – or at least hoped for – following a historically bad year in 2016.
Fairly or not, a lot of the blame for the mediocre showing last year – okay, most of the blame – was placed squarely on two hyped public offerings that both flamed out quickly: Snap Inc. and Blue Apron. The former got off to a great start, closing its first day of trading up 44 percent before nosediving below its IPO price; the latter floundered almost immediately and is now trading below the price of one of its meals.
To be sure, the overall IPO market did recover some in 2017 compared to its terrible results in 2016, delivering 50% more deals than the previous year and doubling proceeds to $36 billion, according to Renaissance Capital. The tech IPO market also saw a modest rebound, with 37 IPOs that raised $9.9 billion, compared 21 IPOs in 2016 that raised only $2.9 billion.
But Silicon Valley’s venture capitalists aren’t in the business of pretty good, so anything less than a blockbuster year in the tech IPO market is going be met with a collective yawn. Luckily for Silicon Valley, the sleeping giant might be ready to finally wake up.
Unlike last year, the two most hyped tech IPOs in 2018 – Dropbox and Spotify – have both gotten off to rousing starts. At $756 million, Dropbox is the biggest tech IPO since Snap, its market cap rising from $8 billion to $12 billion on its first day of trading; the Stockholm-based Spotify, which went with a direct listing on the New York Stock Exchange for its IPO, had an opening value on the of $165.90, making it the the third-largest U.S.-listed IPO in history.
And now after the successes of Dropbox and Spotify, Silicon Valley is prepping for “a wave” of IPOs to follow, according to the New York Times.
The tide has turned, venture capitalists said. “I talk to bankers all the time and they’re like: ‘Dude, we have stuff coming down the pike. There’s a bunch of offerings teed up,’” said Rob Hayes, a general partner at First Round Capital, who led a $1.5 million funding round in Uber in 2010 that valued the company at $4 million. Uber is now worth $68 billion.
The Times notes that this expected wave of IPOs will likely include some of the biggest A-List privately held companies, including Uber, Airbnb and Lyft.
A wave of tech I.P.O.s would have implications for Silicon Valley’s start-up ecosystem. Once start-ups go public and their employees pocket some of the wealth, executives and engineers may leave with more resources to begin their own start-ups. That gives venture capitalists a fresh set of companies to invest in, renewing the cycles of innovation and experimentation that sit at the heart of Silicon Valley.
The I.P.O.s will also earn the venture capitalists big returns — and bragging rights. According to an annual ranking of venture capitalists by CB Insights, a research firm that follows start-ups and venture capital, many of the top-ranked investors backed companies with 2017 I.P.O.s, including the software maker MuleSoft; Stitch Fix, a mail-order clothing service; and Snap. (While Snap has struggled on the stock market, investors bought in at far lower valuations.)
Uber will no doubt be closely watched, especially since the ride-sharing company – despite being rocked by scandal – took in a reported $1 billion investment last year from SoftBank’s $100-billion Vision Fund, which the Japanese telecommunications giant launched with Saudi Arabia’s Public Investment Fund to invest in tech firms across the globe. This investment essentially allowed Uber to remain a private company, while raising money that it would have sought through an IPO.
In fact, as SoftBank continues to ramp up its investments in the global tech market, some have wondered whether this could actually hurt the IPO market, letting companies bypass the hassles of filing for an IPO and instead just staying private and taking money from SoftBank.