Sunday, September 13, 2015

Where Are The Tech Unicorn IPOs?

So there's a premium for being illiquid?
From Venture Capital Dispatch:

Tech Boom? Not In the IPO Market 
The percentage of IPOs held by tech companies is at a seven-year low, according to new data, and those firms that have gone out are performing poorly, the latest signs that the public market isn’t buying what venture capitalists are selling.

Only 11% of U.S. IPOs so far in 2015 were held by tech companies, the lowest level since 2008 when 10% were tech and the financial crisis was in full force, according to research firm Renaissance Capital.

With 15 tech IPOs through August, this year could see the fewest such offerings since 2009. Shares of those 15 tech companies on average have fallen 4% from the IPO price, and 20% after the first day’s close, the latter being the price where retail investors are more likely to get in.

The weakening IPO picture starkly contrasts with the euphoric mood in the private markets. There are now at least 117 private companies valued by venture firms at $1 billion or more, nearly double the amount from one year ago. Until a few years ago, only a handful of startups had ever reached the $1 billion mark before going public.

“The VC premise that all of these fast-growing private companies are easily worth 10x to 20x forward sales is not holding up in the public markets and will make it tough to produce the returns their limited partners are expecting,” said Paul Bard, Direct of Research at Renaissance.

As hot private tech companies raise capital at ever-higher valuations, they are making it more difficult for potential acquirers to scoop them up at a price that will lead to a payoff for late-stage investors. The other way for them to cash out is via an IPO, but public markets aren’t looking receptive, a problem compounded by recent volatility. The conditions could lead to the dreaded “down round,” in which a company sells shares at a discount to a previous fundraising.

Mr. Bard pointed to the recent sale of Good Technology Corp., which had been a member of The Wall Street Journal’s Billion Dollar Startup Club since raising capital at a $1 billion valuation in April 2013. Last Friday, BlackBerry Ltd. said it agreed to acquire Good for $425 million.

The premium for private company shares relative to what they might fetch publicly is all the more confusing since rational investors should demand a discount for the long period of illiquidity before a sale or IPO, a period during which they can’t sell their shares and there is substantial risk that a young company can’t meet its projections....MORE