Tech group public-private funding gulf widens http://on.ft.com/1SqE1hq
A chasm has opened between the private and public financing of fast-growing tech groups as more Silicon Valley companies shun initial public offerings, contributing to a sharp fall in global listings of all kinds.
Tech companies raised less than $10bn through IPOs in the US in 2015, according to Dealogic, compared with $41bn the year before, when the figure was boosted by the $25bn raised by Chinese ecommerce company Alibaba.
The dearth of IPOs has provoked consternation among venture capital investors in Silicon Valley, who have seen a hoped-for payday repeatedly deferred in recent years as companies such as Uber, Airbnb and Palantir have opted to stay private rather than follow earlier generations of successful start-ups to Wall Street.
“There’s some impatience around the fact that we need liquidity,” said Bill Maris, head of the venture capital arm at Alphabet, the holding company for Google. “Companies generally need to go public so there’s liquidity in the marketplace. I think we’ll move in that direction, because I don’t know how much further the pendulum can swing in the direction it’s already gone.”
With tech start-ups shunning Wall Street, the amount raised instead from venture capitalists in 2015 is expected to show its second-biggest year ever when official numbers are reported, topped only by the dotcom bubble year of 2000.
If the fourth quarter matches the year before, the amount of private investment would have exceeded $60bn, or more than six times as much as tech companies raised on Wall Street during the year — twice the differential that existed at the height of the dotcom boom.
The flood of money into so-called “unicorns”, or private start-ups valued at $1bn or more, made it unnecessary to seek a listing, said Lise Buyer, an IPO adviser in Silicon Valley. “In 2015, it was raining money on them, so why bother?”
Anthony Kontoleon, head of global syndicate in equity capital markets solutions at Credit Suisse, added: “Tech has been largely absent from the IPO market given the availability of private market alternatives.” He predicted that there would be “a make-up over the next 24 months as these companies continue to refine their business models and prepare for the public markets”.
Mr Maris said more IPOs were needed so funds such as his could report returns for their investors. He also echoed a view expressed by a growing number of VC investors in recent weeks that holding back from IPOs was shielding successful tech companies from the disciplines imposed by public markets on more mature companies and reducing the opportunities for their employees, many of whom held stock, to cash in.
The collapse in tech IPOs lay behind a broader decline in US IPOs, with companies tapping Wall Street for only $36bn during 2015, less than half the $96bn of the year before. Total global proceeds from new listings fell nearly 30 per cent from $264bn in 2014 to $194bn.
Signs in recent weeks that private investors have grown more wary could force more tech companies to consider IPOs next year, several VC experts said. VC investment “has definitely fallen pretty materially”, said Anand Sanwal, chief executive of CB Insights. Operational difficulties at some highly valued start-ups, including Dropbox, Evernote and Jawbone, have contributed to the change in mood, he added.
Stock market volatility, a factor behind the postponement of share sales by the grocer Albertsons and retailer Neiman Marcus in 2015, could also contribute to a shift in the balance between supply and demand in the IPO market. Analysts predict that companies will have to offer discounts to their publicly traded peers to get deals done, a trend that was already apparent in the final months of 2015.
“IPO buyers are back in the driver seat,” said Matthew Kennedy, an analyst at Renaissance Capital, which specialises in IPO research and investment.