With Lyft already public and Uber, Airbnb, Pinterest, Slack, and Palantir rumored to come to market with public offerings this year, there’s no question that 2019 is the year of the Big Tech IPO. But is the robust level of private funding changing the game for investors?
Big and Bad
2019 is potentially going to be an eventful year for tech IPOs. A recent article by Pitchbook cites a number of startups surpassing $1BB in valuation around the world, from Chime, the San Francisco-based software company, to Confluent, Aurora, and Rent the Runway (Mathur and White, 2019).
It is notable that the confluence of new late stage money sources for startups has motivated companies to stay private for longer. Many 2019 IPOs are expected to be much bigger than IPOs have been in the recent past. With the median age of venture capital backed companies up almost 38%, we are now seeing what experts consider an IPO “backlog” (PitchBook Private Market PlayBook, 2019).
Has the Game Changed?
Aside from the size of the companies expected to go public this year, there seems to be a shift in sentiment from the market. Data from 2018 seems to imply that potential is starting to be viewed as more favorable than profitability (PitchBook Analyst Note, 2019). As in the example of the persistently loss-making DocuSign’s recent IPO, some IPOs seem to perform well in terms of price appreciation despite an apparent lack of justification.
To quote an article from TechCrunch, “public markets investors, therefore, are willing to deal with negative to minimal cash flows for, well, a very long time” (Clark, 2019).
There is other significant evidence of a shift in sentiment. A report by Goldman Sachs this year states that Bike and Scooter tech and Digital Health funding is starting to dampen, and there seems to be a growing appetite from VC firms for historically unpopular sectors such as Kids Tech, Insurance, Banking, Construction, and Manufacturing.
Look Before You Leap When Navigating the 2019 IPO Market
The fact that the public/private market dynamics have shifted is only one factor to take into account if you are considering investing in IPOs this year. Investors should consider each deal individually and in doing so there are a myriad of details to take into account.
It is also important to weigh each IPO in the context of your personal financial situation considering such factors as:
Appetite for volatility
Any legal implications of investing in IPOs
Unique preferences or ethical values that you may have
Clearly this is not something to be taken lightly. Investors should look before they leap.
What do you make of all these trends? Are you thinking of investing in an IPO in 2019? To share your thoughts with us or hear our take on other factors to consider, join our webinar on April 23rd by registering here.
Clark, Kate. (2019, March 26). Unicorns aren’t profitable, and Wall Street doesn’t care. TechCrunch. Retrieved from https://techcrunch.com/2019/03/26/unicorns-arent-profitable-wall-street-doesnt-care/.
Goldman Sachs. (2019, February 11). Venture Capital Horizons: Measuring value creation’s migration to private markets.
Molla, Rani. (2019, March 21st). Money-losing companies that went public in 2018 did better than profitable ones. Recode. Retrieved from https://www.recode.net/2019/3/21/18274843/unprofitable-tech-unicorn-ipo-stock-market-profit.
PitchBook Private Market PlayBook. (2019, March 12). Private Market PlayBook. Retrieved on March 27, 2019 from https://pitchbook.com/news/reports/1q-2019-private-market-playbook.
PitchBook Analyst Note. (2019, March 20). PitchBook Analyst Note: Searching for Validation. Retrieved from https://pitchbook.com/news/reports/1q-2019-pitchbook-analyst-note-searching-for-validation.
White, Andy, and Mathur, Priyamvada. (2019, March 5th). Meet the unicorn class of 2019. PitchBook. Retrieved from https://pitchbook.com/news/articles/unicorn-class-of-2019.