Why startups are going public now
After all those years of startups not going public, 2020 is a little bit different. It feels like more companies are filing, and more companies are seeing their debuts through. We're even seeing direct listings and SPAC-led deals, along with a trove of traditional IPOs.
Data backs up how we feel about this year's IPO market. Notably, however, the year did not start out too hot.
Quite a lot of 2020's IPO results came in Q3, with the quarter's IPO tally setting a record in terms of IPO volume and dollars raised since at least the start of 2016, according to data from PwC. But on the back of the third quarter, 2020 is going to be a good year for tech debuts, at least compared to recent history.
JFrog and Snowflake's aggressive IPO pricing point to strong demand for cloud shares
Why? It's a good question. Parsing through the Root IPO filing this morning a TechCrunch reader asked why we're seeing so many IPOs after they were out of vogue for so long; after a decade of staying private being the hot thing, why are so many companies trying to get public now?
There are a few reasons, I think. Here are some good ones:
- In today's market, public valuations now regularly outstrip private valuations. This is something a startup exec told me recently, and I heartily agreed. One only needs to look at, say, the Snowflake IPO to understand this dynamic. Or the recent JFrog debut. Or how investors initially responded to Lemonade's IPO. You get the idea. Public investors, and especially their retail investing cadre, are content to bid the value of unicorns up in anticipation of future growth. Much like private investors have long done.
- This means that it is a good time to go public if you eventually have to, as public equities are near all-time highs. If you are a company that is going to go public in the next few years, why not do so now, when there is demonstrated demand for growth-oriented shares, and you can probably defend your valuation? It just makes sense!
- That fact is compounded by the sheer number of private companies that are old as hell and need to get the frak out of the private sandbox. If you are a company that really needs to go public, like Airbnb (for technical reasons relating to expiring options), now is great and now is good, as tomorrow may well be worse.
- And good news, there are so many ways to go public now! Finally, there are myriad options available to companies looking to list. Don't want to price via a traditional IPO? No worries. How about a direct listing? Don't want that or a traditional IPO? No worries. How about one of around a dozen SPACs that are hunting for companies to take public?
You gotta make hay while the sun is out, and with the Nasdaq still over 11,000 and rumor of more federal relief ever present to keep markets high, it's a fine time to list. Hence the wave.
In closing, it's worth noting that the average 2020 pace of unicorn IPOs is still not nearly enough to clear the rolls. There are going to be a lot of unicorns stuck in their pen once the public market, inevitably, turns.
This is going to come up on the podcast, probably soon. So make sure you're tuned in.