Some unicorns have finally accepted reality
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Illustration: Tiffany Herring/Axios
Venture capital's distribution blockade may be breaking down, at least a bit, thanks to some unicorns finally accepting that their ZIRP-era valuations were inflated.
Driving the news: Circle is expected to price IPOs this week, at a valuation below where it previously was valued by venture capitalists. Omada is expected to price just slightly higher.
- Chime yesterday launched its roadshow, with pricing expectations suggesting more than a 50% haircut to the $25 billion valuation it fetched n 2021.
- Hinge Health and eToro both recently went public below their private valuations.
The big picture: This is beginning to feel like a sea shift.
- For the past two years, most unicorns delayed IPOs until they could "grow into" their valuations. Some of this was to protect against dilution and to maintain employee morale, although ego also seemed to play an outsized role.
- There also were fears that public market investors would view valuation discounts as a sign of weakness, and drive share prices down even farther (i.e., deSPAC redux).
- Now, however, there's a cohort of companies that have decided to stop endlessly circling their destination. And they've been rewarded, often with upsized IPOs and strong aftermarket performance. Hinge and eToro, for example, are up 26.4% and 17.8% from their IPO prices, respectively.
Zoom in: Yes, some of these companies and later-stage investors might be getting some shove from clauses in structured deals, but that's par for the course after a valuation bubble.
Look ahead: The private markets often operate with a herd mentality, which means this recent IPO burst should have tailwinds; with an obvious caveat of macro economic disruptions.
- Not so much during the early summer, when bankers still like to vacation, but in the run between Labor Day and Thanksgiving.
The bottom line: We've heard "wait 'til next half" for years when it comes to IPOs. This time it might actually turn out to be true.
