Dec 19, 2017

Tech IPOs faced unexpected headwinds in 2017

Illustration: Rebecca Zisser / Axios

2017 was a year of change and sluggishness for tech IPOs, against a backdrop of record-high stock market prices.

Why so complicated: The arrival of alternative mechanisms, rocky performances from some high-profile issuers (e.g., Snap, Blue Apron), the arrival of deep-pocketed SoftBank, and a renewed public market emphasis on profitability over growth.

Staying private longer

The JOBS Act of 2012 helped tech companies remain private longer by removing a rule that companies must begin publicly disclosing financial information once they had more than 500 shareholders. It's what effectively forced Google to go public, and would have had a similar impact on companies like Airbnb and Uber.

  • "I think the JOBS Act has done permanent harm to the IPO market," says Lise Buyer, founder of IPO consulting firm Class V Group, particularly because sky-high valuations for older companies leave less room for growth post-IPO.
  • SoftBank this year unveiled its $100 billion Vision Fund, which is by far the largest-ever investment vehicle aimed at private technology companies. In fact, it's the largest-ever private equity fund of any kind. It has made delaying going public easier for companies like WeWork, and even recently tried (but failed) to preempt an IPO for fashion subscription service Stitch Fix.
  • Snap's highly-anticipated March listing went smoothly, but its rapid stock price decline may have scared off some other consumer-focused tech companies that were considering IPOs of their own.

Some bold IPO alternatives emerged this year, designed to alleviate the pain of listing, of being public, or both.

  • Venture firm Social Capital took public a special purpose acquisition company in September. While technically an IPO, the real goal was to acquire a tech "unicorn" that wants to avoid its own listing. "The whole process sucks," Social Capital's Chamath Palihapitiya told Axios at the time.
  • Spotify continues to plan for a direct listing, which would circumvent the standard Wall Street float. If successful, it could become a model that others will follow.
  • The Long-Term Stock Exchange emerged to help let public companies focus more on long-term goals than short-term shareholder capriciousness.
  • Several pre-IPO companies got acquired before anticipated listings, such as Cisco buying AppDynamics and Vista Equity Partners buying Datto.
Crystal Ball

A rise in interest rates could lower the amount of late-stage capital for private tech companies, as mutual funds and other large institutional investors shift their asset allocations, says John Tuttle, global listings chief at The New York Stock Exchange. That could create a flood of new issuers, or just better negotiating leverage for SoftBank.

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