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.
Control-Alt-IPO

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.

Go deeper

Energy deputy secretary nominee in hot water after contradicting Trump

Mark Menezes speaks at a forum in Addis Ababa, Ethiopia, June 12. Photo: Minasse Wondimu Hailu/Anadolu Agency/Getty Images

Trump administration officials are internally raising concerns about President Trump’s nominee for Energy deputy secretary, who appeared to openly contradict the president on nuclear waste storage at Nevada’s Yucca Mountain last week.

Driving the news: While speaking at a House Energy and Commerce subcommittee hearing last Wednesday, Mark Menezes told members of the panel that the Trump administration is still interested in storing nuclear waste at Yucca Mountain and that “what we're trying to do is to put together a process that will give us a path to permanent storage at Yucca."

Exclusive: Pompeo says new China media restrictions "long overdue"

Photo: Mark Wilson/Getty Images

The State Department announced Tuesday that it has designated five Chinese state media outlets as "foreign missions," meaning that they will be treated as arms of the Chinese government.

Driving the news: In his first public statement on the new designation, Secretary of State Mike Pompeo tells Axios that the five outlets are "clearly controlled by the [Chinese Communist Party], and we are simply recognizing that fact by taking this action.”

Go deeperArrow1 hour ago - World

Trump pardons the swamp

Rod Blagojevich in 2010. Photo: Scott Olson/Getty Images

President Trump announced Tuesday that he would commute former Illinois Gov. Rod Blagojevich's 14-year prison sentence for extortion, bribery and corruption — as well as issue full pardons for former San Francisco 49ers owner Edward DeBartolo Jr., former NYPD Commissioner Bernie Kerik and financier Michael Milken.

The big picture: The president's clemency spree largely benefitted white-collar criminals convicted of crimes like corruption, gambling fraud and racketeering, undercutting his message of "draining the swamp."

Go deeperArrowUpdated 2 hours ago - Politics & Policy