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Start-up employees and shareholders of the public markets spent two exciting months. Indeed, a growing number of brands that have been talking about becoming public for some time are starting to get off the ground and, overall, are receiving enthusiastic receptions. Lyft, Zoom, PagerDuty and Pinterest all have a higher price than their ranges marketed in sensational public offerings. Meanwhile, Uber is moving towards what should be the biggest IPO in recent years looking for an estimate that is rumored to be $ 100 billion.
But industry watchers who hope companies can start going public more quickly than in the past could be disappointed. At least, according to the industry players we spoke with, a more general change is not likely to happen – if ever. In fact, in the absence of a spectacular development, it is much more likely that startups continue to stay private as long as they can.
The numbers tell much of the story. According to the investment bank Scenic Advisement, private investors spent $ 130.9 billion in technology and biotechnology companies last year, far exceeding the $ 50.3 billion collected through IPOs and IPOs. subsequent offers. At the same time, says Scenic, the total value of private market investments increased by 57.8% in 2018, the tenth consecutive year in which private share sales outpaced those in government markets. This trend is also continuing, with venture capital investment flows far exceeding public sector fundraising so far in 2019.
Consider that Lyft raised $ 4.91 billion in the private market, compared to about $ 2.34 billion in its recent IPO. Dropbox, which was released last year, raised $ 756 million on its IPO, compared to $ 1.7 billion privately collected. Uber has raised nearly $ 20 billion privately and is expected to raise about $ 10 billion in its upcoming offer. (Some companies have also resisted this trend.) Zoom has raised $ 161 million privately and $ 750 million during its IPO last week. "DocuSign, which was released last year, also collected more, to US $ 630 million, which its 550 million investors had channeled to the company while still private)
These ratios may not change much in the future, despite the strong success of the IPO. "At the beginning of this decade, there was a relative parity between the amount of funds raised by venture capital and the amount generated by IPOs," said Shriram Bhashyam, founder and advisor of EquityZen's secondary trading platform. . "But private financing has exceeded the proceeds of IPOs in recent years and this gap continues to widen."
Even if all private startups are not potential candidates in the public market, it gives you an idea of how public and private markets are still changing, he suggests.
Public markets readily recognize change. Last week, we spoke to Jeff Thomas, who oversees Nasdaq's operations for the western United States and who for several years held the position of president at Nasdaq Private Market, which the stock market formed in 2013 to offer businesses alternative liquidity solutions while remaining private.
Thomas spoke at length about the need for companies not to go public to gain access to capital, noting that there was a "ton of capital" flooding private companies and anticipating that much more would come. (Note: The $ 130 billion invested in startups last year broke the previous record of $ 105 billion hooked on startups in 2000.)
Staying private is well known and well documented. In addition to the money available, the founders can avoid the analysis of research analysts and regulators, not to mention the sometimes short-sighted shareholders in the public market who are not afraid to take action when they feel cheated. Lyft is already sued by shareholders who are worried that the company's shares are down about 25% from the peak of the opening day. As Bloomberg recently reported, Snap was sued less than 10 weeks after its publication; Blue Apron was sued within seven weeks of its IPO.
However, public markets are not going anywhere, nor for well-understood reasons. Even if they decrease relative to the public market, companies that can become public will continue to do so because it is easier for them to acquire other companies once their shares are converted into common shares because they will lose employees if they do not. do not become public. (Most private companies limit the number of shares that employees can sell), and because there is always some cache associated with being a publicly traded company. This last point is particularly important to attract other companies in partnerships. "Being a publicly traded company and being able to give visibility to your balance sheet is very useful for customer development," says Thomas.
Making a company public is also a way to combat income inequality, a situation that has worsened as more and more investors from private companies – already the richest in the world – enjoy almost exclusive access to businesses during their strongest growth.
This may not be a major concern for the Directors-General, but it is an important point that will, hopefully, resonate when the trend lines and their consequences become clearer. "There are now so few people who can participate in the private market on a relative basis," says Thomas. "America represents life, freedom and the pursuit of happiness, including having enough money to pay for university and retirement." The current trend of staying private longer "makes it much more difficult for individuals to pursue this dream, "he adds.
That's why the Securities and Exchange Commission, chaired by Jay Clayton, wants to make it easier for individuals, like family investors, to invest in private companies.
Whether Clayton succeeds or not, remains an open question. Meanwhile, mutual fund investors, including T. Rowe Price and Fidelity, have continued to focus more on their own start-up assets, knowing that if they want alpha, the private market is will find them. Private equities still represent only a small fraction of their assets, but for ordinary investors who want to have access to more of the hottest startups as they prepare, this might be enough for the moment.
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