After all those years where startups haven't gone public, 2020 is a little different. It appears that more companies are registering and more companies are seeing debut. We're even seeing SPAC-led direct listings and deals, along with a treasure trove of traditional IPOs.
The data confirms how we feel about this year's IPO market. Notably, however, the year didn't start too hot.
Much of the 2020 IPO results came in the third quarter, with the quarter's IPO tally setting a record in terms of IPO volume and dollars raised at least since early 2016, according to data from PwC. But on the back of the third quarter, 2020 will be a good year for tech debuts, at least compared to recent history.
Because? That's a good question. Analyzing the root IPO file this morning a ProWellTech reader asked why we are seeing so many IPOs after they have gone out of style for so long; after a decade of privacy being the hot thing, why are so many companies trying to go public now?
There are a few reasons, I believe. Here are some good ones:
- In today's market, public valuations now regularly outperform private valuations. This is something a startup executive told me recently and I heartily accepted. Just look at, say, Snowflake's IPO to understand this dynamic. Or the recent debut of JFrog. Or how investors initially responded to Lemonade's IPO. You got the idea. Public investors, and especially their retail investing executives, are content to raise the value of unicorns in anticipation of future growth. Just like private investors have been doing for some time.
- This means that it is a good time to go public if it eventually becomes necessary, as public shares are near all-time highs. If you're a company that will go public in the next few years, why not do it now, when demand for growth-oriented stocks has been demonstrated, and you can probably defend your valuation? It just makes sense!
- This fact is compounded by the huge number of private companies that are old as hell and need to get the fuck out of the private sandbox. If you're a company that really needs to go public, like Airbnb (for technical reasons related to expiring options), now that's fine and now it's fine, because tomorrow it could be even worse.
- And good news, there are so many ways to go public now! Finally, there are a plethora of options available for companies that wish to list. Don't want to price through a traditional IPO? No problem. How about a direct list? Don't want that or a traditional IPO? No problem. How about one of the about a dozen SPACs that are hunting for companies to take public?
You have to make hay while it's sunny, and with the Nasdaq still over 11,000 and rumors of more federal aid ever-present to keep markets up, it's a good time to list. Hence the wave.
In conclusion, it's worth noting that the 2020 average pace of unicorn IPOs is still not enough to clear the rolls. There will be many unicorns stuck in their enclosure once the public market inevitably changes.
This will appear on the podcast, probably soon. So make sure you're tuned.