The movement to grab fundraising among technology startups last year found strong support among private equity players, but that reception might be a little stonier in 2016, according to The Wall Street Journal.
In fact, it might be the case that the public markets, often a second choice among startups due to more rigorous focus on valuation, may get wider consideration.
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As WSJ noted, several tech players fell short of private valuations, determined by funding rounds, as they came to list publicly on various exchanges. The $1 billion market cap “unicorn” valuation has been a bit tougher to come by, as some investors have backed away from some funding commitments, while others have shrunk valuations and investments through “down rounds.”
That means startups may have to, however reluctantly, choose the IPO route.
The tech and Internet arenas saw $9.5 billion in investment last year, said WSJ, citing data from Dealogic, which showed a marked slowdown from the $40.8 billion seen the year before. Likewise, the IPO tally was sheared, down to 29 in 2015 versus 62 in 2014. And seven startups belonging to the unicorn club went to the public equity well last year, a drop in the bucket compared to the 140 private companies valued at that level or above.
Once companies did go public, enthusiasm was lacking, as shares in those debuts gained a cumulative 1 percent, off from 29 percent in 2014.
One observer cautioned that entrenched Internet players may still hold sway in 2016. “Investors are hard-pressed to find a company that is disruptive to [the biggest Internet firms] in the near-to-medium term,” Colin Stewart, who heads technology equity capital markets at Morgan Stanley, told WSJ, adding that “investors will focus on scale and profit, not the public-private dynamic.”