Where Have All The Tech IPOs Gone?

Tech is in something of an IPO slump.

Only 11 percent of U.S. IPOs have come from the technology segment in 2014, according to research by Renaissance Capital. That represents the lowest level the marketplace has seen since the height of the Great Recession when tech was only 10 percent.

Part of the problem is valuation and if public markets are ready to pay VC-type money for still-developing ventures. There are presently 117 venture firms valued at $1 billion or more. And unless the markets support those valuations — and grow them — investors could find it hard to get back all of the billion they put in.

“The VC premise that all of these fast-growing private companies are easily worth 10x to 20x forward sales is not holding up in the public markets and will make it tough to produce the returns their limited partners are expecting,” said Paul Bard, director of research at Renaissance.

Some startups are doing quite well and have intentionally held off because staying private has allowed these firms to grow globally and at an amazing and lucrative pace. Uber is expected to see its revenue jump by 400 percent this year, and Airbnb is expected to see its revenue triple.

Plus, long, VC-supported infancy might be the new normal for the valley’s tech outfits.

“In the modern era, public market time horizons have never been shorter, and private market time horizons have never been longer,” Venture Capitalist Marc Andreessen said in an exchange with a Wall Street Journal writer on Twitter.

Also, conditions this year have been far from ideal. Stock market volatility has become the rule instead of the exception of late, driven by a jittery and downshifting Chinese economy.

Additionally, some very prominent tech firms that IPOed to big applause have struggled. Twitter, Box, Lending Club and Alibaba have all faced trouble keeping their stock price up, and investor confidence has wavered. Tech firms that went public this year have returned 3 percent from their IPO prices and -15 percent against their end-of-day price on their first day of trading.

Despite the struggles, however, money seems determined to flow into the startup marketplace, meaning many small tech operations are raising dollars faster than their public counterparts.

The premium for private company shares is actually somewhat confusing to analysts.

“Private valuations … are supposed to factor in a discount for the added risk an investor is taking,” Bard told WSJ.

“Many of these private valuations are ignoring the fundamental risks involved in achieving their projections. I suppose as long as the big winners produce outsized returns to cover the losers, the party can continue. But the stakes are getting higher.”

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