The IPO Standoff
The NY Times suggests that the reason there have been no tech IPOs in the past quarter is that the tech sector is having a “standoff” with the public markets.
The logic goes like this:
- many of the tech IPOs that happened in 2015 are now underwater so public market investors are tired of losing money on IPOs
- the prevailing valuations that exist in the private markets are higher than comparable companies in the public markets
- it is relatively straightforward to raise capital in the private markets using convertible debt or other structures that are driven off the eventual IPO price
So why rush to the public markets now when you would be forced to take a lower valuation than you could get in the private markets and maybe a lower valuation than you got in your last round?
Eventually someone is going to blink. If the public markets wait long enough many of these IPO price driven structures will force the companies that issued them to go public and “price their stock.” You can only kick the can down the road for long enough.
I do think this “standoff” could go on for a while longer, maybe for most or all of this year. Unless a courageous company or two decides to go public regardless of price, gets the capital and liquid stock that comes with the IPO, and shows that you can in fact do well as a public company.
I am hoping for that latter scenario to play out. I think its better for everyone than the standoff we are having now.