IPOs Are Back In Favor

I read this piece on Reuters claiming that the huge megafunds in venture and growth equity are “stalling IPOs.”

And while it makes sense at some level, the truth is the exact opposite.

Based on everything I am seeing, hearing, and reading, 2018 and 2019 will be bumper years for tech IPOs, assuming the markets behave.

Uber’s new CEO Dara Khosrowshahi has promised an IPO in 18-36 months. That says 2019 to me.

Hot companies like Stitch Fix are filing to go public this year.

We have a pipeline of strong mature (and increasingly profitable) companies in our portfolio that will head to the public markets in 2018 and 2019.

So when you read stuff on the Internet, don’t take it as correct.

The truth is often the exact opposite.


Comments (Archived):

  1. Adam Bogard

    Great point, Fred. People are always signaling, but it is often noise to generate headlines. To add a point, it seems highly possible that we still have strong momentum moving forward due to the availability and flow of credit, and the fact that megafunds still have much of that capital to infuse in the markets. If things remain positive economically, surely this will support strong IPOs’ within the timeline stated above, and further the net positive effects/ROI overall in the global markets.

  2. Moritz

    And contrary to the belief of tech-utopians and crypto-anarchists, legally regulated ICOs are the only thing that might put a dent in that trend.

    1. William Mougayar

      As long it is fresh or updated regulation, but not the existing ones.

  3. jason wright

    “…assuming the markets behave.”meaning…?

    1. fredwilson

      they don’t crash

      1. pointsnfigures

        Fred Wilson becoming the new Marc Faber : )

  4. creative group

    CONTRIBUTORS:anyone serious in equity trading reviews what smart money is doing. If it is written by an outsider it is already much too late to act.The smart plays have already been made when Joe Public is discussing it.Example: Crypto-currency.

    1. jason wright

      is that a polite way of saying that the market is rigged?

      1. creative group

        CONTRIBUTORS:Advantage Market influencers.The housing crisis uncovered the inequality in market positioning between financial institutions and Joe Public. If that didn’t provide a glimpse of the gaping hole in the stacked deck our view will mean little.

      2. Adam Sher

        I wouldn’t say the market is rigged but the insiders have a big advantage. The scam is believing that using and paying E-trade will make you an equal to the traders at Goldman Sachs. Reuters will almost never break news about a company that insiders haven’t acted on. For this discussion, I equate insiders to traders, bankers, and related investment (speculative) professionals.There are thousands of analysts in investment banks and sales & trading desks with infinitely more resources than a news organization to discover, analyze, and act on before Reuters can research, verify, and publish a story. In addition, they have extensive knowledge networks (some people think this is a polite way of skirting insider trading under the guise of consultants and mosaic theory).If Reuters was first to market with news about something (e.g. a crypto-currency or ICO) how would the public act on that information? Investments in that are private and are generally off-limits with the exception of the very small amount of Title III offerings.You can compete if you are a value investor (see Seth Klarman, Ben Graham, and Warren Buffett). If you want to speculate, then you’ll always be at a disadvantage to those with more money and faster internets.

        1. DJL

          Agreed. See my post earlier. Tech IPO’s in many cases are pyramid schemes with the public holding the dying shares. But then there is the occasional Dell or Google and you can retire on a single stock. Crazy game.

  5. Salt Shaker

    No question Trump has been good for WS, and if tax reform does come about that optimism likely will continue to prevail, even if fundaments don’t necessarily justify such bullish behavior. Increasingly, it seems biz fundamentals and earnings aren’t the key drivers of market performance, as evidenced by so many outlandish P/E ratios. Will be interesting to see who Trump appoints to head up the Fed, particularly since he very much likes to characterize his own success in economic terms. Yellen is likely a goner, not cause of incompetence, but rather cause Trump wants someone he’ll perceive as being loyal, autonomy be damned.

    1. pointsnfigures

      If Yellen stays, continued QE. That’s bullish for stocks but not necessarily great for the public

      1. Salt Shaker

        Why, just reinforcing the bubble and debt creation?

        1. Pointsandfigures

          Trump puts a lot of emphasis on how great the stock market has been since he took office. It’s a poor metric for how good ANY presidency has gone because the correlation is often not strong. Yellen basically said she will be an easy money person and that will continue to give a bid to stocks. I’d prefer to see someone like Prof John Taylor of Stanford.

      2. JLM

        .Not a chance in Hell Yellen stays. Higher probability Pres Trump appoints Bob Corker to a Cabinet position.JLMwww.themusingsofthebigredca…

        1. sigmaalgebra

          Oh, I thought that Corker was begging for the coveted high end slot of Special Assistant to the President for Sensitive, Politically Correct, Pompous, Meaningless, Country Club Delicate Double Talk, e.g., all POTUS statements engraved on 100% linen heavy card stock!

      3. sigmaalgebra

        I thought that Yellen has long been saying that she’s going to start raising interest rates and reducing the Fed’s “balance sheet”.If the Fed raises interest rates, then it will cost the US Treasury more to roll over the ~$20 T of debt.With 94 million out of the labor force, looks like maybe the first priority is to get them back to work.First-cut, ballpark, fractional reserve banking increases the money supply, and a financial crash destroys it. Sooooo, have the Fed increase their balance sheet and recreate the money supply and slap reserve requirements on the banks to slow the growth in the money supply via fractional reserve banking.Then, net, the money supply is back to where it was and should be, but the bankers are no longer much involved and can’t blow bubbles and can’t clobber the money supply.

    2. DJL

      The mainstream media is essentially ignoring the major and real changes in sentiment and data. While they spend their time 24/7 trying to destroy Trump, he is quietly implementing pro-growth strategies. The data is incredible.

  6. William Mougayar

    Often, this kind of outside reporting picks on some but not all data points, and draw conclusions with blind spots.

    1. awaldstein

      All reporting does this regardless of topic.People do this in choosing work, mates, friendships and investments as well.

  7. Frank Jaskulke

    Both statements can be true. There can be both a glut of companies stalled out from reaching IPO and a bunch of companies about to go IPO

  8. Gøran Berntsen

    “So when you read stuff on the Internet, don’t take it as correct.” 😉

  9. pointsnfigures

    Maybe it was a typo and they meant ICO

    1. ShanaC

      I doubt that. These are moment of truth IPO’s

  10. Tom Labus

    That IPO decision is also part art form too. Blue Apron APRN should have cleaned up its house before venturing out in public. Timing helps a lot and so does a good underwriter. But this is the route to go, if you have the right growth shot.

    1. JLM

      .It is an art form suited to a penitentiary.On one floor, the IB is advising the company.On another floor, the IB is underwriting the company’s offering, running the road show, forming the syndicate.On another floor, the same IB is telling their customers, “We can get you some IPO shares because you are special.”On another floor, the same IB is getting ready to rip off the “greenshoe.” The greenshoe being the 15% IPO over allotment an IB can take at the offering price and then peddle to itself or to other customers at the surged price and make a quick hit.On another floor, the same IB is advising its wealth management clients to short the securities as soon as they can because the IPO pricing is way too optimistic.On another floor, the same IB’s research department is simultaneously working on “buy” and “sell” recommendations.This shit is so crooked, they will screw most of the IBers into the ground when they die.Still, it’s the best system of its kind in the world.JLMwww.themusingsofthebigredca…

      1. Tom Labus

        But if you have the earnings, that all goes out the window. They backed the truck up for FB but it’s tough to argue against cash flow.

        1. JLM

          .If you have earnings then the excesses are just more excessive.Crooks do not do honest deals. They leverage the good news to push the boundaries out further and further.The system is rigged.Again, it is the best system of its kind in the world, but it is like cock fighting.Have you ever been to a cock fight?JLMwww.themusingsofthebigredca…

          1. JLM

            .Next time you are in Texas, JLM takes you to a cock fight. They are illegal.You know whose family is big into cockfighting? Johnny Manziel.Big Paul Manziel — cockfighting champ of the world in the 1980s.Everybody needs to go to a cockfight once in their life.JLMwww.themusingsofthebigredca…

      2. LE

        Question. To what extent are the ‘floors’ sharing information? I mean in a formal way. I don’t mean at occasional lunch dinner or drinks. Of course the offering price is a delicate balance like any sales situation. You want it high enough but not go bust.Floors: You know I am not comparing it to this but I remember my amazement back in the 80’s when I found out that Apple was using IBM disks in their machines. The enemy was a trusted parts supplier.Part of what you are describing is also the sales process. Like this:On another floor, the same IB is advising its wealth management clients to short the securities as soon as they can because the IPO pricing is way too optimisticSure there is truth to what you have written but I think that this well oiled machine is providing value to people giving up their money especially the more sophisticated investors as opposed to someone’s aunt.On another floor, the same IB is telling their customers, “We can get you some IPO shares because you are special.”I know family members that got these shares and they did in more cases than not end up making money off of them.

        1. JLM

          .Like everything in life, it is the timing which makes the difference.You buy IPO shares, sell them at a profit while the wealth management division is waiting for the stock price to spike, then shorting it for their clients.Timing in life is everything.JLMwww.themusingsofthebigredca…

        2. JLM

          .Of course, there is a Chinese Wall between “underwriting” and “trading” and “retail.” But all the honchos eat in the same places and with each other.Little kid in the blue, short pantsed sailor suit, holding the big chocolate bunny with one ear missing, in front of the azaleas at Easter.How many Wall Streeters got charged with any bad acts during the derivatives crisis? None.JLMwww.themusingsofthebigredca…

          1. LE

            But all the honchos eat in the same places and with each other.Would then expect that they are all playing each other as well. It’s what I’d be doing at that lunch. [1][1] And I’d be the one who didn’t have alcohol in me.

          2. JLM

            .In the partnerships, they are all playing for the partnership.JLMwww.themusingsofthebigredca…

    2. Girish Mehta

      In today’s news – Saudi Arabia’s SWF plans to use leverage to boost returns to diversify from its oil-dependent economy.Seems like three years of low, low oil prices will get you to start thinking creatively.They have already committed $45 Billion to Softbank’s Vision Fund and $20 Billion with Blackstone.Watch the video clip of the interview, its highly instructive.https://www.bloomberg.com/n…1. The fund is giving 4-5% returns. They are targeting to double it to 8-9% by 2025-2030. What will double the returns ? Well, according to the interviewee, Masa-san delivers 44% IRR…so why not? Anyway, “..anything above 4% and below 44% will be good for us…”2. AUM to go from $230 billion today to “atleast” $2 trillion by 2030.Here is a fund saying they will increase AUM by nearly 10X, while also doubling their returns. To be fair, he did use the term “efficient frontier”, so they must know what they are doing.They will not be a conventional LP. “We’re not co-investors with GP and we’re not typical LP, we’re somewhere in the middle,” Al-Rumayyan said. “We have veto rights, opt-out rights, people sitting on boards, and we can put more governance into the relationships and partnerships we have.”Yup, this is all going to end well.

      1. Tom Labus

        That one may not make it off the runway

        1. Girish Mehta

          Yale’s endowment returned 8.1% over the last decade, and earned 3.4% last year. We are talking the top tier endowment here that beat the broad market over the past decade and has a great track record in their unconventional investments in emerging businesses. And their endowment size is only $25.4 billion. ( I don’t mean to say “only” but I am still reeling from the “atleast” $ 2 trillion ).https://news.yale.edu/2016/https://en.wikipedia.org/wi…As per the article, Norway’s sovereign fund which is the world’s largest averages a 4% return.

  11. Adam Sher

    Funds timing out will also force the sale of these investments.

    1. fredwilson

      that is true although our 2004 fund, which is a ten year fund, so in theory ran out of time in 2014, still has four investments in it.what do VCs do when they can’t liquidate on the set timetable?get extensionsthose extensions typically come with no compensation so there is certainly an incentive to liquidate the funds but it is not so easy

      1. Adam Sher

        I haven’t had the experience of needing or requesting an extension so I’m only speculating as to the LP’s tolerance for this. Your company has an excellent track record, and I would assume you have a substantial set of LPs who re-up in each fund. As a result of those factors, you have leeway with your LPs to ask for additional time. I doubt most of firms can do that.

        1. fredwilson

          i don’t know that LPs have a choice. i guess they could pressure the GPs to sell the remaining positions in the secondary market. but that would be very painful for the GPs (and the LPs). the discounts in that market are significant.

          1. Adam Sher

            Agreed there. It depends on how the LPA is written.

  12. DJL

    It’s hard to get excited about this as an average investor. If I am one of the already rich folks that have access to pre-IPO money, I am going to make a killing. But if I buy after the IPO, I will most likely lose my butt.Just look at the USV portfolio companies mentioned over the weekend that have gone public. These were total home-runs for the early investors (and I am thrilled for my friends who are in these funds). But if I had bought a basket of these stocks (ZNGA, LC, TWTR, ETSY) – each on their IPO date – I would have lost at least 25% an in some cases more. I wonder how many VC funds track their total return to investors AFTER the exit?

    1. fredwilson

      i do since i hold all of those stocks

      1. DJL

        Of course. (And I have some of them as well but – probably .001 of your positions. ;>) My point is that there are certainly two different sets of returns – one for pre-IPO and then for the public markets. Since you are a big proponent of going public, I was wondering how your team thinks about this. Doesn’t it seem “unfair” at some level?

        1. fredwilson

          i don’t think so.i am very confident in some of these companiesi don’t want to be giving stock predictions in a public settingbut my guess is if you bought a dollar weighted basket of all of USV’s IPOs at the IPO price and held that dollar weighted basket for ten years, you’d do great

          1. DJL

            That would be sweet.

        2. Prathamesh Shanbhag

          Each business goes through cycles. Statistically, just after IPO it’s been a downward curve(except some exceptions) I suspect it’s good time to observe and take a call.

    2. Don Jones

      DJL, I write a lot about tech IPOs (https://seekingalpha.com/au… and where the average retail investor can play is in waiting for the “pop and drop” to play itself out in the days and weeks after the IPO.Recently, ‘pop and drop’ has been very pronounced with the Chinese VIE entities that have gone public. Qudian (QD) is a textbook example. It targeted a midpoint share price of $20.50 in the F-1/roadshow, then on Oct 17 it sold to institutions at $24, opened the next day at $30.63, reached a high of $35.75 that same day (the pop) and then dropped to a low of $26.52 within four days.That kind of up and down volatility is typically more extreme than the U.S. techs that Fred and other VC bring to market, but the concept is the same. Avoid the craziness, let the dust settle a bit and look for a better entry point. I did with QD and we’ll see if I’m right about it.So, IMHO, the moral of the story is to find an IPO you’re really interested in and be patient – watch to see if it ‘pops and drops’ due to external factors and you might find something at a decent price that still has lots of growth and happy days ahead.

      1. DJL

        Very nice. Thanks.And that corresponds with my (fuzzy) recollection of reality. I owned both Amazon and Priceline in the crazy .com days. But I could not hold on through all the craziness. (Remember 20 point swings in one day?) But if I had…. Well, I’d be writing this from my Villa in France instead of my kitchen in Houston. C’est La Vie.

      2. JLM

        .Well played view from the trenches and the tranches. Thanks.JLMwww.themusingsofthebigredca…

  13. JLM

    .The greatest narrative hook in the history of writing, says and explains it all:”It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way – in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.”Off course that is Charlie Dickens, A Tale of Two Cities, from 1859. This has been going on for a long, long time.In the current situation, you may say, “Thank you, President Trump.”What is happening is the re-emergence of wealth-making as a positive, rather than punitive, undertaking. It is attitude.During the previous administration, the dialog was about raising taxes and punishing success. Exhibit A – Obamacare and its punitive mandate taken in concert with punishing “Cadillac plans.” Cadillac plans are plans which exceed the “appropriate level of benefits” for employees. Give me a break.This administration has changed the conversation. Small things like the Canadian Softwoods Lumber Tariff, withdrawing from TPP, energy dominance, coal emerging from rehab, and just talking about reducing corporate taxes has changed the dialog and changed the direction we are looking.I don’t give a President much credit for how the stock market performs except when corporate earnings are moving in the right direction already and you inject the prospect of lowering corporate taxes (which is actually lowering taxes on consumers).Couple this with the repatriation of overseas corporate profits and you have a steady supply of new gasoline being added to a fire you may not get or deserve credit for starting.This is going to be one of the biggest runs in the history of the US.Oh, yeah, you are so damn cute when you suggest the stock market isn’t rigged. It feels like a picture of y’all standing in front of the azaleas in your sailor suit on Easter holding a chocolate bunny. You sweetie!JLMwww.themusingsofthebigredca…

    1. sigmaalgebra

      Sure, I can get the Dickens piece, now. But when I was in high school, the outright, blatant, literal self-contradictions just pissed me off. I had to conclude the stuff was just 100% London sidewalk sewage (awful alliteration).So, sure, Dickens, like a lot of artists, wants to put out something outrageous so that some people will regard the material as somehow deeper than the literal nonsense.So, sure, if the guy had written, “for each of the following situations, there was some significant group for whom that was essentially the real situation”. Then if he had included some actual data, some analysis with causality, etc., I could have taken him more seriously.As it is, eventually I just concluded that such writing is “communication, interpretation of human experience, emotion” or vicarious escapist fantasy emotional experience entertainment (VEFEEE) that some people enjoy for whatever reason. Or some people like that stuff, and it’s somewhat important to understand that they do.But in English lit class, with the teacher in ecstasy staring at the ceiling reciting such English literature, I wanted OUT’A that stuff ASAP. Gee, back to math and physics, some stuff that actually made sense.Right, from grades 9-12 and two more years in college, I was force fed that sewage, a total of six years, with much less in physics. Heck I could have been doing something important!!!! I used to be ready just to scream at English literature. My late wife loved English literature.

    2. JamesHRH

      I think it’s just that The Street constantly needs a new shiny toy to peddle – it’s hardly different from high end fashion.

      1. JLM

        .That and the fact the Dow is at 28Billion and the world is awash with money and that quarterly 401K payments keep flooding in.We are drowning in money.JLMwww.themusingsofthebigredca…

      2. mplsvbhvr

        Hah – just heard the Mooch make this point in a keynote speech yesterday and I have to agree with both of you.

  14. Bryan Knouse

    “So when you read stuff on the Internet, don’t take it as correct. The truth is often the exact opposite.”As someone who internets, I can confirm this to be true.

    1. Adam Sher

      I feel obliged to share this herehttps://imgs.xkcd.com/comic…

  15. LE

    Uber’s new CEO Dara Khosrowshahi has promised an IPO in 18-36 months. That says 2019 to me.This is hardly ‘make hay when the sun shines’ or ‘strike when ‘yer iron is hot’.I mean in that time period probably more of a chance things will go down than up. By more I don’t mean guaranteed or definitely. For one thing it will be clearer that the administration might turn democrat. Which impacts many things in the market since it’s all based on what might happen more than what is actually happening.

  16. MickSavant

    Fred – without answering specifically on any company – a lot of reporting on these late stage valuations makes them look like a loss on the IPO price. Do you think the media does a poor job of understanding the valuation metrics on these late stages? It looks like a lot of them are more debt financing when you factor liquidity preferences and caps.

  17. Steven Merrill

    Wondering about fund investment?? Can non-accredited “retail” types participate??

  18. bfeld

    I believe everything I read on the Internet.

    1. JLM

      .I did until just now.JLMwww.themusingsofthebigredca…

  19. sigmaalgebra

    Newsies say stuff, just stuff, just say it, write it, whatever. Maybe some people read it; some don’t. Of the people who read it, some like it, and others don’t. For a newsie, if they can just get some eyeballs, fine with them.Credibility and newsies? Nearly as rare as hen’s teeth.A problem is, newsies nearly never write material as solid, that is, with good evidence and/or reasoning as is standard in essentially all the serious parts of our society — pure/applied math, physical science, engineering, law, accounting, finance, medicine, etc.The newsies just don’t think much about good evidence or reasoning. About the best they try to do is get some “confirmation” of a “story” and, maybe, see if their “source” has ulterior motives.Hopefully parts of the Internet and Web will provide a historic fix, e.g., for the niche audiences who really care about solid information, being informed voters, etc. That’s not really the focus of my startup, but, yes, there’s a sense in which my startup should be able to help here.As bad as nearly all the newsies’ work is, for anything to do with politics the work is essentially just partisan propaganda — not just bad but attempts at being deliberately deceptive.The beneficial role of the newsies in the US helping us have an informed electorate is sadly minimal. Maybe for a few really big stories the newsies begin to look half sober instead of their usual falling down drunk.For however bitter I am here, this view is not nearly new, and Jefferson was a lot more bitter than I am! See hishttp://press-pubs.uchicago….Printed on paper, it might be self-combustion!

  20. ShanaC

    It sounds like 2018-2019 will be a moment of truth for the tech industry and VC. Are we going to see more Blue Apron situations, or something very different?

  21. Lili Balfour

    I think the real question is: will these IPOs be down rounds?Lots of high flyers took haircuts — Zenefits, Doordash, TaskRabbit, and Munchery.

    1. fredwilson

      i am sure that many will but why does that matter? the only price that matters is the price that you sell at.

      1. Lili Balfour

        I think it matters most for employees who filed an 83b with the hopes that the stock would appreciate in value. Investors who bought in on the previous rounds (without anti dilution protection) would be affected as well.Agree that in the end the sell price is the only thing that matters. That’s assuming the price continues to appreciate. Not the case for SNAP, APRN, and others. With everything going on in the country today (threat of nuclear war, unstable POTUS, digital civil war) there’s no telling what will happen.

      2. lunarmobiscuit

        No Fred, it’s the price paid that matters most in these cases.Series F, G, H likely all have Catch-up clauses to prevent their haircuts, and Series A, B, C, D, E are likely to see huge multiples at 25% of the peak private price.The bigger question is whether any of these unicorns will make it to profitability and fiscal sustainability. They may be great investments to their VCs but will they be GOOG or SNAP to their public investors?

  22. jason wright

    do you think SegWit2x will fly or flop?