Public market stakeholders and employees of startups have been excited lots these past few months as the number of businessesthat go public continues to soar by the day. Pinterest, Zoom, Uber, and PagerDuty all had some of the splashiest public offerings in the history of IPOs.
But experts have been warning that the rush for public offerings by most companies could have dire consequences both in the short and long run. Numbers have been thrown left, right, and center – so we’ll try not to bore you with the same.
In this article, we make sense of the actual numbers and metrics relating to this year’s IPOs.
The Numbers Tell It All!
Timing is everything. And this is especially true when evaluating the perfect time to launch an IPO for your business. For the better part of this year, IPO activities for most unicorns were at a record high.
One wouldn’t be mistaken to think that the year would be one of the worst economically considering the slowdown that was experienced in the first quarter of 2019. We all remember the trade issues among China, the US, and EU, the geopolitical tensions, Brexit, the current pending impeachment motion against President Trump, among other things that dampened the IPO arena.
But suddenly things began to pick in the second quarter and they don’t seem to be slowing down even with less than two months remaining before the closure of trading periods for most firms.
Public market fundraising has no doubt brought forth some of the historic deals ever witnessed – Lyft raised $4.91 billion, Dropbox raised $756 million, and Uber raised $8.1 billion.The biggest chunk (roughly 45%) of funds raised through public offerings belonged to a few big unicorns with the rest of the money shared among the remaining smaller startups.
But despite the IPO hoopla, many companies are still losing out when it comes to private and public fundraising. Based on some of the companies highlighted above, Lyft raised $4.91 billion privately compared to $2.34 billion raised through a public offering; the same can be said about Dropbox when it raised $1.7 billion privately compared to their $756 IPO.
Clearly, the stakes are higher when it comes to public offerings even for the big unicorns. And in a way, the effect trickles down to their survivability in the public domain.
According to Jeff Thomas, head of operations at Nasdaq for the Western US, most companies are not keenly considering the repercussions of going public. There is a ton of money flowing to the private sector, making it unnecessary for companies to go public to access more capital ($130 billion was invested in private startups last year alone). This is a rise from $105 billion raised the year before.
Apart from the reduced funding in the public sector, companies expose themselves to a lot of scrutinies from regulators and analysts, not to mention some short-sighted shareholders who are always quick to point fingers when things don’t seem to be spiraling their way.
Hardly six months after going public, Lyft is already facing a suit by shareholders who aren’t happy with the dwindling share price (circa 25% drop since the IPO) of the company. In a separate report by Bloomberg, Snap was sued just two months into their public life while Blue Apron was only seven weeks into their IPO when they were sued.
The truth is many attractive IPOs have been floated throughout the year, but what you may not know is that quite a number are not surviving what comes with going public.