Silicon Valley needs a blockbuster year
new york — The health of Silicon Valley’s investing ecosystem in 2017 will depend on something that didn’t really happen this year: a flood of technology initial public offerings.
While going public is just one step in a successful company’s arc, the scarcity of blockbuster technology deals in 2016 has dragged on everything from investor morale to private funding and companies’ business strategies. This year has been the slowest for US IPOs since the recession, with the amount raised by tech companies plunging 60 per cent from a year ago.
“It’s all linked,” said Asheem Chandna, partner at venture firm Greylock Partners. “When you have a healthy public market and healthy investor appetite, that increases the enthusiasm in private rounds.”
In the tech world, 25 companies have gone public to date, raising $3.3 billion, according to data compiled by Bloomberg. That compares with volume of $8.3 billion in 2015 and $35.4 billion the year before, when Alibaba Group Holding Ltd went public. At the same time, private funding has contracted, according to research firm PitchBook Data. Venture capital invested in the US through December 7 totaled $24.8 billion, down 13 per cent from last year and a 58 per cent drop from 2014.
The life cycle of technology investing, from seed money to public exits, is at stake. There needs to be a robust enough environment for private market valuations to ensure technology companies remain one of the best asset classes, Christian Meissner, head of global corporate and investment banking at Bank of America Corp, said in October. Meissner spoke in an interview at the Bank of America Merrill Lynch Tech Summit in Palo Alto, California. A main catalyst for that will be how IPOs perform, Meissner said. There are already signs that 2017 will be much more healthy in terms of equity capital markets for tech.
The first big test will come with Snap Inc, the maker of the disappearing photo app Snapchat. The company is targeting a public listing in the first quarter of next year at a value of about $20 billion to $25 billion, according to a person familiar with the matter. In November, Snap filed IPO documents confidentially, under the Jumpstart Our Business Startups Act, because it has revenue of less than $1 billion. Given that Snap may be one of the biggest tech companies to go public in the past two decades, all eyes will be on investor appetite for the latest social-media darling.
“Whereas investors were desperate for alpha in what was largely a low-return environment earlier this year, the post-election rally changes the dialogue,” BofA’s Meissner said on Tuesday. “A resurgence in investor optimism and the increased expectation of higher growth rates may enable companies to consider a broader array of strategic options.”
The 20 technology and communications companies that listed their shares in the second half each climbed more than 25 per cent from their debuts, led by Twilio Inc’s 97 per cent gain, Nutanix Inc’s 64 per cent rise and Coupa Software Inc’s 48 per cent climb.
In addition to Snap, Spotify, the world’s largest music-subscription service, plans to go public in the second half of 2017. — Bloomberg