Tech Startups Get a Reality-check as Chill Settles Over US Stock Market
A report released by research firm Dealogic noted that there was no tech IPO icebreakers in the first quarter of 2016 on U.S. exchanges. The last time this happened was in the first quarter of 2009, following the collapse of Lehman Brothers as the Great Recession hit the American economy.
It’s a relief, now that America is recovering from the recession, however, the factors by the overall volatility of the US stock market and public/private valuation discrepancies are troublesome for some startups. Moreover, shares of many tech mammoths, including Google, Facebook, Amazon and others, took an unexpected plunge in early February before making a noteworthy comeback in the remaining quarter.
Currently, more than 20 tech startups have filed to go public, only to wait for the markets to improve, or to stabilize, so they can raise decent capital. If market conditions don’t improve soon, then some of these cash-trapped companies are likely to forgo IPO ambitions and pursue different means for financial growth. While, once freewheeling tech startups, whose investors are now demanding a fat-check in return, will have no other choice but to prepare for an (involuntary) acquisition. Given that some of the biggest names in the technology sector are hit by the slump in the US stock market, it’s highly unlikely that these tech companies will be acquired.
Two years ago, the stock market scene in the tech sector was quite different. In the second quarter of 2014, more than 20 tech companies debuted at deal values exceeding $8 billion. Another 10 tech companies went public the
following quarter, including Alibaba, which set a record-breaking $25 billion IPO.
Tech startups began steering of IPOS in 2015, even as a large number of them continued to raise a hefty sum at overzealous valuations concocted by private investors. Presently, more than 140 tech companies have billion dollar valuations, of which 90 are based in the U.S. Uber is the most noteworthy name, with its $62.5 billion valuation followed by Xiaomi at $46 billion, and Airbnb at $25.5 billion. These 22 technology companies represent a diverse range of technologies from nanotechnology to cleantech to biotech. Some of these companies were seeking to raise more than $1.5 billion based on their disclosed offer amounts.
Lately, financing in Silicon Valley seems to have taken a backseat. Startup funding in the fourth quarter of 2015 fell by 30% to $27.7 billion. Meanwhile, a lot of tech companies are cutting overgenerous perks, laying off employees, and even reassessing their business models.