Tech Star­tups Get a Re­al­ity-check as Chill Set­tles Over US Stock Mar­ket

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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.

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