“Regulatory changes in the U.S. have both enabled companies to stay private for longer”
It looks set to be a record year for money raised through US tech IPOs, with companies raising $17.1 billion in the first half of 2019 alone – potentially setting the market on track to outstrip the $22.5 billion raised in 2000, according law firm Linkaters’ analysis of CB Insights data. (Nobody mention the dotcom bubble…)
The levels were largely reached through a flurry of high valuation IPOs: five companies alone raised more than $1 billion each: Uber ($8.1 billion), Lyft ($2.3 billion), Pinterest ($1.4 billion), TradeWeb Markets ($1.1 billion) and Chewy ($1.0 billion).
(Linklaters did not include direct listings for tech companies valued above $500 million; for example Slack technologies and Spotify.)
US Tech IPOs: Sums Raised are “Powerful Indicators of Sustained Strength”
In comparison, there were no US tech IPOs which raised over $1 billion in 2018. Only one European tech firm raised over $1 billion in an IPO in H1: Italy’s unicorn payment group Nexi raising $2.3 billion on the Milan stock exchange in April.
Jeff Cohen, a New York capital markets partner at Linklaters, said: “Technology IPOs are on track for a record year of fundraising, set to surpass the previous milestone set in 2000 at the height of the first internet surge. The variety, novelty and disruptiveness of the technologies underlying these IPOs are powerful indicators of sustained strength.
“Regulatory changes in the U.S. have both enabled companies to stay private for longer, allowing them to build out their businesses away from public markets, and eased the path to IPO once embarked upon. European and Asian technology companies have likewise felt the pull of the U.S. exchanges, and European and Asian exchanges are alert to the challenge posed by the U.S. exchanges. For now, the technology IPO boom appears set to continue through the second half of 2019 and beyond.”
Beware Asset Bubbles?
The numbers were reported as stock markets began to wilt amid global recession fears, however, and as the European Central Bank gears up for what many anticipate to be a rate cut in September and more unconventional stimulus measures.
A decade of record low rates have turned many economic norms on their head: there are now an estimated $13 trillion in negative yielding bonds on the market: i.e. bondholders are essentially paying to invest in perceived safe assets, for example, while a desperate search for yield in a low inflation world – along with the expectation of more stimulus – has helped push stock markets close to record highs.
Critics say there are huge risks in today’s markets: as legendary investor Seth Klarman, founder of hedge fund the Baupost Group put it in a note to clients five years ago: “The longer QE continues, the more bloated the Fed balance sheet and the greater the risk from any unwinding. The artificiality of today’s markets is pure Truman Show.”
“We are at a risk of creating an asset bubble.”
Five years later with equity prices being hugely higher, the view could look needlessly bearish. Others still raise risks: UBS CEO Sergio Ermotti being one of the latest.
“I’d be very, very careful about growing further the balance sheet of central banks,’’ he said in a Bloomberg TV interview on Tuesday, ahead of the European Central Bank’s policy decision this week. “We are at a risk of creating an asset bubble.”
Economists and investors however largely believe today’s record high tech valuations to be different from the dotcom boom: they say tech companies are flush with cash, valuations are not as wildly out of sync with earnings, and there is no sign of a slowdown in innovation; indeed the opposite, with technologies like AI looking set to be genuinely disruptive). And meanwhile, IPOs continue to raise big money…
Further high-profile tech IPOs in the US expected this year include Postmates, WeWork (recently renamed The We Company), Peloton, Airbnb, Palantir Technologies, Robinhood, The RealReal, and Velodyne Lidar.