The great startup bubble has finally burst. The number of billion dollar startups – called ‘unicorns’ – are at an all time high: currently more than 180. But the question is, why do so tech startups hesitate from going public?
One possible answer is that many people in the tech world are introverts and see the process of going public as a distraction from their work. The other reason being their sky high valuations, which backfire as these tech companies have sought valuations above what public investors are willing to pay. So far this year, only 14% of IPOs (Initial Public Offerings) in the US were made by tech companies, the smallest percentage since at least the mid 1990s according to reports. The data suggest that even some of the most promising startups in Silicon Valley might be worth far less in the eyes of the rest of the investment world. The risk is that the lackluster reception for tech startups in the stock market could ricochet through companies that are still private. We saw this in the case of Square Inc in 2015, a mobile payments company co-founded by and still run by Twitter’s Chief Executive, Jack Dorsey. Square Inc.’s IPO price was steeply discounted at less than 60 percent of the company’s last private evaluation.
Last year Dropbox had no trouble in boosting its evaluation from $4 billion to $10 billion but investment bankers caution that the San Francisco based company might be unable to go public at $10 billion and might not deliver a big pop to recent investors and employees who had hoped to strike it rich. Nick Woodman, CEO of action camera maker GoPro doesn’t regret taking his company public in 2014 despite the many stock troubles it has faced. Japanese messaging company Line raised $1.1 billion in an offering on July 11 and has been the biggest tech IPO of the year, while other newly public tech companies stocks are up 90% on average, signifying that winter may finally be over for tech IPOs. What happens in the future remains to be seen as startups such as Snapchat, Airbnb and Uber might go public in the near future and they may offer fresh hope for tech related startups. The question still stands, should tech startups go public or not?
It is our opinion that they should. As in the experience of Facebook, going public was nothing but an excellent business decision, signifying an uncommon conflation of both technological genius as well as business acumen on the part of the creators. Not only did it make Bono the richest musician at the time, it signalled to several smaller companies that this was the way forward. Facebook sits atop a pyramid of the world’s biggest and richest tech giants, and made a killing by going public. Not just this, going public provided a face for the company to bank on, and heightened their public presence like never before.
The only question that remains, thus, is can you pull it off like Mark?
-Aveneel Waadhwa
