With several big-name IPO offerings on the horizon for 2017, Silicon Valley is hoping to bounce back from its worst year for public offerings since the recession essentially shut down the market seven years ago.
In 2016, just 11 Bay Area companies went public, raising $1.2 billion. That’s less than half as many deals as last year, and 70 percent less money raised, according to analytics firm Ipreo. The dismal year was a blow to Silicon Valley, which traditionally celebrates the huge tech IPOs that pump cash into the local economy.
“Not a robust year in terms of tech IPOs was the main story,” said Matt Kennedy, an analyst at Renaissance Capital, which manages IPO-focused, exchange-traded funds. “(Tech companies) kind of avoided public markets despite there being so many highly valued, pre-IPO companies, many of which have already submitted confidential filings. … I think 2017 is going to be the year that they ultimately do go public.”
Analysts expect one of next year’s biggest offerings to come from Venice-based Snap, formerly known as Snapchat, which ranks among the world’s 10 most valuable private companies and reportedly could raise up to $4 billion in an IPO as early as March. The company’s confidential IPO filing was leaked in reports last month.
Experts also are watching for IPOs next year from Stockholm-based Spotify, San Francisco-based Pinterest and Dropbox, and New York-based WeWork, Blue Apron and Vice Media.
Those IPO candidates may be encouraged by strong performances from the handful of tech companies that did price offerings in 2016. Silicon Valley-based Twilio, Nutanix, Coupa Software and Talend all soared on their first day of trading this year. They fluctuated in the ensuing months — Twilio’s shares plunged in October after the company announced plans for a follow-on stock offering — but for the most part, all have continued to trade above their offer price.
“The demand is there,” Kennedy said. “IPO investors are willing to take a look.”
Though the market picked up toward the end of the year, overall, 2016 saw the fewest U.S. offerings since 2009, and the lowest amount of money raised in IPOs since 2003. Analysts say a number of factors contributed to the disappointing year.
The stock market dipped early in 2016 amid uncertainty over China’s economic slowdown, a drop in oil prices, the refugee crisis in Europe and the U.S. presidential election.
At the same time, startups that had spent the past few years raking in cash and amassing enormous valuations faced an abrupt reality check. By late 2015 and 2016, investors began worrying that those companies might be over-valued, and many startups faced a choice — go public at a discount or hold out until the IPO market changed. Most decided to wait, creating a backlog in the IPO pipeline.
“You may have heard there’s a ‘unicorn’ stampede behind the scenes waiting to go public,” Kennedy said, using the term for private companies valued at more than $1 billion.
Matthew Wong, senior research analyst at venture capital database CB Insights, said many of the companies that put off going public in 2016 will be forced to take the plunge next year as their other sources of funding dry up.
For example, hedge funds, which had been pouring money into startups in 2013, 2014 and 2015, pulled back this year. They made just eight new investments in private U.S. tech companies, down from 37 in 2014, according to CB Insights’ 2017 Tech IPO Pipeline report, released Tuesday.
Music-streaming service Spotify is one of the companies that will be feeling pressure to price an IPO in 2017, Wong said. The company raised $1 billion in debt financing in March, and its interest rate will rise under the terms of that deal until it goes public.
Spotify and Snap alone could raise $5 billion in their IPOs, Kennedy said — which would be more than all VC-backed tech IPOs in the past two years combined.
Two of the industry’s most anticipated IPOs — Airbnb and Uber — likely won’t come in 2017, said Paul Boyd, managing partner of San Francisco-based wealth management firm ClearPath Capital Partners.
Airbnb, which recently sued its hometown of San Francisco over the city’s home-sharing rules, has to resolve its regulatory issues before going public, Boyd said. The startup also likely will focus on solidifying new revenue streams before pricing an IPO. Airbnb launched an activity-booking feature last month and has plans to offer flight-booking services. Meanwhile, the company reportedly has increased its current fundraising effort to $1 billion, giving it some breathing room.
Meanwhile, Uber continues to hemorrhage money in a way that doesn’t bode well for a 2017 IPO, Boyd said. The San Francisco-based company reportedly lost more than $800 million in the third quarter of 2016, and this month started — and lost — a fight with California regulators over its self-driving car program.
Lyft may beat its larger competitor to the public market. The smaller San Francisco ride-hailing startup has promised investors that it will cap its losses and work toward breaking even by mid 2017, with the hope of becoming an IPO candidate by late 2017 or early 2018, said Boyd, whose firm has invested in Lyft and Airbnb.
“2017 can have the potential to be a good IPO year,” he said. “I think it will be marked by some very, very large companies going public.”