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Despite 2016 being the worst year for initial public offerings (IPOs) since the 2007-8 financial crisis, Silicon Valley hopes the Trump rally will bring back the good times.
While the new money raised from IPOs peaked in 2012 at $19 billion, and the number of deals peaked at 32 in 2014, 2016 saw only $1.2 billion raised on 11 deals. That’s fewer than half as many deals as last year and only 70 percent of the cash raised, according to analytics firm Renaissance Capital IPO Index ETF.
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There were only 105 IPOs in 2016, down from 170 in 2015, and almost two-thirds lower than the 275 in 2014. Although eight IPO deals were completed in December, 10 deals were withdrawn due to lack of demand.
A number of 2016 Silicon Valley IPOs had terrific first-day performances, including Twilio, Nutanix, Coupa Software and Talend. But all the deals have sold off. If an investor bought every initial public offering in 2016 with the Standard & Poor’s Index up 10.76 percent, she would only have a gain of .08 percent, according to the Renaissance ETF.
The Harvard Business School recognized this underperformance trend in a spring article titled “Why Unicorns Are Struggling.” The article investigated why venture capital companies with over $1 billion in private market value were unable to go public. Despite Silicon Valley driving the exponential jump in recent years to the current 183 unicorns, Harvard found that venture capital backed tech firms had unrealistic valuations and suffered from a “failure to innovate when competitors catch up.” Researchers warned that the “dismal year was a blow to Silicon Valley, which traditionally celebrates the huge tech IPOs that pump cash into the local economy.”
Breitbart News noted in September that after five years of the high tech communities of Silicon Valley and Los Angeles’s Silicon Beach leading the nation in rent inflation, San Jose, San Francisco, Long Beach and Los Angeles made the Top 10 list for “Biggest Fall” in rents for a one-bedroom apartment, according to the Abodo National Apartment Report.
Tech venture capitalists are hopeful that investor interest could be reawaken in January from the highly anticipated IPO scheduled for Venice-based Snap, formerly known as Snapchat. With a private market value of $25 billion, Snap ranks fourth for U.S. venture capital backed companies. Backed by top tier venture firms including Benchmark Capital, General Catalyst Partners, and Lightspeed Venture Partners, Snap hopes to raise $4 billion in its January 2017 IPO.
If Snap is successful, Wall Street analysts expect that IPOs would follow from Stockholm-based Spotify; San Francisco-based Pinterest, Slack Technologies, Dropbox, MapR Technologies and Stripe; and New York-based WeWork, Blue Apron and Vice Media.