So says Greg Becker, ceo of SVB Financial, holding company for Silicon Valley Bank. Serving 65pc of US venture firms and half of all VC-backed companies, Mr Becker’s Santa Clara, California-based bank has a bullish view of next year’s IPO market even after a lacklustre 2016.
Volatility crippled the pace of listings in the past 12 months, dooming this year to be the weakest since the credit crisis for IPOs. But those who dared go public were rewarded:
Twilio and Acacia Communications have each doubled from their IPO price, while other tech firms such as Nutanix and Coupa Software remain well above IPO valuations bestowed just months ago.
In an interview with Bloomberg News, Mr Becker shared his outlook on next year. “We see 30-45 VC-backed tech IPOs in 2017, compared to 15 this year. There may be upside beyond that, depending on the performance of the 2016 IPOs,” Mr Becker said.
“If recent listings like Twilio, Nutanix and Coupa Software stay at current levels or get a little more upside, that is great, but if you suddenly see these companies miss numbers or have problems, I think it will cause investors to be more cautious.
“To a degree, all of the companies in the pipeline are clearly watching each other. As soon as the first few companies go out in 2017, focus will be on how they are performing.”
Asked whether more companies are piling on, or will the sector start seeing delays, he said: “All of those questions will come in the first quarter. IPO candidates will also watch the valuations of public companies with similar business models, rather than just looking at the latest tech IPO.
“Volatility will be one of the biggest turning factors. Or, a company might say ‘we’re going to wait until there’s more clarity on what policy will look like’.
“That is one level of uncertainty to cause some companies to delay. The confidential IPO process will make a big difference in 2017, because they can talk to investors and get a sense of the demand.” On why more companies didn’t go public this year – given the returns – Mr Becker said: “The market was uncertain, and I don’t think many companies were set up and ready to go when it started to stabilise. It’s very hard to rush it. You can’t just say ‘the market looks good really right now, let’s go public tomorrow’.
“Some of the more mature companies are now teed-up. They’ve continued to grow revenue and either approach or surpass cash flow break-even. Not all are, but that’s why we’re viewing 2017 optimistically.”
And he said the tech sector won’t be overly concerned about Donald Trump’s America.
“It will be very company-specific in terms of how optimistic or pessimistic they are about what policies will ultimately come. With the pro-business agenda that’s being discussed in general, people will paint a positive picture and be very hopeful of what the future looks like.”
On the new year, he said: “If you see the first wave of IPOs get decent valuations, activity will increase. If that doesn’t happen, it will be fine because there’s still a lot of capital.
“More companies exit through M&A than IPO, so if the IPO market doesn’t rise to the level we forecast, my guess is you’d just see more M&A.” (Bloomberg)