After The Q2 IPO Stampede, What Happens To The Other Unicorns?

Morning Markets: After the unicorns that you can name go public, what happens to the rest?

A number of technology heavyweights are set to go public in the second quarter of this year. After a delayed start, tech IPOs are visibly moving forward, scooting tens of billions of dollars of value closer to the IPO finish line.

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About damn time. I’ve covered a relative dearth of IPOs since 2015. It was a theme in 2016 as well. Ditto for 2017 (more!). And 2018 was only so good. With that context, it’s great fun to see Lyft, PagerDuty, Pinterest, and Zoom file publicly, and to have Uber, Postmates, and Slack in the wings.1

It’s a few hundred billion dollars in market cap, with Lyft shooting for a valuation of $23 billion or more, Uber said to be worth $120 billion, Pinterest worth more than $10 billion, and so on. Toss in Slack and whatever Zoom is worth and you can start to see how it all adds up.

Then What?

After the above companies get out, and I suspect that the market is ready to chew through a large percentage of the cohort in the second quarter, then what?

The list of expected offerings becomes somewhat thin in terms of companies of note that may try to debut this year before the market turns. Airbnb is a possibility (as always), as is Palantir. But those IPOs are overdue and may bring more relief than surprise when they do eventually decide to move out of their parents’ houses and into the public market.

And then there are the other unicorns. Names that you don’t know, or have already forgotten. Companies like JFrog, Collibra, or Netskope. And those companies are based in the United States. If we went abroad, the list of unicorns that all need liquidity, but lack the profile of a Slack or a Pinterest are legion. And they all have expectant investors behind them with currency signatures etched on their retinas.

Sitting where we are today, I wonder how the market will solve what we might call the middle-market unicorn liquidity problem (MMULP, you heard it here first). It’s a list in the hundreds. And if only a number of older, famous unicorns makes it out the gate this year, what happens to the rest?

The investing class can read the tea leaves as well as you or I, so can we expect them to push the middling unicorns towards IPOs later this year, after the best-known shops have already cashed out? If so, the performance of Slack will set the terms for enterprise offerings, and so forth; smaller companies will likely bend to extant narratives instead of creating their own. So, if smaller unicorns are hoping to float this year, the impact of the larger IPOs could set their direction, regardless of whether it’s where they wanted to go

But even if there were three dozen unicorn IPOs this year, over two dozen more than we currently have papers for, the vast majority of unicorns will remain private going into 2020. Today’s IPO market won’t last forever, and the taste du jour for growth over profit might fall out of favor.

How confident are you about next year’s market?

Illustration: Li-Anne Dias.