It’s no secret that the IPO market has been on fire this year. I wrote about it just two weeks ago: IPO deal volume reached a new high in the first half of the year as many companies look to take advantage of favorable market conditions.
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We’ve been seeing venture-backed startups that were long-rumored to be eyeing an IPO go public, along with older, more established companies tap into the public market — often for the second time.
But beyond the overall numbers, I was curious if any specific regions of the United States had seen an uptick in IPO activity, so I ran the numbers.
According to Crunchbase data, California and New York still lead the pack when it comes to companies headquartered in their states going public — that’s not surprising, since those two states receive the vast majority of venture funding, too.
But I also found that Texas, Florida and Colorado — among the states that have seen the fastest increases in venture funding in recent years — are on track to outpace the public exits they’ve had in previous years.
Public-market debuts matter to local economies because they inject new liquid wealth into a startup ecosystem. Employees and executives who cash out may go on to be angel investors in other startups, for example, or use that capital to start a new venture of their own.
“There’s only been a handful of ecosystems that have had a plethora of educated, savvy angel investors, and Austin has never had enough capital in that area of the development or investment cycle of a company, so this wealth creation will allow more of that to take place,” according to Morgan Flager, managing partner of Austin-based venture capital firm Silverton Partners. “That makes more companies get started.”
In fact, dollars coming back to a local economy is “probably the biggest indicator of future ecosystem health,” according to Flager.
Texas has had 12 companies go public through an IPO so far this year — that’s not including companies that went public through acquisitions — compared to 17 in all of last year, and on par with all of 2019.
“There’s kind of robust IPO activity,” Flager said. “ ‘Rising tides lift all boats,’ is certainly part of the story, but I think the bigger part of the story is the Texas market has been growing and maturing for some time now … I think what you’re seeing now is the fruits of the last seven or eight years of labor.”
Flager thinks that if market conditions continue as is, the next nine to 12 months will outpace the last six months of IPOs for Texas-based companies. Possible IPO or SPAC candidates include jewelry company Kendra Scott, construction tech company Workrise (previously known as RigUp), and at-home health testing company EverlyWell, Flager said.
‘Plenty of liquidity’
Colorado has had seven companies IPO so far in 2021, compared to nine last year (one of them was Palantir, which was a direct listing and moved its headquarters to the state shortly before going public). Some other notable companies to go public from Colorado this year are EverCommerce and Frontier Airlines.
We’re seeing more companies located outside the usual California-New York-Massachusetts trifecta pick up the pace of IPOs due to what’s happening in the underlying economy, according to Josef Schuster, founder of IPOX Schuster LLC, which offers financial services related to new listings.
It’s not just about the big cities anymore, he said.
“There’s a big window of opportunity in the market,” Schuster said. “There’s plenty of liquidity and every IPO is able to price and some of these deals are very strong deals.”
Companies have also relocated or opened up offices in other states for tax reasons, such as Texas and Florida, which don’t have state income tax, Schuster said. Robinhood, for example, is headquartered in California and plans to go public this week, but opened an office in Orlando.
“We’re just seeing some significant investment in companies that are headquartered here and in some cases are expanding here,” said Tim Giuliani, CEO of the Orlando Economic Partnership. “All of them you’ll notice hit on things where Florida has a significant competitive advantage.”
IPOs are generally some of the strongest wealth-creating mechanisms within the investor space, he said, and people tend to invest in what they know.
Areas with many companies going public also tend to have lower unemployment following those public debuts, according to Schuster.
“In terms of immediate impact, I think wealth creation is at the top of that list because angel investment is typically the first round of capital that most companies raise,” Flager said.
Illustration: Dom Guzman
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