Public Markets Venture

Ahead Of WeWork, Cloudflare, And SmileDirectClub IPOs, The Pipeline For Future Debuts Is Thin

Morning Markets: Some big IPOs are on the horizon, but smaller offerings look light. Are enough unicorns going public?

Ask someone who follows tech startups and other high-growth private companies what they think about today’s IPO market and they’d probably say it’s healthy. And they would be partly correct.

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But underneath the glitz of recent debuts there is a complete dearth of IPOs close enough to a debut on a US exchange to have an expected trading date.

Indeed, a quick peek shows that Nasdaq’s upcoming IPO chart is barren. The NYSE is the same. Even IPOScoop has nil coming up.

That leaves us with just a few huge offerings to look forward to. But what about the rest of the unicorns?

Private Herd

While the impending IPOs of Cloudflare (more here), The We Company (more here on WeWork), and SmileDirectClub (more here) will generate big news, they represent the higher-echelons of unicorns. According to the Crunchbase Unicorn Leaderboard, Cloudflare is worth around $3 billion; SmileDirectClub is worth about the same; and The We Company is currently marked for sale at $47 billion.

The three IPOs will make liquid a huge slice of wealth that has been locked up for some time. But the Unicorn Leaderboard lists hundreds and hundreds of companies. Knocking three off the list won’t even get a full percent of the companies exited. And I’d guess that the market is still birthing unicorns far faster than it is finding exits for them.

The backlog of unicorns that need an exit is, therefore, getting longer, not shorter. The current IPO dearth is an easily spotted facet of the problem, helpful in illustrating what we called the unicorn IPO traffic jam back in 2016. This has been an issue for some time.

If Not Now

A question I keep asking myself as I watch unicorns continue to not go public is whether they are too immature to do so (some, certainly), or if the companies in question are simply happier staying private as they have continued access to capital (some, certainly). It’s hard to tell which category is more popular from a distance, however.

A portrait of future unicorns that regret not going public

Many companies are taking a risk by not eating their lumps and going public in the current window. Cloud valuations are still high, IPOs are performing well, and public investors still value growth over profit. Those conditions do not have to hold, even if markets stay highly valued in aggregate.

Waiting is a gamble that unicorns are taking by not going public. I do not understand it, but that’s probably why I’m a reporter and not a founder.1

Illustration: Li-Anne Dias.

  1. That’s an adaptation of something that a co-founder of Asana told me on stage at an event after I called his idea stupid. Neither of us were wrong.

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