After an explosive year of initial public offerings (IPOs), tech companies know that the pipeline is still full. Dozens of companies took the plunge to go public. For most, they were successful dives. But there are many moving parts in the market and plenty of lessons to learn from the past year. Here’s a review of what happened in 2020 and what tech companies can expect going public post-pandemic.
Overview of Recent IPOs
From headlines to radio broadcasters, tech company IPOs were a prominent topic in 2020. Fintech, edtech, insurtech, and many more tech companies went public this year. But why the big surge?
For starters, 2019 was a rough time for tech IPOs. Amid mismanaged business practices, many companies struggled to recover. WeWork caused chatter, Uber raised eyebrows, and hundreds of people complained that Endeavor was overvalued. With so much drama, many tech companies chose to wait until the dust settled. However, they were chomping at the bit when the path was clear.
Snowflake, Lemonade, and Unity fared very well on the open market. Root made a quick turnaround, increasing by 73% from its IPO price of $29. Affirm struggled through the heat of the pandemic, continuing to increase its value. So, it seems that timing plays a significant role in the art of IPOs.
Understanding the Rise of SPACs
And then another unsuspecting character entered the scene. Although special purpose acquisition companies (SPACs) have been around since the early 90s, they only recently took center stage. There are several reasons for the SPAC revolution, including experienced investors, market volatility, and mounds of investment capital.
Unsurprisingly, this investment vehicle has been successful for a growing list of companies. Roughly 200 SPACs raised nearly $70 billion in total funding in 2020. Many businesses choose the SPAC route because it bypasses the traditional IPO rigamarole.
→ For more details about SPACs, please visit our post: Are SPACs the New IPO for Going Public Fast?
However, SPACs face unique challenges, such as navigating a hardening directors and officers (D&O) insurance market, sourcing capital, and pressured timelines, to name a few. Although only a few insurance carriers will cover SPACs, we still think they’ll be around for a couple more years.
Fundraising Trends to Know
The most impacting fundraising trend is that public equity is at an all-time high. As a result, many older (and private) tech companies are making their move to go public, while startups are shortening their roadmaps during the advantageous timeframe.
Consider DoorDash, Instacart, and Poshmark. Many individuals depended on these services to get them through the worst of the pandemic. What’s more, after DoorDash raised over $3.3 billion in December, its shares surged 85% on listing day.
According to Scott Galloway, an NYU’s Stern School of Business professor, there is “$200 billion in capital out there hunting.” Coming months could feature a private-to-public boom. Many companies who didn’t initially plan to go public for another two years or so might jump on the SPAC bandwagon. But will it last?
The short answer is no. The public market has its unique ebb and flow, and it will surely shift in the coming months or years. After all, what goes up must come down. In the meantime, tech companies can take advantage of the available capital until it disappears.
Tech Companies to Watch
With such an incredible IPO surge happening with tech companies, it’s never a bad idea to follow their journey. Many times, there are lessons we can learn from their experience. Here are a few notable companies to watch.
As mentioned, plenty of consumer brand companies are flying high nowadays. For example, DoorDash was in the spotlight for much of the 2020 pandemic. But it wasn’t always that way. Many professionals viewed consumer brands as too high maintenance, per se.
However, COVID-19 surfaced unique needs for which consumer brands had viable solutions. Nowadays, many experts consider DoorDash to be useful for many other products aside from food. And DoorDash is only the start.
Poshmark is another company to watch. After a busy 2020 year and a successful December IPO, its valuation is at its highest. Strangely enough, consumers continued to buy clothes from the online store, leaving investors more confident in the company’s public performance after the pandemic.
Robinhood, one of the most popular trading apps on the market, had a September valuation of $11.7 billion in the private sector. Of course, it now faces massive scrutiny from users and investors due to the GameStop fiasco. Nevertheless, the company has plans to go public, preparing an S-1 filing and other records.
Another fintech business enjoying a pandemic tailwind is Coinbase, a cryptocurrency exchange company. It announced a confidential IPO filing in December after a previous $7.7 billion private-market valuation. Additionally, Affirm has filed IPO paperwork, and their Swedish rival, Klarna, is following suit. Unsurprisingly, SoFi is hoping to go public via the SPAC route soon, as well.
With the pandemic’s restrictions putting so much pressure on edtech companies worldwide, it’s no surprise that this industry is getting a lot of attention. Although there aren’t many public ways to work the trend, organizations are still pushing forward. Udemy and Coursera are both pursuing IPOs shortly.
The COVID-19 pandemic shone a light on several industries, but none more than software. Thousands of people logging on to work from home called on companies such as Zoom and Unity Software Inc. for support.
On that same note, software security companies were in high demand, as well. Tanium makes endpoint-security software and has taken center stage. With a new $150 million funding round, this software company has a valuation of more than $9 billion.
Lastly, UiPath makes robotic process automation software and is valued at $10.2 billion. Most experts predict an IPO in the future based on its recent successes. We only expect to see more tech companies follow in the footsteps of these successful stories.
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