Recent technology IPOs (such as Lyft and Uber) have received a cold reception on Wall Street, which is surprising given that they were among the most celebrated tech “unicorns” (venture capital backed firms valued at $1 billion or more) to hit the public markets in years. Both stocks are down significantly from their IPO price, leaving investors to wonder, “what happened?”
The article below describes in interesting detail how IPOs have changed over the years, with companies staying private longer and going public at already sky-high valuations (Uber for example, last sold shares privately at a valuation of $76 billion, contrasted with Amazon’s last private fund raising round at $56 million, adjusted for inflation). In other words, public investors are no longer able to get in on the “ground floor” as they were in past decades.
In addition, private valuations are higher than what might be earned in the public markets. Why? The private valuation is based only on the most optimistic of investors. That is not the case in the public markets, where short-sellers are able to drive a stock price lower on the bet it will go lower still.