Square co-founder and CEO Jack Dorsey.
Photograph by Jin Lee — Bloomberg via Getty Images
By Dan Primack
October 15, 2015

Okay Silicon Valley, it may be time to begin making sure there is enough canned food in the bomb shelters.

For months I’ve been bemoaning the dearth of VC-backed tech IPOs, particularly among the so-called unicorn class. “Don’t worry,” I was told over and over again by rhetorical device VCs. “Companies are staying private longer because growth equity is so cheap and plentiful right now. These are real businesses — unlike the dotcom-era flame-outs — and they’ll be able to go public when they feel the time is right.”

Care to reconsider?

As I wrote on Friday, the market for later-stage private capital is beginning to tighten. And so is the IPO market.

Last week, VC-backed Pure Storage (PSTG) priced its IPO at the low end of its range, and actually broke its $17 per share IPO price on the first day of trading (it has since recovered a little bit). Today, payment processing giant First Data (FDC) priced below its original IPO range, meaning that it raised around $480 million less than it would have in the middle of that range (cash that the debt-laden, unprofitable company could have really used). Moreover, it also broke price at the open.

And then there is Albertsons, the enormous grocery retailer that earlier this year acquired Safeway. It was supposed to go public today. But it didn’t, apparently scared off by yesterday’s Wal-Mart (WMT) earnings. And that came on top of reports that luxury retailer Neiman Marcus has pushed its own IPO until sometime in 2016.

So you see what all of these companies have in common, besides having filed IPO documents with the SEC? Absolutely nothing. Different industries, different top-line financials, different ages, etc.

In other words, the macro is having an inside-out umbrella effect on IPOs. It’s the very reason why worrywarts like yours truly have been warning against unicorn procrastination.

All of which brings is to Square, which yesterday filed for a $275 million offering. This will be the offering that others in Silicon Valley view as the real IPO bellwether, not Pure Storage or more mature tech companies like First Data.

One reason Square gets this billing is that it transverses the consumer/enterprise tech divide (more due to marketing than actual product). Moreover, it will be the highest-valued U.S. tech startup to go public since Twitter (TWTR) did so in late 2013 (coincidentally, they now share a part-time CEO). Even if other VC-backed startups never hope to achieve $1 billion valuations — let alone $5 billion, as Square has done privately — smaller companies often look to larger ones for inspiration, if not direct guidance. That’s why Facebook’s (FB) IPO helped convince other entrepreneurs that being public was cool again, even though none of their companies would approach Facebook’s value.

So how well Square’s IPO does will have a disproportionate impact on the IPO plans of its fellow unicorns and, consequently, the volume and prices of future private financing rounds. But given that we don’t know Square’s fate until shortly before Thanksgiving, it’s unlikely that its results would have a tangible impact until early 2016 (at least in terms of IPOs, given the required run-up).

So where will you go Jack Dorsey? Silicon Valley turns its lonely eyes to you.

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