IPOS ARE COOL AGAIN
There are lots of factors that went into creating the “Age of Unicorns” – the unusual abundance of highly valued private companies — but startups avoiding the public markets is the biggest one. In lieu of an IPO, startups strived for the billion-dollar valuation. It gave them all the same benefits of an IPO (except a financial return) — external validation for customers, employees, the media, and future investors — without the hassles of quarterly reporting.
For that reason, I’ve always thought the official end of the unicorn era would happen when the biggest, most valuable, most high profile and most quintessential billion-dollar startups, Airbnb and Uber, finally went public. According to Silicon Valley gossip, those two IPOs aren’t likely to happen till 2018.
In the meantime, there are other signs that our time in the enchanted forest (©Matt Levine) is coming to an end. To whit: Bloomberg has declared that Silicon Valley startups now favor IPOs over deals. Why? Because many acquirers aren’t willing to pony up enough cash to support their high valuations. In some cases, the buyers don’t want to own money-losers. (It’s one thing to take a goodwill impairment on a buyout, a VC told me last night, it’s another to cover your new subsidiary’s losses at the same time.)
In other words, IPOs are cool again, but they’re especially cool for companies with no other option. Bloomberg reports that AppNexus did a dual-track IPO/sale process; deal talks broke down over price and now it’s going public. Likewise, Okta tried to sell and the deal fell apart; now it’s going public. Same goes for three other startups – Plex Systems, MapR and Forescout. Likewise, Cloudera is on deck to go public. Pinterest is “on the path” to IPO. And according to reports this morning, so is BuzzFeed.
To understand what a reversal that is, look at how prominent CEOs viewed IPOs over the last few years:
Uber CEO Travis Kalanick: “We are going to IPO as late as humanly possible. It’ll be one day before my employees and significant others come to my office with pitchforks and torches. We will IPO the day before that. “
Palantir CEO Alex Karp: “The minute companies go public, they are less competitive. … You need a lot of creative, wacky people that maybe Wall Street won’t understand. They might say the wrong thing all the way through an interview. You really want your people to be focused on solving the problem, not on cashing in.”
And course there is Facebook CEO Mark Zuckerberg, who for years was “very outspoken” about companies staying private for as long as possible. (He has since reversed that stance, saying Facebook’s IPO made the company stronger.)
It got to the point where prominent VCs like Bill Gurley, Bill Maris and Fred Wilson were openly chiding their portfolio companies to grow up and go public. Selfishly, as a reporter who is tired of relying on leaks to understand the financial performance and business models of these companies, I agree with them. Now we’re getting what we wished for.
The question will be whether public market investors feel the same way about high valuations and cash burn as potential acquirers do. If the demand for Snap is any indication, the answer is a resounding “no.” But in addition to being a unicorn, Snap was also a special snowflake. Other money-losing startups without the same name recognition, buzz, and cool factor may not get the same treatment.
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• Ripjar, a London data intelligence platform, raised £3.8 million ($4.7 million) in funding from Winton Ventures.
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HEALTH + LIFE SCIENCES DEALS
• Antiva Biosciences, a Menlo Park, Calif. biotech company developing antiviral drugs to treat HPV infections, raised $22 million in Series C funding. Investors include Brace Pharmaceuticals, NS, Osage University Partners, Alexandria Venture Investments, Canaan, and Sofinnova.
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PRIVATE EQUITY DEALS
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• Magnate Worldwide, a Carlsbad, Calif. shipping company backed by CIVC Partners and Magnate Capital Partners, acquired Premium Transportation Logistics, a Toledo, Ohio provider of logistic services. Financial terms weren’t disclosed.
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• Nippon Shokubai agreed to acquire Sirrus, a Cincinnati developer of electron deficient monomers and derivatives. Sirrus raised $20 million in equity funding from backers including Braemer Energy Ventures and GM Ventures.
• Canon (TSE:7751) acquired Kite, a London on-demand print tech startup, according to TechCrunch. Terms weren’t disclosed. Read more.
• TPG agreed to acquire a majority stake in the Vietnam Australia International School, which operates preschool campuses in Ho Chi Minh. Exiting shareholders include Mekong Enterprise Fund and MAJ Invest.
FIRMS + FUNDS
• Gauge Capital, a Southlake, Texas private equity firm, raised $500 million for its second fund, Gauge Capital II.
• Howard Shore is stepping down as chief executive of Shore Capital Group. Simon Fine and David Kaye will take over as co-CEOs, while Shore will remain an executive chairman.
• Zeynep Young joined Next Coast Ventures as a venture partner. Young is the former chief executive of Double Line Partners.
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• Brian Cooper joined Tengram Capital Partners as a principal. In addition, the firm promoted Kris Parks to principal and Michael Zappala to senior associate.
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• Andrew Freeman joined H.I.G. Middle Market, the middle market affiliate of H.I.G. Capital, as a managing director. Previously Freeman was a partner at Paine & Partners.