Big Red Car here on a day that will turn out to be a lovely one, indeed. We are going to be talking IPOs, y’all.
So, recently there has been a bunch of talk about the dearth of tech IPOs in the most recent quarter. Zero, y’all!
The big question is why? Why no IPOs?
Let the Big Red Car carsplain it to y’all.
Inform me, Big Red Car
The IPO worthy and ready tech companies are being valued for current funding value (pre-money valuation on most recent funding forays) at insane values. Insane values.
Not all but some and enough to empty the pipeline of IPO deals.
When a company goes public, they have to show the world their historic numbers and thereby expose the wisdom and fairness of their recent valuations. The simple truth of the matter is that an IPO may be a “down round” wherein a company’s value goes down rather than up.,
In addition, many tech IPOs have performed poorly once public — nice way of saying they were over priced at the issuance and the price began to be marked to reality — and investor appetite for losing money has diminished. Many investors are able to find losing investments without having to add any high tech to their portfolio.
It is really that simple. Not complicated at all.
Is it dead, Big Red Car?
No, dear reader, it isn’t dead. This is just a pause and companies will be back when they’re back.
Take as an example a recent deal that Spotify did.
They used a convertible note to raise $1,000,000,000 to do battle with Apple and their Apple Music streaming entity.
The terms were something like this:
Conversion discount, 20% growing at 2.5 annually
Interest rate, 5% increasing 1% every six months until it reaches 10%
This is being done why? To give Spotify time to get more subscribers and to grow the business until it is IPO ready. Clearly the terms of the convertible note contemplate an IPO and the investors, Dragoneer Investment Group and TPG, are focused on that eventuality.
BTW, Spotify claims they have 30,000,000 subscribers paying $9.99/month with a one month freebie. If that is correct, wow!
In the streaming music battleground, it took Spotify six years to reach 10,000,000 subscribers, something Apple Music did in less than a year but Apple had all those iPhone and iPad and Mac users out there. Still, this is a big industry with a lot of upside.
Keep an eye on Pandora which is going to be acquired by one of these two.
The point, Big Red Car?
Even though the IPO market is a little weak right now, the really good companies are going to get a deal done and these deals are still going to be focused on an IPO as an exit strategy. Trust me on this one.
Oh, yeah, BTW the Irish Sweepstakes hasn’t been around since 1987. It was replaced by a lottery, an Irish lottery for the funding of their hospitals.