29 Feb No IPOs may indicate slowing year for Silicon Valley
By: Marisa Kendall | San Jose Mercury News | Posted: 28 Feb 2016
The first quarter is halfway over and the markets have yet to see a single IPO out of Silicon Valley, news that seems to confirm gloomy predictions some analysts have made about the tech industry’s coming year.
Some companies, such as San Jose-based cloud storage company Nutanix, apparently are delaying their Wall Street debuts. Nutanix, which had filed for a $200 million IPO in December, has yet to go public and may be waiting for better market conditions, experts said.
But the IPO climate may not improve any time soon. The stock market has been a roller-coaster ride this year as the market responds to fears about everything from China’s economic slowdown, to the drop in oil prices, to the refuge crisis in Europe. Twitter and GoPro shares fell to an all-time low this month, and LinkedIn lost $10 billion in value.
“This is the weakest start of the year since 2009,” said Kathleen Smith, a principal at Renaissance Capital, which tracks public offerings.
A look at eight of last year’s biggest U.S. tech IPOs shows six of the companies were trading below their offer prices Friday afternoon — including Etsy, Box, Fitbit and Match Group, which owns Tinder. Last year industry experts wondered if 2016 would be the year tech bubble bursts, or the year the market sees more “unicorpses” than unicorns. The IPO scene this year seems to reflect that uncertainty.
The only public offerings so far have been from four biotech companies based in Illinois, Massachusetts and China, and Silver Run Acquisition Corporation, a Houston-based energy-focused acquisition company. Silver Run raised $450 million in its Tuesday IPO.
Last year, 24 companies had priced initial public offerings through the end of February, according to Renaissance Capital data. That includes Redwood City-based Box, which provides an online file-sharing service for businesses. The four 2016 biotech IPOs — AveXis, Proteostasis Therapeutics, BeiGene and Editas Medicine — are what Smith calls “quasi IPOs” because they relied heavily on insider buying.
Massachusetts-based Syndax Pharmaceuticals announced its plan to launch an IPO next week. Others, such as Southern California-based orthopedic health company Ellipse Technologies, are choosing acquisition. Ellipse filed for a $75 million IPO in October but reversed course last month and announced it was being acquired by NuVasive, a San Diego medical device company, for $380 million.
Another six companies postponed IPOs this year that had been pegged to raise $1.3 billion, according to Renaissance Capital data. That list includes Oakland-based construction company Shimmick Construction. The Silicon Valley IPO market hasn’t seen much action since Square went public in November. Square saw a first-day return of 45 percent, after discounting its shares by about a quarter.
Private companies aren’t the only ones getting nervous. Investors have pulled back on their spending, raising the bar for startups to get funded, said ClearPath Capital Partners managing partner Paul James Boyd.
“We have also heard that when companies are out looking for capital, a couple we’ve run in to have not been able to get the whole amount they wanted,” he said.
That means investors may be less likely to fund riskier companies going forward, said Robert Ackerman Jr., founder of Allegis Capital, and they may shy away from Silicon Valley’s most innovative new startups.
Norwest Venture Partners managing partner Jeff Crowe disagrees. There’s still plenty of seed and early-stage funding to be had, he said.
“What I do think it means, is that companies that have scaled to a large size without a prudent business model, they can have trouble,” he said.
The year’s biggest deal so far seems to be Florida-based virtual reality startup Magic Leap, which earlier this month announced a new $793.5 million round of funding led by Alibaba Group.
PricewaterhouseCoopers partner Thomas Ciccolella said “megadeals” of $100 million or more are a positive sign because they show investors still are willing to bet on innovation.
“It says there’s ripe opportunity for entrepreneurs, or for things to be changed in the current environment, especially in tech,” he said. “That helps us gauge the appetite for new and innovative technology.”
Ackerman described the market slowdown not as a tech bubble bursting, but as “a lot of air being let out of the balloon.” The market is correcting itself after years of overexcitement and runaway valuations, he said. But the slowdown may open up opportunities for some savvy investors.
“You can argue when nobody’s investing in anything is a phenomenal time to make an investment,” Ackerman said. “But that requires you to look past your fear.