Silicon Valley IPO market logging off fast
Gone are the days when boom time for technology initial public offerings (IPOs) that showered money on technology companies and startup coupled with huge valuations for investors. Now the situation is totally different on renewed concerns about possible technology bubble burst following the IPO market in Silicon Valley is fast losing its sheen. The dwindling down of market valuations is forcing many companies to cancel their IPOs or postpone the issue dates which affects the US capital market.
The majority of technology companies are trading below their issued price this year. For instance, 12 technology companies or 42 percent of that tapped the US capital market this year are below their valuations. Though the valuations are growing for some companies, but the growth rate is at very slow pace.
Adam Marcus, Managing Partner of OpenView Venture Partners, Boston, said: "People are no longer out of their minds with valuations and expectations." Recently, Pure Storage, whose IPO earlier this month gave the data storage company a $3.1bn market capitalization that matched the valuation in a private market.
The below market valuations or slow growth rate of valuations are indicating bleak market conditions for the technology companies in the Silicon Valley, according to Ipreo, a market intelligence company. However, in 2014, many companies witnessed encouraging growth in their valuations.
The average growth of valuations in private market was 61 percent in 2014 and some companies even registered growth of three to five times also. About 61 percent of technology companies that went public in 2014 gained 32 percent. There's change of focus in investing pattern as well. Online payment company Square has filed for IPO slated for later part of the year. The so-called Unicorn or technology startup with $1bn valuation is going public this year.
Many institutional investors consider that investment in private market transactions gives a fair deal of about eight percent return, which is considered to be better earning rate considering the present uncertainty in financial markets. Many bankers, venture capitalists (VCs) and late stage investors see the ongoing shift in investment climate is just getting underway and may accelerate in the days to come.
Few years ago, when markets were booming, technology companies were in great demand as investors were chasing them. Accessing huge private financing and gaining massive valuations, many technology companies tried to jack up their market capitalization through IPO route.
As a result, the shrinking down of market valuations of many technology companies are resulting in the cancelation of IPOs or postponement in the issue dates. People, who invested with the expectation of 30-40 percent returns, are now ready to compromise with even an eight percent return.