Depending on the lifecycle and specific needs of companies, public flotations (IPOs) are an expected tool used for additional fundraising, validation and investor exits. The timing of these flotations has gotten a lot of attention lately with companies such as Uber and Airbnb raising into the billions while remaining private. However, PitchBook’s data shows that the majority of VC-backed companies aren’t waiting as long as it may appear before launching IPOs.
Using the PitchBook Platform, we examined the frequency of IPOs over the past 10 years compared to the different ages of VC-backed companies going public. Take a look at what we found below:
* All data based on U.S. companies.
In a recent interview, Fred Wilson of Union Square Ventures supported the idea of VC-backed companies conducting IPOs much earlier in their lifecycle, explaining how in the current trend, the majority of later-stage gains are received by just a small cohort of investors. Opponents to this view believe that at this stage, companies are not ready to handle public market scrutiny (see Bill Gurley’s post for more thoughts on this), may not have yet gained an optimal market share, still need to focus on building for the long-term, and haven’t reached a scale worthy of banker coverage and interest.
The majority of VC-backed or previously VC-backed entities the world is acquainted with (thanks financial media) have typically wound through a long road before entering that platform. Facebook, LinkedIn, Twitter and even Etsy, just to name a few, all fit into this group. While it appears companies en masse may not be waiting as long as we might think to IPO, companies are definitely raising more capital prior to their public market debuts. 45% of companies that IPOed since 2010 raised over $100 million of venture funding prior to their IPOs. Between 2005 and 2009, only 18% of companies had reached that level.
Maybe the recent valuation step-ups we’ve seen in still private consumer-tech companies blind us a bit from what typically occurs in practice. The Ubers, Airbnbs or even the DocuSigns of today may simply be outliers, raising money at higher valuations just because they can with no need for the public markets. In addition, these companies have grown at such rapid rates because they are first movers in their respective industries, which in itself carries various unknowns that public markets may not stomach as much as private investors. For some companies, it only makes sense to stay private longer (especially as the cash piles in), yet for the majority, that doesn’t appear to be the case.