IPO-mania

The coming 12 months could be a venture capitalist’s dream, as a stable of unicorns goes public, looking to raise funds that will return sizeable profits to their early-stage backers.

Of the 63 tech companies valued over $1 billion in the last 20 years, nearly half were profitable in the four quarters leading up to their IPO. But this period of IPO-mania feels different. Many of the companies going public aren’t yet profitable.

Profitable or not, here are the IPOs to watch as public-market-mania grips the investing world.

* * * * *

Lyft off!

A week ago Lyft went public to enormous acclaim and ended its first trading session up 9%. Stock worth $2.3bn was sold, giving the 7-year-old company a valuation that topped $22bn.

The biggest US tech IPO since Snap in 2017 revelled in only positive headlines for a weekend… before its shares got battered on Monday opening, dropping 11%, closing below the initial placement price. Other tech giants, including its rival, Uber, will be watching the rollercoaster ride with interest. So too, investors.

Is Lyft’s rise and subsequent fall really surprising? The company’s 2018 losses amounted to $911m, the largest for any startup that has ever gone public, even as revenue doubled. In spite of this growth, it’s hard to see where profit will ever come from, despite the $1 trillion opportunity before them.

An Uber valuation

Of course, Lyft’s biggest rival is a household name here in the UK, and the slated Uber IPO is arguably the most keenly anticipated of the year and likely to land sometime during Q2. The poster child for the era of VC-backed growth, having raised more than $24bn in equity and debt since its founding in 2009, it will be fascinating to see how the market responds to its offering, which could settle north of $120 billion, making it easily the largest IPO in history.

That mighty valuation is, in part at least, deserved for a company that has truly established itself as a global brand. In 2018, Uber managed to cut its losses to a mere $3.3bn (from $4.5bn in 2017) and, despite recent management and PR headwinds, its worldwide market share (in terms of customers, drivers and infrastructure) will be hard for rivals, like Lyft, to ever dislodge.

The company’s potential is (almost) limitless, given talk of their move into autonomous vehicles. A $100bn+ float could be the precursor for a $1 trillion business of the future.

Airbnb’n’profit

Do not adjust your computer screens. This really is a profitable company seeking to list! Not a small profit either, and it’s no surprise why when you look at Airbnb’s numbers.

Airbnb now offers over 5 million listings across 81,000 cities in 191 countries, accommodating over 500m guests since starting out in 2008 and currently hosting more than 2 million people every night. Unlike other unicorns, they’ve turned market share into a lucrative business.

In Q4 2018, its revenues grew by more than $1 billion and there are (unconfirmed) reports that the company has been cash-flow positive for 2 years. These numbers make Airbnb’s IPO one to get excited about. A valuation between US$53bn and US$65bn will likely be achieved.

The Airbnb IPO may be unconventional too, with shares offered direct to the public, giving retail investors the chance to get their hands on the keenly-valued equity near the offer price.

Picking up the Slack

Another company seeking a direct listing is one that many of us working in tech know well, because it dominates our work lives. Team collaboration app Slack is now used in over 150 countries, with 10 million daily users and 80,000 teams that pay. It also counts 65 of the Fortune 100 as users.

A decade on from its incarnation, Slack raised VC-funding at a $7 billion valuation last summer from big-name backers, such as Softbank, Accel Partners and Andreessen Horowitz. It filed its paperwork in February, so expect an IPO to be coming in New York in the not too distant future.

Slack could soon be turning a profit like Airbnb too. 2018 revenues rose to $221 million, with big growth projections for 2019 and 2020. Last year finished with a negative $65 million in free cash flow but a forecast for FCF to turn positive by year end, projecting $14 million.

Unlike others, Slack has a solid business model. Thus, it will likely have little problem raising at the $10 billion it is seeking. It’s also proudly representing UK tech, with CTO and co-founder Cal Henderson a graduate of Birmingham Uni and a member of London’s early startup scene!

The best of the rest

One company we’re looking forward to hearing more from is Palantir, primarily because they’re giving so little away pre-IPO! Founded by Peter Thiel, the Californian data analytics company has counted the CIA as a client, so it’s no wonder it’s secretive. Analysts expect it to be valued at around $40 billion, a figure bolstered by news of an $800 million contract with the US Army.

Fellow fintech, Robinhood, the zero-fee trading platform, is also looking to IPO in the coming months on the back of strong user growth. Even though the company is still reporting losses, it now has 6 million active users and its most recent funding round, secured from the likes of Capital G and Sequoia, totalled $363 million, boosting its valuation to $5.6 billion. The hire of a CFO looks to have paved the way for the latest funding injection, this time from public markets.

And finally, closer to home, London-based Deliveroo are looking to raise having rebuffed reported takeover attempts from big beasts, like Uber and Amazon. Having not raised capital since November 2017, it’s being reported that 2019 will be the year that the team prepare for an IPO in Q3 or Q4. Revenues continue to grow and its most recent funding round, completed at a $2 billion valuation, could well be on the low side if they continue to enjoy a strong 2019.

* * * * *

At Origin, we wish these companies well in their pursuit of public funds. Profitable or not at IPO, they will now be judged by the market and by the actions they take in the coming years as they build out their products and businesses with the raised funds. In public, there’s nowhere to hide. 

A healthy IPO market means a healthy environment for all business owners and entrepreneurs. So we wish all going public this year all the best. We’ll be rooting for you.