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Dropbox Inc co-founders celebrate on the Nasdaq Stock Market as Dropbox (DBX) is listed for the companys IPO in New York
Image: Dropbox Inc co-founders celebrate on the Nasdaq Stock Market as Dropbox (DBX) is listed for the companys IPO in New York. REUTERS/Lucas Jackson

Silicon Valley Venture Capitalists Ready Themselves for IPO Storm

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Image: Dropbox Inc co-founders celebrate on the Nasdaq Stock Market as Dropbox (DBX) is listed for the companys IPO in New York. REUTERS/Lucas Jackson

Venture Capitalists in Silicon Valley are getting themselves ready for a wave of new I.P.Os.

These investors are watching the tiny startups they funded as they grow to the level of going public.

Windfalls Expected

Until now, few venture capitalists have truly been able to benefit from their investments. While many have backed some outstanding startups, few have actually decided to go public so far. The goal is to fund a company that will then go public and sell for nine or even ten figure price tags.

However, to the chagrin of many venture capitalists, many of the fastest growers have stayed private. This includes top performers such as Airbnb and Uber.

That said, many venture capitalist, analysts, bankers and other forms of investors are predicting a change. In fact, they forecast a massive wave of initial public offerings (I.P.O.) over the next while. In fact, many expect the wave to get started over the next 18 to 24 months.

Here Comes the Wave

The upcoming I.P.O.s will likely consist of some of the most recognizable and most highly valued startups with Silicon Valley’s backing. This will mean that venture capitalists will finally start to see the returns they have been waiting for. In fact, they will likely see billions in returns as executives and investors alike reach the point they’ve sought for some time.

That said, this will only be the start of the wave. It is expected to continue to ride along for some time as dozens of companies accumulate never before seen valuations within the private market.

This year has already brought with it some exciting I.P.Os. Dropbox, an online file storage and sharing company, and the Swedish music streaming service, Spotify, both held an I.P.O. in the last month.

This year alone, tech I.P.Os have already managed to bring in over $7 billion. This figure is higher than what they raised in 2015 and 2016 combined. Moreover, it’s already passed the halfway point of 2017’s $13 billion. This, according to Dealogic’s market data.

Cashing In

Tech startup investors have their hopes set on being able to cash in on several I.P.Os in the next couple of years. If they are as successful as they hope, their returns could leave those from the last half decade in the dust.

The investor confidence is far stronger than it was in 2017. Venture capitalists watched several disappointments throughout last year. For example, the company behind the Snapchat app, Snap, went public in 2017 only to sputter shortly afterward. Blue Apron, the popular meal kit delivery service, also experienced a prompt price plummet following its 2017 I.P.O.

A Light at the End of the Tunnel

Venture capitalists are now primed and ready for their investments to start paying off. They feel that the situation has arrived for the successful I.P.Os to get started and to see their returns.

According to First Round Capital general partner, Rob Hayes, “I talk to bankers all the time and they’re like: ‘Dude, we have stuff coming down the pike. There’s a bunch of offerings teed up,’” In 2010, Hayes led Uber’s $1.5 million funding round, valuing that company at $4 billion. Today, that same company has been valued at $68 billion.

Tech Companies are Making Moves

A number of the fastest growing and most well known privately held tech firms have been lining themselves up for an I.P.O. within the next couple of years. For instance, Uber’s CEO, Dara Khosrowshahi, has already expressed his intention to bring the company to its initial public offering in 2019.

One of Uber’s top rivals, Lyft, has been talking to investment banks to learn more about the chance to go public. Airbnb has started the process of drawing independent directors onto its board. That is a standard move for firms prepping themselves for going public.

The Future of Silicon Valley

Such a large number of I.P.Os over the next while is likely to have repercussions within the Silicon Valley startup environment. As the startups go public and their executives and talent enjoy some of those returns, they may step away from those companies in order to launch new startups.

This could provide Silicon Valley venture capitalists with a whole new crop of startup companies in which to make their investments. The investment and innovation cycle for which Silicon Valley is known will begin again. This may breathe new life into the area’s technical experimentation.

At the same time, as venture capitalists clean up from each new I.P.O. it will bolster their reputations and confidence for making future investments into startups.

“At all levels, there are more and more companies who are thinking about should we go public this year or next?” said vice chairman of investment banking, Noah Wintroub of JPMorgan Chase. “You’ve got an environment now that’s conducive to asking that question, and also a lot of companies that have scaled up to the point where they can go now.”

Note: The opinions expressed in this article are the author's own and do not necessarily reflect the view of Alvexo on the matter.