Companies like Spotify and Dropbox Are Changing the I.P.O. Landscape

April 27, 2018 - 3 minutes read

mobile app developersCompanies like Dropbox and Spotify are changing what initial public offerings (IPOs) mean for Silicon Valley and the U.S. economy. With Snapchat and Blue Apron hitting IPO status and seeing quickly-dropped share prices, startups who find success with private funding are no longer guaranteed the same results when it comes time for a public investment.

Rolling the Dice

It’s been almost a decade since we started seeing online services like Dropbox pop up. Venture capitalists who’ve invested in various tech startups are also itching to get a piece of their pie sometime soon. One of the best ways to recoup years of investment is through an IPO.

In an IPO, a company allows the public to invest in the business, and venture firms often see gains up to or surpassing 500%. With a sweet deal like that, who wouldn’t be biding their time for their startup to go public too?

Some venture capitalists, however, may never receive the IPO windfall they hope to get. Companies like Uber and Airbnb continue remaining private, though each has seen multi-million annual dollar revenues. Profits, though, are another accomplishment that many startups, like Snapchat, have trouble achieving.

The IPO Cycle of Life

Industry experts, bankers, investors, and analysts expect more IPOs in the next 18 to 24 months, returning billions of dollars back to their investors, founding members, and early developers.

Airbnb has been putting independent directors on its board, a telltale sign of padding up the company to go public. Uber’s CEO, Dara Khosrowshahi, recently revealed his plans to take the San Francisco-based startup public next year. Its biggest competitor, Lyft, has been talking with investment banks about possibly going public.

When companies go public, their founding members get back a big chunk of change, which they often use to start up another company. Investors who cashed out can then reinvest their earnings into these new startups.

Invest in What You Know

Matthew Kennedy is an IPO analyst at Renaissance Capital. He believes most private companies with valuations over $1 billion will go public in the next 24 months. Some picks he spoke about were Slack and DocuSign. Another area to keep an eye on is Chinese companies, like Xiaomi and Meituan Dianping.

Many tech companies could be facing a huge influx of cash and investment in the next two years with an IPO. Who amongst them would you invest in?

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