Here's why the flurry of tech IPOs in 2019 is nothing like the dotcom boom of late 1990s
- Goldman Sachs Managing Director stated that the tech IPO market in the midst of 'super cycle'.
- There are over 300 private tech companies valued at over $1 billion who now have to choose between staying private or going public though they might not necessarily be ready.
- Uber, Lyft and Fiverr have already launched their IPOs this year.
In India too, tech companies like Indiamart are planning to go public.
Nick Giovanni, the Managing Director at Goldman Sachs predicts, "There are over 300 private companies with private valuations over $1 billion, and dozens that have valuations over $10 billion, and so there are just more large private companies waiting to go public than at any time in the past."
It sounds a lot like the dotcom bubble at the turn of the century but it might not play out the same way.
The Super Cycle
The IPO market for tech companies is set to boom after a decade of staying private.
The 'super cycle' — the longest period of growth in a particular market — may have tech companies vying to go public. It's not necessarily because they're ready for the market, but because they want to get ahead of the competition.
Early access to market means that their employees and early investors will get the first crack at unloading their shares. They also get to tap into a buyer's initial curiosity about a particular technology.
Being listed gives tech companies the opportunity to acquire firms using publicly traded stock — a currency that private companies don't have access to.
Dangers of the 'super cycle'
If 2019 is truly the year of the tech IPOs, then there will be a lot more as the year progresses. But it may not be all good news.
Increased tech IPOs would multiply the number of tech stocks available to trade. Since the number of tech investors is finite, this money into new IPOs could flow from already listed tech companies, stressing out valuations across the listed tech space.
This change in valuations will have a ripple effect on the valuation of private companies as well.
The onslaught on IPOs also has the potential to change the market perception of tech companies. Until recently, companies like Airbnb and Uber were considered 'better' for remaining private.
Going public means that the company is ready for public scrutiny and accountability. That's a price they are willing to pay to thrive.
But, in the rush to gain the first mover advantage, companies might be jumping in before they're ready to meet shareholder expectations.
In fact, Lyft and Uber — both ridesharing solutions — were caught in a race to the finish line having filed their paperwork with the Securities and Exchange Commission on the same day. And, Uber's launch on June 5 left Lyft's stock price in the dust.
Uber's momentary win was shadowed by the fact that its market was at $64 billion, far below the $120 billion target.
Fiverr, an Israeli startup for freelance writers, on the other hand, has been doing much better for itself. It's a gig-economy app, where freelancers can offer a host of different services like copy editing, logo design, and social media management to individuals or small companies who are on a budget or don't necessarily want to hire a full-time employee.
Launched on June 13, investors are willing to put their money into the IPO despite the fact that the company is currently losing money.
"After a very strong 2018, 2019 is on pace to continue to growth of the IPO market." Giovanni said during the Long and Short of it adding that, "What's different is that it's much more broad based than previous peaks."