Class of 2020 | lirich@wharton.upenn.edu
With more companies reaching “unicorn” status, many investors are patiently waiting for an opportunity to invest in these burgeoning startups. But as more venture capital funds are created, startups are feeling less pressure to go public. After all, when there are abundant sources of capital coming from private firms, why subject yourself to the scrutiny of public markets? In fact, this shift has dramatically changed the way startups search for capital. Traditionally, companies like Uber would have been expected to go public after reaching a certain critical mass. Yet, even after eight years of remaining private, Uber continues to raise billions of dollars without going through a down round. In 2016 alone, they raised another $5 billion round.
So, with this new aversion to the public markets, will startups still pursue the risky path of an IPO? Will they be willing to allow the Street to pop their bloated valuations? The answer is yes, and in 2017, there are some major IPOs that will determine the path for future startups to come.
Snap Inc. As of now, Snap looks to be the biggest tech IPO of the year, as they hope to raise $3 billion in their initial public offering. However, investors are balking over its rumored $25 billion valuation. But with a limited number of IPOs available, institutional investors may not find a better opportunity than Snap in 2017. As Snap filed for an IPO early in the year, their IPO may occur as soon as March. Inability to produce profits and slowing user growth will definitely bite into their valuation; just last year, the company reported losses of $515 million on a user base of 158 million daily active users. Notably, their user base is up 48% from a year earlier. It’s going to be interesting to see how investors balance the tough competitive environment with the company’s new innovations. For example, Instagram added 50 million users to their platform in the past four months alone, increasing their daily active user base to 150 million. On the other hand, as Snap develops their new Spectacles offering, new opportunities may be in store for the company.
Airbnb With over 3 million listings worldwide, Airbnb dwarfs the number of rooms offered by large hotel chains like Marriott and Hilton. Their valuation doesn’t fall too short, either. With a valuation of $30 billion in their most recent round, Airbnb is worth more than Hilton ($23 billion) and Marriott ($26 billion). With regulatory issues and new competitors in the form of Expedia’s Homeaway and TripAdvisor’s Housetrip, Airbnb will have its fair share of obstacles. Hiring Eric Holder, former Attorney General of the United States , as an advisor and expanding into other travel offerings certainly seem like good strategies.
Palantir Technologies The legendary company that nobody has heard of. Another one of Peter Thiel’s children, Palantir was founded in 2004; however, although it is famous within the tech community, the company has failed to proliferate into the lives of daily Americans. That’s because it doesn’t have to. As one of the world’s premier “Big Data” providers, Palantir services governments, large corporations, and humanitarian operations. In December 2015, Palantir raised $880 million in a round that set their valuation at $20 billion. It might not get a lot of press, but with growing demands for Big Data, Palantir may be this year’s sleeper IPO. Don’t underestimate Peter Thiel’s close relationship with the new President. It may hurt his popularity in Silicon Valley, but it won’t hurt his large government contracts.