Investing in Silicon Valley “unicorns” — startups valued at $1 billion or more — used to be a sure bet.
Investors saw outsized returns from initial public offerings, or IPOs, and attractive startups became must-haves.
But that started to change last year, and some tech companies began accepting lower valuations in order to go public.
In fact, a look at last year’s “unicorn” IPOs shows that investing in supposedly hot tech startups was basically a coin toss.
Deutsche Bank’s tech-equity capital-markets team — that is, the team that runs tech IPOs — looked at the seven unicorns that went public in 2015 in a note to clients.
Here’s how they fared:
With the help of Dealogic, Business Insider identified the companies A-G as Atlassian, Box, Etsy, Pure Storage, Shopify, Square, and SunRun, respectively.
On paper it doesn’t sound so bad: on average, unicorn IPOs were up 10% by the end of the year.
But three of the seven ended up trading down by the end of the year. One was flat, and three of them traded up.
And if you’re the investor deciding which company to put your money into — or whether to invest in any unicorns at all — that’s not that reassuring.
Deutsche Bank pointed out that tech IPO activity, overall, was down significantly last year.
The sector saw 26 offerings in total, down 57% from the year before. Proceeds raised were down 41% from 2014 before, excluding that year’s record-breaking Alibaba IPO, according to the note.
The Deutsche Bank team noted that
tech IPO activity will likely pick up in 2016.
IPO performance is going to have a large part to play in that. If deals go ahead and perform well, it will likely lead to more activity. But a few bum deals could scupper the IPO plans of other tech companies.