$23 billion, $120 billion, $7.1 billion, $35 billion, $12 billion, and $41 billion. What do all these numbers have in common? They are valuations of some of the largest tech companies poised to enter Wall Street this year or next.
Lyft, Uber, Slack, Airbnb, Pinterest, Postmates, and Palantir were all founded roughly at the same time of the ‘08 financial crisis, and after a decade of investor pitches, regulatory pressures, and sleepless nights, these companies have almost “made it” to the big ranks. While these companies are poised to IPO this year or next, it is important to recognize that the road to their massive valuations was lengthy and not always smooth sailing.
One of the most significant risks these companies have faced has been regulation — not surprising given that so many of them are industry disruptors. Uber, for instance, is the perfect example of a company that has been forced to strategically pivot in many markets due to roadblocks imposed by stakeholders such as the regulatory bodies or unions. In its early days, Uber struggled to operate in states with preexisting limo and taxi service laws. In Miami, the company was initially forced to charge a minimum of $80 per ride as it was classified as a limousine service; as a result, they chose not to operate there. Airbnb faced similar regulatory pressures in hospitality. Hotel worker union efforts have resulted in many forced compromises such as host restrictions in markets including NYC and Chicago.
In addition to regulation slowing down the time to IPO, the amount of dry capital deployed in VC has increased significantly. In previous generations, companies with valuations as high as these would have long resulted in an IPO or direct listing. However, there has been an influx of new capital. According to PitchBook, between 2009 and 2015, the number of US-based VC investments more than doubled from 4,487 to 10,740 with deal value almost quadrupling from $27.2 billion to $83 billion. This trend has led to longer time to liquidity in recent years as companies hold out for more venture capital to attract higher exit values.
Andy Rachleff, CEO of Wealthfront and Co-Founder of Benchmark, estimates that more than 6,000 shareholders of the upcoming IPOs will join the 7-digit club starting with Lyft’s IPO today. As the saying goes — high risk, high reward.
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Originally published in the March 2019 LVAM Newsletter.