There are now over 170 "Unicorns" - venture-backed companies valued at over $1 billion - and recent tech post-IPO performance and market volatility suggest that many of these unicorns may have difficulty going public at their current valuations. The Fortune article "Silicon Valley's $585 Billion Problem" explores the unicorn phenomenon, looks back at tech unicorn post-IPO performance, discusses the slow-down in tech IPOs and the negative feedback loop created when IPOs trade below their IPO prices. The article discusses the IPO process and talks about the IPO pricing and the "pop" from the IPO price to the initial trading price. Having been an investment banker, I disagree with the characterization of investment banks in the article and I believe the article adopts a cynical view of the IPO process. Having said that, I believe there are some good take-aways from the article:
- There has been dramatic growth in the number of unicorns in the past couple years. Most of these unicorns are tech companies.
- The average profitability of tech companies going public has declined over the past several years.
- After they go public, the stock price of many of these unicorns have dropped below their IPO price.
- The tech IPO market has slowed, partly due to poor post-IPO stock performance of recent tech IPOs and partly due to recent volatility.
- The combination of the above will make it difficult for many unicorns to go public at their current valuations.
