“Change things. Change your routine. Don’t do what you’ve been doing
for the past fve years. Read a new book.” —René Redzepi, founder of the world-renowned
restaurant Noma, among other infuential food ventures, in Jeff Gordinier’s newly published book
about him, Hungry
Interliant, Redback Networks, SBA Communications,
Tenfold. And e Toys.com, whose shares crested around $85
in late 1999; it was put down within two years, as was CAIS.
But SBA, a cellphone infrastructure outft, is worth about
$23 billion today, and router tech purveyor Redback was
sold for nearly $2 billion in 2006.
We won’t see such numbers this year—about $70 billion
is more likely—but Wall Street is in money-chucking mode
again. “The window is open. The market
tanked in 2018, and now people want to exit
and they can,” says Matthew Kennedy,
senior IPO market strategist at Renaissance
Capital, which runs several IPO-focused
exchange-traded funds. Among those who
have stepped up to the window or plan
to: Lyft, Pinterest, Slack, Peloton, Uber,
We Work, Palantir, PagerDuty, Fastly, and
Beyond Meat (see “How I Spotted—and
Grabbed—the Huge Opportunity That
Almost Everyone Else Missed,” page 56).
Prior to 2019, unicorn companies ran
through an alphabet’s worth of funding
rounds to avoid going public. The number
of IPOs dropped to 105 in 2016, and stories
about the “death of the IPO” surfaced.
Credit was cheap and available, and the
JOBS Act allowed swarms of small investors to play jayvee VC. Meanwhile, private
exchanges developed to allow insiders to
cash out some of their shares, for a fee.
“There was a time when staying private
meant you could experiment freely and
develop lots of avenues for growth
without being under the spotlight,” says
Jennifer G. Tejada, CEO of IT incident-response platform
PagerDuty, whose wildly successful April IPO included
a 59 percent pop in its frst day of trading. In its startup
years, PagerDuty used a strategy it called “land and
expand”: One IT guy at a company would buy the service
and become its evangelist to colleagues. But now the company guns for sizable contracts requiring C-suite signofs,
so Tejada felt being public would brand PagerDuty as a
long-term player. “The market has really started to understand the SaaS business model—the recurring revenue
stream,” she says. “You might argue that wasn’t the case
three to fve years ago.” She also thought PagerDuty
would get more press coverage, promoting things like its
50 percent female leadership team, which is, unfortunately,
rarely seen at tech companies.
Indeed, going public is a “branding event,” one founder
now contemplating an IPO told me. “If all you need is
cash, I wouldn’t think being public is the best option.” This
founder also says that the competition between Nasdaq
and the NYSE for listings is so intense that it’s generating
incentive packages worth millions.
PagerDuty, like Uber or We Work, didn’t need funding.
The IPO game this year is more about selling your narrative,
says Luke Williams, clinical associate professor of marketing
and entrepreneurship at New York University’s Stern School
of Business. “Startups grow through story, not structure,” he
says. “The shift that we’re seeing is that the marketplace is
again willing to bet on stories.”
Investors clearly have an appetite for the
tale of Beyond Meat, the plant-based burger
and sausage company that had a delicious IPO.
In founder Ethan Brown’s thoughtful letter
accompanying his S- 1 fling, he cites shifts in
human evolution that began 12,000 years ago
and declares that the entire human race now
has to evolve beyond its unsustainable reliance
on meat-based protein. Judging from the early
results, investors like that story.
And, while 20 years ago, the likes of Webvan
and Pets.com merely transformed good money
into bad, today’s companies have proven opera-
tions. Zoom Video isn’t a quantum computing
play, and Peloton isn’t betting on building min-
iature nuclear reactors. What we don’t know is
whether some companies can, as Kennedy says,
“fip the switch” and turn their blitz-scaling
machines into something that produces
profts—which is, perhaps, one reason that the
venture capital frms that have underwritten
them for so long are headed for the exits.
Meanwhile, more than 30 high-risk bio-
techs will hit IPO this year too. Companies
such as NextCure and Applied Therapeutics
not only have no profts, they also have no revenue. What
they have are researchers and scientists with a molecule or
a biological pathway to a treatment. In NextCure’s case, it’s
a new approach to immunomedicines to treat cancer and
other immune-related diseases. Most biotechs are zero-
sum plays. If their molecule or pathway fails, the company
fails—and most fail. (In this regard, cancer kills biotech
startups as cruelly as it does people.)
If companies now seem to be rushing to the IPO market,
it may be they sense that the risks of waiting are rising fast.
VCs are taking advantage of the best opportunity to transfer
that risk—and burn rate—to public stockholders. Economists
have been brooding about a slowdown or even recession in
2020; we may or may not be in a trade war, or a shooting
war. As Uber proved in its frst, disastrous week as a public
company, the stock market is subject to an awful lot of
noise, much of it courtesy of President Trump. As we head
into an election year, such noise will only grow louder.
The run-up to
2019’s IPO boom.
Source: Renaissance Capital