Only 11 U.S. companies have gone public as of April 20, according to a new report in the San Francisco Chronicletitled, “Why 2016 has been a terrible year for tech IPOs.” For reference, 43 U.S. companies had already gone public by this time last year.
So why are investors and executives alike reluctant to go public in the current market?
As recently as 2014, the IPO market was soaring; 275 IPOs were filed that year, up 23% from the 222 filed in 2013. Total IPOs hit $85 billion that year, compared to $55 billion in 2013. In fact, seven companies raised more than $1 billion in their public offerings. During these years, tech giants like Alibaba, Facebook, and Twitter went public, inspiring others to do so as well.
But the number of IPOs dropped sharply in 2015, with IPO revenues falling by about 60% and no blockbuster IPOs to speak of. So after a string of high-profile IPOs failed to meet expectations, private placement securities are looking very attractive to many companies right now. Plus, not only is there a surplus of private capital available for startups today, but tech companies have become obsessed with achieving unicorn status (a privately held company with a valuation above $1 billion).
Of course, there’s a reason unicorns are so rare. Just look at Theranos.
Theranos was once the darling of Silicon Valley. A fresh startup with an attractive young founder, high profile investors, and “disruptive” new technology. This April, the SEC launched a criminal investigation into Theranos for misleading investors, and even the best corporate and securities lawyers in the world may not be able to help the company survive.
So what can investors take away from the state of the IPO market and the Theranos debacle? Neither private placement securities nor IPOs will help a company with a lousy business model. Ultimately, the truth will come out.
For many startups looking to raise capital in 2016, private placement securities are looking like the safer bet. Many securities law firms will tell you that private placement offerings are essentially the opposite of an Initial Public Offering. Rather than offering stock to the public through an IPO, many companies will first seek to raise capital through private placement securities instead.
Even so, every company has unique needs. For help moving forward, contact our securities lawyers for more information on all of the options available to you.