Big-bang tech IPOs give reason to party like it's 1999
By Paul Mackintosh - 11/11/13
Tonight I'm going to party like it's 1999. And why? Big-bang tech IPOs of course, above all, Twitter, which has just exceeded all its expectations, rising to a total capitalisation of US$25 billion off a rise during first day's trading on the NYSE from $26 a share to $44.90 a share from the initial public offering price of $26 set before the listing, and at one stage rising to $50.
The yield from the actual shares listed could be as much as $2.1 billion, making it the second most lucrative listing of an internet company since social media Facebook last year, which raised $16 billion, and one with none of the technical issues and insider trading/preferential treatment rumours that tarnished the Facebook IPO. Beneficiaries include venture capital (VC) firms Benchmark Capital, Spark Capital, and Union Square Ventures, according to filings quoted by the Wall Street Journal, as well as later stage investors DST Global and Rizvi Traverse. And as the broadsheet points out, the 5% stake threshold for a name check in the filing would be worth the same amount as Spark Capital's recently closed venture fund – $450 million – at a valuation less than half the final post-IPO capitalisation.
The third quarter of 2013 was already a strong one for venture capital exits. According to research firm Pitchbook, VCs listed 131 companies for more than $6.7 billion in the US alone, with very similar numbers in the second quarter of the year. This year has seen the highest quarterly totals of IPOs of tech VC-backed companies since 2007. This has led Pitchbook and others to talk of a VC revival.
However much the New Economy paradigm and all the other chatter of the dotcom era are long past, the IPO model seems to have stayed right up to date, and has just showed once again that it can still deliver. And the financial side of the equation it seems is enough to power the VC investment machine. Twitter has yet to turn a profit, despite its ubiquity, but the public markets are obviously (almost) as forgiving as they were in the dotcom era, and that is all the investors, and their limited partner (LP) investors, need to know. It's like 2008 never happened. Reason to party like it's 1999 indeed.
Next week: The other shoe drops on the 1999-retro dance floor with Apollo seeking authorisation to increase its already huge Apollo Investment Fund VIII LP from $15 billion to $17.5 billion.