People called 1999 the year of the initial public offering (IPO): companies going public raised a record US$69.2 billion, nearly double the year before. Yet even with the “dot-com boom” at its peak, the biggest IPOs were not internet companies, but a logistics company founded in 1907, a bank founded in 1869 and a cable TV provider. Today, the money flows are far greater — and they’re focused on digitally-native companies, many of which have solid, fast-growing business models.
18 November 2021
In 1999, only 4.63% of the global population — 279 million people — had internet access. Yet even with the “dot-com boom” at its peak, the biggest IPOs were not internet companies, but a logistics company founded in 1907, a bank founded in 1869 and a cable TV provider.1 Today, the money flows are far greater — and they’re focused on digitally-native companies, many of which have solid, fast-growing business models.
In the first six months of 2021, according to PitchBook Data, Inc, the 55 unicorns (VC-backed startups valued at $1 billion or more) going public raised US$53.8 billion.2 The size of this fundraising is unprecedented. In 2016, the average unicorn IPO only raised $234 million. Starting in 2018, more and more unicorns have been entering the public markets, raising on average around $1 billion — almost four times the average of 2016. Over the last five years, the fifteen largest unicorn IPOs all raised $2.5 billion or more, and all are digital natives.3
While this boom in IPOs is eye opening, it’s only part of the picture. Unicorns are also raising huge sums of private capital before they go public. 2020 had 289 mega-rounds (VC funding deals worth $100 million or more) that totaled $100 billion. This $100 billion in pre-IPO financing, raised solely by unicorns, exceeds by $30 billion all of the capital raised by all IPOs during the entire "year of the IPO."4
Underlying the sky-high valuations and funding levels (both pre and post IPO) are business models that are lower cost and more scalable than was possible twenty years before. That adds up to lower risk, which is attracting more risk-averse capital into the pre-public markets.
During the “dot-com boom”, internet companies typically went public with little revenue. They raised capital from the public markets in order to scale: their business model required huge sums for data centers and sales and marketing.
Mobile cloud computing and social media changed that: starting in the early 2010s, people could rent computer power as needed, access customers directly through their phones and buy targeted, comparatively low cost advertising on social media. Today, digital natives, born on cloud computing architectures, use this direct access to rapidly scalable computing power and huge numbers of potential customers to achieve hyperscaling. Uber, for example, expanded its operations from a single country in 2011 to 64 in 2015. By 2019, when it went public, it had 111 million active users.5 To take another example, DoorDash grew from 4 million users in 2018 to 20 million in 2021 - a 5x growth in just 2 years.6 Since this hyperscaling often reduces the risk profile, private equity is also participating prior to IPOs, providing significant capital for further growth.
That means that these companies often have stronger balance sheets and broader strategic ambitions when they enter the public markets than the IPOs of a generation ago.
If you’re a startup with access to plentiful private capital, why go public? For many unicorns, one reason is they have no choice. The SEC requires privately-held companies to become “reporting companies” once they have over 500 non-accredited investors or 2000 investors of any kind.7 The second reason is that even if you don’t need the money to build your market, an extra billion or two and a public listing can help you achieve ambitious strategic goals. You can, for example, attract more talent, make acquisitions and demonstrate your strength to suppliers, partners and clients. You have the potential to enter new markets, weather downturns and fund the next generation of research and innovation.
The unicorn boom isn’t slowing down — on the contrary. The US$132 billion that unicorns raised in megarounds in the first half of 2021 is a record, already more than what was raised through megarounds in all of 2020.8
Corrections in the market may come, but many of these startups will keep growing with the potential for raising billions more on the public markets. Collectively, these companies are already creating a new era of innovation, for which investors and companies should have a strategy: how to compete with a growing number of well-funded digital native companies.
1. “1999: Year of the IPO.” Dec. 27, 1999. December 27, 1999. Accessed October 27, 2021. money.cnn.com/1999/12/27/investing/century_ipos/.
2. Source: PitchBook Data, Inc. Data has not been reviewed by PitchBook analysts
3. Ibid, PwC analysis
4. Source: PitchBook Data, Inc. Data has not been reviewed by PitchBook analysts
5. “Uber Revenue and Usage Statistics (2020).” Business of Apps. August 5, 2021. Accessed October 27, 2021. www.businessofapps.com/data/uber-statistics/.
6. “DoorDash Revenue and Usage Statistics (2021).” Business of Apps. August 30, 2021. Accessed November 2, 2021. https://www.businessofapps.com/data/doordash-statistics/.
7. “SEC.gov.” Exchange Act Reporting and Registration. October 24, 2018. Accessed October 27, 2021. www.sec.gov/smallbusiness/goingpublic/exchangeactreporting.
8. Source: PitchBook Data, Inc. *Data has not been reviewed by PitchBook analysts