The Case of the Missing Tech IPOs—Reversal in Sight?

Priced IPOs Q3 2016

The U.S. initial public offering market saw significant increases in the third quarter, which is good news for companies thinking about going public.

The big question is: why aren’t there more technology IPOs?

According to Bloomberg Law data, 101 IPOs priced in the first three quarters of the year, an 87 percent increase over the 54 that priced in the first two quarters. The total value of the IPOs for the three quarters was $17.3 billion, about a 90 percent increase from the $9.1 billion for the first two quarters.

Of the companies that became publicly traded in the U.S. so far this year, only 20 are tech companies. These issuers raised a total of $2.5 billion, compared to the $4.2 billion that tech companies raised in the first three quarters of 2015.

IPO Industry Q3 2016

There are many reasons why tech companies delay going public. Unlike pharmaceutical or biotechnology companies, tech concerns—especially the unicorns (private startups valued at more than $1 billion)—often have no trouble accessing cash. Pharmaceutical and life sciences companies also are more likely to do deals in a down market, because of their ongoing need to fund research and medical trials.

That said, things may be looking up for tech IPOs. One encouraging sign is that in late September, the IPO from San Jose, Calif.-based software company Nutanix Inc. traded 131.25 percent above its offer price on the first day of trading, raising almost $238 million.

Another is that image messaging firm Snap Inc. is planning an IPO that could come as early as March next year. The Venice, Calif.-based company—which owns Snapchat and video-equipped sunglasses known as “Spectacles”—was valued at $18 billion in its latest funding round. Some observers are predicting that Snap’s IPO could be one of the biggest of the year.

So 2017 may be an exciting year for tech IPOs. Stay tuned.

Check out my story, U.S. IPO Market Recovers Somewhat but Still Lags Prior Years, for more on the state of the IPO market in 2016.