US-based digital signature technology provider DocuSign floated last week in a $629m initial public offering having raised $525m in funding from an investor base containing several corporates, in yet another sign the IPO market is up and running again.
DocuSign went public on Friday, raising $466m while its shareholders divested a further $164m of shares. The company priced the offering at $29, above its $24 to $26 range, and its share price closed at $38.63 yesterday.
The shares of enterprise software producer Smartsheet, which also floated on Friday, have meanwhile risen from $15 to $19.30 while laser technology provider nLight, which priced its IPO at $16 the day before, saw its stock close at $24.93 yesterday.
Nor are these isolated figures. Looking back a week or two, we can also see positive results from software development services provider Pivotal (up 20%), rare disease treatment developer Homology Medicines (up 25%) and file storage platform Dropbox (up 43%).
It all seems a long way from the slump that took hold three years back, causing the number of IPOs to fall 65% between 2014 and 2016 according to Fortune. As of the end of last week, twice as many companies had gone public compared to this point in 2017.
There were different theories as to the causes of the decline but the general consensus was that it was a combination of an overstocked market and a glut of venture capital which allowed highly valued companies to stay private longer, while others viewed it as the natural deflation of a tech bubble that had become an increasingly urgent topic of conversation.
In retrospect, there’s something in that reasoning but it isn’t the whole story, though it is undeniable that the entry of private equity and pension funds into the VC space had led to a vast amount of capital that targeted the tech sector, helping companies raise large rounds instead of going public.
However, not only is that still the case today, the size of funds are actually increasing sharply. SoftBank’s $100bn Vision Fund is obviously the benchmark but Sequoia Capital has closed $6bn of a targeted $8bn for its next fund while fellow venture firms like Accel and Andreessen Horowitz are expanding from eight-figure funds into big specialist funds focusing on specific technologies.
As for the bubble, talk of that died down a long time back, even with the seemingly constant controversy surrounding huge players like Facebook, Amazon and Uber. The losses revealed by IPO candidates were often cited by bears as a sign of instability, but Dropbox and Pivotal both rang up nine-figure losses in 2017 and DocuSign has never been in profit either.
The general uptick, in the US anyway, seems to be mainly down to the first factor – a cyclical upturn that follows a slump – combined with the increased interest in many unicorns that have long been touted as IPO candidates.
It is important to remember however, that this is not a US-centric phenomenon. Japan is going through an IPO boom of its own, while in China the regulatory restrictions that led to a queue of tech companies waiting for a go ahead, has been eased as more and more follow Alibaba’s lead by floating in the US.
Online streaming platform iQiyi raised $2.25bn in its March offering (and its share price has held steady), and wearable device maker Huami and Bilibili have also floated in the US this year.
Hong Kong Stock Exchange has meanwhile made rule changes that have reportedly led to several candidates earmarking the market for their IPOs, and Reuters reported last week that two Chinese drug developers, Innovent Biologics and Ascentage Pharma, have elected to eschew the US in favour of Hong Kong.
The signs are that that this is just the beginning. Consumer electronics manufacturer Xiaomi is expected to price a $10bn IPO in the coming days that could reportedly value it at up to $100bn.
Ride hailing platform Didi Chuxing, valued at $50bn in December 2017, is said to be lining up an offering for the second half of this year, while local services platform Meituan Dianping is in talks with banks over a flotation that will value it at $60bn, and Uber has pegged 2019 as its target. It looks like there could be some lucrative times ahead, at least until the next slump.