Wheezing unicorns may get a breath of fresh air from initial public offerings.
Unicorns, those technology start-ups like the cloud computing firms Twilio and Nutanix that have a valuation of $1 billion or more, risk running short of cash as venture capital dries up. The recent revival of I.P.O.s could offer them new hope. Company valuations may drop, but that beats the alternative of a suddenly thinning herd.
Only about 34 public offerings have priced so far this year, less than half the number that made it to market in 2015, according to Renaissance Capital. Activity is picking up, though, especially in recent months. About 50 percent of this year’s floats have occurred in the last five weeks.
The resurgence comes none too soon for money-hungry firms facing dwindling financing options. The amount of venture capital invested in the first quarter of 2016 was down 11 percent from the same period the year before, according to Thomson Reuters data. Venture capital investments for the fourth quarter of 2015 were down 24 percent year over year.
Only two technology companies have gone public so far in 2016. One of them, a spinoff from Dell called SecureWorks, priced below its estimated range and now trades at less than the offering price. Several more are ready to try their luck, though.
Among the most prominent are Twilio and Nutanix. Private funding rounds valued Twilio at about $1 billion and Nutanix at $2 billion. Both firms have a history of steady losses and are thirsty for cash. Nutanix recently received a $75 million loan from Goldman Sachs, which is also an equity investor in the company and has been chosen to underwrite its offering.
There is, however, a downside to I.P.O.s for these start-ups. They have reached lofty — some might say mythical — valuations extrapolated from private investments. Public markets will probably set a lower price for their shares, in part to account for the risks of technological change and rapidly shifting markets. Twilio, a cloud-messaging service for tech companies, relies on WhatsApp for 15 percent of its revenue.
Yet the best time to raise money is, of course, when it’s available. If I.P.O.s for start-ups like Twilio prove successful, many of the 160 or so other unicorns can be expected to follow.
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