Over the last several decades, there were two dark periods for the tech industry: the bursting of the dot-com bubble in 2000 and the 2008 financial crisis. Investors had such distaste for risk that technology companies shied away from sharemarket floats.
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Now, for only the fourth time since data has been collected, there's no tech IPOs on the US sharemarket.
In the first three months of 2016, not a single technology company went public, according to Dealogic. Since the early '90s, when the firm started collecting data, tech IPOs have been absent from only three quarters: the third quarter of 2002, the first quarter of 2003 and the first quarter of 2009.
For IPO watchers, the lack of deals in those three times made sense. They were periods of crisis, when stock markets were trading at record lows. (IPOs are often correlated to the broader equity markets, where higher valuations give the buyers and sellers of new issues incentives to participate).
The first quarter of 2016, however, did not follow any sort of bubble bursting or market correction. In fact, the broader equity gauges are trading just shy of their nominal record highs. It is a dynamic that has left some scratching their heads.
"I'm a little perplexed as to why this drought is continuing as it is," said Jay R. Ritter, a professor at the University of Florida, who has studied IPOs for decades. "That total lack of activity, I'm surprised by it."
Investors spooked
Although not necessarily earth-shattering, several trends spooked IPO buyers this time around. Only a third of the tech companies that went public last year are in the green today, meaning that many investors are already feeling some pain in their portfolios and are unwilling to take on new risk. They were also grappling with a bout of stock price swings in the first six weeks of the year, which makes valuing initial offerings almost impossible.
"Volatility has bred more practical thinking, especially on the shareholders' side," said Atish Davda, the chief executive of EquityZen, a marketplace for pre-IPO companies.
There is certainly no shortage of tech companies waiting in the wings. According to data firm CB Insights' latest tally, 156 venture-backed companies are valued at more than $US1 billion privately - the so-called unicorns.
Traditionally, that is the size at which private companies contemplate a public stock offering, but many of those companies want valuations that no IPO investor would swallow. So rather than taking a cut in price, they have decided to hibernate under the auspices of the private market, where some have still been able to raise more cash.
"Some of the companies were anchoring on the valuations that they had gotten last June, when things were kind of at the peak," Ritter said. "A lot of them don't really want to face up to the fact that both the private market and the public market isn't willing to pay as frothy a valuation as was the case nine months ago."
At this point, it is unclear who will budge first in this standoff.
SEC warning
By stubbornly staying on the sidelines these companies are now starting to catch the attention of Wall Street's top financial regulator.
In an unprecedented move, Mary Jo White, chair of the Securities and Exchange Commission, went to the heart of Silicon Valley this week to warn tech startups of the perils of staying private too long.
She took particular note of those 150 plus unicorns still in private hands. "Beyond the hype and the headlines, our collective challenge is to look past the eye-popping valuations and carefully examine the implications of this trend for investors," White said in a speech at Stanford Law School late Thursday.
"These are areas of concern for the SEC."
Uber, Airbnb
White did not mention any specific companies, but investors are patiently waiting for Uber, Airbnb and Snapchat to all go public. They are worth $US62 billion ($81 billion), $US25.5 billion and $US16 billion respectively, according to Fortune.
Office messaging app Slack said on Friday it has raised $US200 million in new venture financing, again sidestepping the sharemarket. The deal valued the start-up at $US3.6 billion.
"Silicon Valley has become home to many private companies with valuations that exceed many listed ones that in another time would be publicly traded," White said.
White echoed the concerns of some industry insiders that these tech start-ups are missing out on the market discipline public companies receive by being accountable to the whims of public shareholder. For these companies to be successful, investors must be confident that they are being treated fairly and that companies are being transparent, she said.
"As the latest batch of start-ups mature, generate revenue, achieve significant valuations, but stay private, it is important to assess whether they are likewise maturing their governance structures and internal control environments to match their size and market impact," said White.
Needed market boost
If and when these companies do decide to public, they could provide a needed boost to the market. There have been only a handful of small IPOs so far this year amid market volatility. It is the slowest start to the year since the year since the 2008 financial crisis, according to according to Renaissance Capital, a manager of IPO-focused exchange traded funds.
But it may be an uphill battle.
Recently pressed on when ride-hailing company Uber would go public, Travis Kalanick, the company's chief executive, balked.
"I'm going to make sure it happens as late as possible," Kalanick said. Perhaps in a year or two, he was asked. Five? "I mean I'll, I'll keep you posted, I have no idea," he said.
Valued at $US62 billion, Uber is worth more than Ford or Macy's. It could soon approach the market value of defense contractor Lockheed Martin, which makes the F-16 fighter jet.
"We've raised...[in] the last 18 months something like, somewhere in the neck of the woods of $US10 billion," Kalanick said. "We're not in need of public capital."
The New York Times/The Washington Post
