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SoftBank's big checks are stalling tech IPOs

Reuters, Oct 22 2017, 22:23 IST
The result is a protracted IPO slump that has contributed to a 50% drop in the number of US public companies over the last two decades, according to the Nasdaq. IPOs have fallen especially precipitously since 2014 - the year public market investors, including mutual funds, ramped up investment in private tech companies.

The result is a protracted IPO slump that has contributed to a 50% drop in the number of US public companies over the last two decades, according to the Nasdaq. IPOs have fallen especially precipitously since 2014 - the year public market investors, including mutual funds, ramped up investment in private tech companies.

Big cash infusions for startups from an ever-expanding group of financiers, led by SoftBank Group Corp and Middle East sovereign wealth funds, have extinguished hopes that the technology IPO market would bounce back this year.

These deep-pocketed financiers, which have traditionally invested in the public markets but are seeking better returns from private tech companies, have enabled startups to raise more money, stay private longer and spurn the regulatory hassles of an IPO even as they become larger than many public companies.

At The Wall Street Journal D Live conference recently in Southern California, a number of venture capitalists, entrepreneurs, IPO experts and dealmakers spoke with Reuters about the surprisingly low number of IPOs and pointed to investors such as SoftBank for changing the business of startup financing.

“It’s not surprising if these companies get 10 term sheets,” said Nicole Quinn, an investing partner with Lightspeed Venture Partners, referring to formal offers of investment.

The result is a protracted IPO slump that has contributed to a 50% drop in the number of US public companies over the last two decades, according to the Nasdaq. IPOs have fallen especially precipitously since 2014 - the year public market investors, including mutual funds, ramped up investment in private tech companies.

There are some signs of a more active fall for IPOs. Tech companies Switch Inc, MongoDB Inc and Roku Inc have gone public in the past few weeks, with debuts from ForeScout Technologies Inc and Zscaler Inc ahead.

Yet many investors are bracing for a market tumble after a sustained rally, raising questions about IPO opportunities for 2018.

Just 12 venture capital-backed tech companies went public in the US in the first three quarters this year, compared to 27 for the same time period in 2014, according to IPO investment adviser Renaissance Capital.

Increasingly, the big checks are coming from SoftBank, which in May closed a $93 billion investment fund. So far this year, it has announced at least 14 investments in technology companies globally, including a $500 million deal with fintech company Social Finance and a $3 billion investment in shared workspace company WeWork

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