Where have all the IPOs gone?

The nearly seven-year bull market that followed the 2008 financial crisis decelerated in 2015, largely due to global macroeconomic headwinds. This continued in the first part of 2016, which began with the worst two-week start to any year on record. Market turbulence has many technology companies postponing their IPOs; in fact, there was not a single U.S. tech IPO in Q1 2016. And nine companies withdrew their IPO filings entirely, waiting for better market conditions before making their public debut.

The 2015 market slowdown resulted in a 35 percent drop in IPOs compared to the annual average number of IPOs from 2012 to 2014. Simultaneously, the number of U.S. technology companies raising private rounds exceeding $100 million (also referred to as private IPOs) rose sharply in 2015 to nearly three times the average of the prior three years. With greater access to capital from traditional and crossover investors, technology companies were able to delay the scrutiny of and transparency required by the public markets by raising private capital at a scale that had previously required a public offering.

The influx of capital funding through private IPOs led to a doubling of the number of companies with valuations above $1 billion (aka unicorns) in 2015, creating an IPO backlog with a combined market value of more than $500 billion. Because the number of acquirers able to make acquisitions at such high valuations is small, the majority of unicorns have historically exited via IPO. But as public markets appear to be taking pause after a few consecutive years of consistent growth, the members of a swelling backlog of potential technology IPOs will need to adapt to shifting investor sentiment, forgoing the mantra of "growth at all costs" in favor of a focus on profitability.

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Sources: S&P Capital IQ, CB Insights, Wall Street Journal

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