The year 2019 had all the makings of a historic one. After a long time, some of Silicon Valley's most successful startups had plans to go public. The list included Uber, Lyft, Pinterest , Slack , and many others that had announced their plans to go public.
And indeed, throughout 2019, this prediction came true. According to a survey by CB Insights, 22 technology companies made their stock market debut in the US during 2019, compared to 19 in 2018. The historical high for this survey was 2014, when 33 startups began selling their shares in the United States.
But the results were disappointing. Shares of companies that went public in the U.S. last year are trading, on average, 23% above their IPO prices, according to Dealogic. That's slightly less than the S&P 500 index, the main U.S. index, which rose approximately 30%.
Tech company IPOs underperformed. Shares of these startups rose an average of 8%, well below the Nasdaq Composite index, which advanced 38%.
Among nine companies that raised more than US$1 billion, shares of ride-hailing apps Uber and Lyft are trading down by more than 30%. Shares of SmileDirectClub , for example, have plummeted more than 60% from their IPO price.
They are not the only ones to have disappointing performance. Slack , Pinterest , and Zoom Video also have their shares trading below their IPO price. It's worth remembering WeWork , one of the biggest fiascos of 2019, which tried and failed to complete its IPO.
What explains this result? A series of factors, including overvalued valuations, lack of profit, and concerns regarding governance. All of this put a brake on what could have been a record year for raising capital through IPOs (initial public offerings).
In 2019, companies that went public raised US$62.3 billion, well below expectations that they could surpass 1999, when approximately US$108 billion was raised.
Despite this, 2019 is the year in which the most resources have been raised on US stock exchanges since 2014, when the Chinese e-commerce site Alibaba went public on the New York Stock Exchange (NYSE) and raised US$25 billion alone.
According to Joseph Fitter, a finance professor at Indiana University, startups are preferring to remain private for longer before going public. "It's always more advantageous for a company to keep its capital private, so it's natural, in this boom of venture capital investments, that there are fewer IPOs," Fitter told NeoFeed .
According to Fitter, a direct consequence of this phenomenon is that companies that end up going public only do so when their valuations are already high. This explains why 2019 was a record year for the debut of unicorn companies, valued at over US$1 billion, on the stock exchange.
What to expect from 2020?
Despite the number of tech company IPOs in 2019, the results were poor, signaling that investors are becoming more selective and demanding results from companies that decide to go public.
Based on this, the consulting firm CB Insight, which specializes in startups, listed the companies most likely to go public in 2020. According to them, 23 startups have the potential to become public.
The most anticipated name is that of the Airbnb hosting site. But it should opt for a direct listing, as Spotify and Slack did, in which costs are lower and there are no intermediaries, such as investment banks, involved in setting the share price.
The other names that came out of the CB Insights selection are not as well known to the general public as Uber, Lyft, and Pinterest. At the top of the ranking is GitLab, a software company that raised US$436.2 million from investors such as Google Ventures, Tiger Global Management, and Y Combinator. With products used by more than 100,000 companies, GitLab was launched in 2014 in San Francisco, where it still maintains its headquarters.
Following on the list is Snowflake, which is a sort of "warehouse" for cloud services. According to Crunchbase, the startup has raised US$928.9 million since its founding in 2012. One of its investors is Sequoia, one of the leading venture capital funds in Silicon Valley.
Tiger Global Management, the largest unicorn investor in 2019, is betting on the third-placed company on the list: Credit Karma, a personal finance fintech. Active since 2007, the company used part of the US$369 million raised from venture capital funds to complete the acquisition of seven other startups.
The first live 3D development platform occupies the fourth position. Backed by Sequoia and DFJ Growth, Unity began operations in 2014 and has since raised US$1.3 billion, according to Crunchbase data.
Rounding out CB Insights' top five picks for an IPO in 2020 is Procore, a construction management software company launched in 2002. Together with Tiger Global Management and venture capital funds, it raised US$304 million.
CB Insights' list includes Asana, Squarespace, Roblox, Databricks, Freshworks, Wish, Blend, DoorDash, AvidXChange, Fanatics, ServiceTitan, StockX , InVision, Braze, Outreach, HashiCorp, and Tanium.
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