IPO Exits Heat Up for CVC-Backed Startups
Four corporate venture-backed companies gearing up for initial public offerings on the U.S. stock market will likely serve as a bellwether for other technology companies this year.
Spotify, the music streaming platform, filed a prospectus on Feb. 28 to sell $1 billion worth of shares on the N.Y. Stock Exchange; China-based animation streaming platform Bilibi filed on March 2 to raise as much as $400 million; Dropbox filed paperwork on Feb. 23 to raise as much as $500 million; and smart vehicle producer Nio has announced intensions this week to go public and raise between $1 billion and $2 billion. Nio’s IPO is expected to take place in the U.S. after midyear.
The past 12 months have produced IPOs for consumer companies like Snap Inc., Blue Apron, and Stitch Fix, but none has performed to investor expectations. Snap notably lost more than $1 billion in market cap following a critical tweet on the new app’s design from Kylie Jenner, while Blue Apron’s IPO performed poorly after Amazon announced its acquisition of Whole Foods; at one point in Nov. 2017, the stock was trading around $3.17 per share at its latest close, than a third of its $10 offer price — a 68% decline bringing its valuation is down from $1.89 billion at its IPO to about $600 million. Additionally, Stitch Fix opened at $16.90 per share before closing at just over $15.15 on the same day before continuing to lower in after-hours trading.
But with a bull market and generally strong economy, many investors are looking to see if these four new companies, which include consumer products and technology, perform well. Because, if they do, then it is likely even more companies will look to exit via an IPO this year or next. Some of those companies with watchful eyes include Uber, Lyft, Pinterest and Airbnb.
Spotify investors include The Coca Cola Company, Chinese internet service portal Tencent Holdings (and Tencent Music Entertainment Group) and Sony Music Entertainment International; Bilibi also includes Tencent Holdings as an investor, as does Nio — which also has Baidu, JD.com and Chinese tech company Lenovo as investors. Meanwhile, Dropbox boasts Salesforce Ventures, Bank of America, and Royal Bank of Canada among its corporate investors. Suffice to say, Tencent Holdings is likely to have a good first half of the year on the return of its portfolio.
“With China and the U.S. remaining [economically] positive, all the major engines of growth in the global economy are now synchronized in an upward trajectory for the first time since the end of the global financial crisis,” according to an Ernst & Young report. In the American market, specifically, “[a] healthy pipeline continues to build,” according to EY partner Jackie Kelley, “led by healthcare and technology companies.”
Notably, Spotify is pursuing a direct listing of its shares. In this process, which is typically less expensive than a traditional IPO, no new stock is issued and no money is raised. However, existing investors and insiders can trade their shares on the open market. Many startups are looking at how Spotify will perform with its less expensive direct listing and taking note whether they ought to consider it themselves, according to many reports.
