With all the uncertainty in 2020, some interesting trends emerged that will influence how private unicorns approach the public markets – and when investors choose to participate in unicorn financings – in 2021.
With COVID-19, massive worldwide protests, and a US election year, attempting a public debut in 2020 was an exercise in patience, luck, and fortitude in some cases. The IPO market stalled as pandemic-driven economic concerns rose earlier this year, with companies such as Airbnb and most recently Affirm and Roblox, delaying IPOs as the spread of coronavirus altered equity markets and decreased investor appetite for new investments.
The pause was only temporary, however, as alternative pathways to the public markets, particularly SPACs, exploded. Some $73B was raised through SPACs this year, and investment managers are now searching for the next DraftKings or Square to take public. Any technology company with an IPO in its 2-3-year plan is now being inundated with calls from these entities, which has elevated the consideration of this route to market, as compared to prior years.
And even as more companies consider going public by SPAC, a few notable companies added more data points to the direct listing trend. This alternative to traditional IPOs offers a more direct path to the public market that includes employee liquidity without the lockup periods that are standard with the traditional model and may limit the involvement of investment bankers so equity holders retain more of the upside. Direct listings also give tech unicorns more control over their destinies and insight into how to price their offerings based on private market trading activity.
Both Palantir and Asana, which coincidentally went public via direct listing on the same day, chose this route to market in 2020. Many unicorns that are profitable or don’t have an immediate need to raise more money are likely to choose this option in 2021.
Boosting consideration for the direct listing, the SEC just passed new regulations that would allow companies to go public via direct listing and raise money, too. We anticipate that the direct listing approach will continue to gain traction in 2021 with this news and as unicorns get more data on how other issuers fared.
What’s clear is that private market momentum is exploding faster than ever – in fact, there are now more than 500 private unicorn companies globally with a total valuation of $1.6 trillion as of December 2020. Even as more and more unicorns are minted, the pace of new unicorn creation far outpaces the number of unicorns that exit.
Unicorn companies that are staying private longer are increasingly turning to the private markets for pre-IPO liquidity as companies and stakeholders ‘test the waters’ on pricing to land at the most accurate price point possible on debut day.
With companies staying private longer comes a growing recognition that investors can’t wait until an IPO if they want to benefit from private companies’ highest-growth periods. We’re anticipating more big partnerships and strategic, outside-of-the-box collaborations from various public and private market players in 2021.
Looking forward, we’ll see capital innovation amplified even further – new ways for investors to participate in the high growth periods that unicorns experience in the lead-up to major exits, as well as new ways for private companies to get value from their existing equity so they can stay private longer, retain employees, and invest in innovation.
To this, we expect to see new, innovative financial products coming to market that deliver value to high-growth unicorn companies, their equity holders, and investors. This is where we come into play. Forge has rich data, an incredible team, with deep expertise in facilitating private market transactions and advising innovative founders on raising capital. Our robust technology and issuer-focused platform makes accessing and trading in this once-elusive asset class a frictionless experience.
We’re keeping a close on eye on the challenges and opportunities that 2021 will bring to the private market, and we’re here to answer your questions and help inform your data-driven decisions – so check back in soon.
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