Snap, Pop…and Then?
Snap, Inc., the parent company of Snapchat, went public this week. Opening at $24 (initially priced at $17) it has continued to rise to $27.01. There are quite a few takes being thrown out there relating to Snap’s debut on the public market.
Like the one that examines the interest from millenials looking to get a piece of the company that they perceive as their version of Facebook.
While that’s cute, not everyone is so keen on the future prospect of actual stock on the public market.
But one thing is clear, a lot of the optimism surrounding the Snap IPO is that, FINALLY, a high-potential private tech company has decided to test the public market. As I said before, this could be a major signal for companies who have been waiting on the sideline to jump into the IPO game.
I reached out to Maia Heymann, General Partner at Converge Venture Partners, to get her take on the potential opening of the IPO window following Snap’s pop.
Her response is great:
- “I can’t predict the public markets or the buy-side’s receptivity to IPOs after Snap, but I sure hope the window stays open so that more tech companies can access the public markets. We need more tech companies to get public, grow into bigger companies, and keep the industry strong and diversified. If you end-up only having a few large trees in the forest, and too many saplings are bought-up, it ends up not being a forest anymore, and those few big trees cast a shadow that prevents new growth. The tech industry is getting that way. We’ve largely lost that mid-tier of mid-cap tech companies, who were buyers of smaller companies. We’ve gone from about 8,000 publicly traded companies in the U.S. in 1996 down to around 4,000 in 2016. When investment banks couldn’t publish research on the companies they took public (circa 2003), that was the huge blow. It’s not SOX compliance, or the cost of being a public company that keeps companies from going public. It’s the lack of research coverage on new tech companies; no coverage, no float; no float, no buyers (of the stock). Who wants to go public only to be an orphaned stock. If smaller tech companies could access the public markets, they would. The loss of mid-tier investment banks who could cover smaller tech companies, published research, and provided coverage and analysis on a mid-cap tech stock post IPO, has hurt. I’ve always maintained that the loss of the boutique investment banks devoted to tech—the Four Horsemen: Robertson Stephens, Hambrecht & Quist, Montgomery, and Alex Brown—has dampened the IPO window for tech stocks more than any SOX ever did.”
That’s some great insight, especially the lesser discussed issues that have slowed both the IPO and M&A markets. It does really feel like more and more, companies, Snap included, are hitting the market with a lot of uncertainty.
Hopefully, whichever way Snap goes, some other tech companies on better standing (like say, being profitable) will hit the market soon to build more confidence to go public.