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PALO ALTO — It’s going to be a very busy year for lawyers who take companies public.
For months, the buzz on initial public offerings has been all about the renaissance in the life sciences. But after the biggest flurry of activity in biotechs in a decade—14 IPOs priced between Jan. 29 and Feb. 11—IPO lawyers now see a huge wave of straight-tech IPOs lining up.
“It looks like this will be the biggest year that I can remember in 13 years,” said David Peinsipp, a partner in the San Francisco office of Cooley. That would be the high-water mark of the dot-com bubble, but Peinsipp said this time around, “no one is taking lemon.com public.”
The most anticipated biotech offerings have now priced and momentum is shifting to straight-tech offerings, agree biotech specialists like Ropes & Gray managing partner Ryan Murr and Alston & Bird’s Lior Nuchi. But biotech IPOs “will continue to have a meaningful share of the market,” Nuchi predicted.
Proceeds will be lofty. Twenty six companies rumored to harbor IPO plans have raised money at valuations entering nine figures and beyond, according to research from CB Insights. Those include Valley darlings Airbnb, Dropbox, Evernote, Pinterest and Square, all of which are thought to be eyeing an IPO in 2014. San Mateo action camera maker GoPro and Los Altos-based file storage company Box have already acknowledged that they’ve confidentially filed for IPOs. (Just about every tech company seems to be using the new confidential IPO process, but some are going the way of Twitter by giving the public a peek at their private plans.) It’s not yet clear what firms are advising the companies.
Announcing a confidential filing might appear to be a contradictory approach, but Peinsipp says the practice can make it easier to manage the scrutiny these companies routinely face.
“There’s some awkwardness, frankly, in going through this process and not commenting publicly,” he said. “It’s sort of a release valve, like, ‘Look, now you know why I can’t talk to you.’ “
Of course, not every company will choose an IPO exit. Tech giants like Google, Yahoo and Facebook continue to scoop up targets like WhatsApp and Nest for money that rivals the capital available in the public markets.
Attorneys say they aren’t seeing many companies pursue dual-track exit plans in the tech space: They’re either plotting an IPO or positioning to be bought out. Peinsipp notes that in the pure-tech space, it’s pretty “binary,” as either course requires full attention and resources. The analysis is different for every company, but as valuations get ever higher, it can sometimes be tough for a buyer to return much on an investment, compared to an IPO. With venture funds and other Valley investors expected to cash out of so many big investments this year, lawyers say they’ll be deploying capital to fund the next generation of startups.
The bench of companies ready to come to market is deep, but that’s not that surprising. “Maybe it’s just a moment in time,” Peinsipp said, but there are also several practical drivers. Right now presents a natural life cycle inflection point from the nadir of 2008. “Since then, there’s been a lot of VC money, a lot of investment and a lot of disruption that created a lot of value in these sectors. It was a terrible period of time, but it was great in that in held people at bay from going public too early or being bought too cheaply.”
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