The lull in the market for the initial placement of shares of technology companies - verification of investment reality
The initial public offering market (IPO) of technology companies has been frozen. The situation with the supplier of memory systems Nutanix further confirms this.
More than three months passed since Square and the Match Group “debuted”, but no software and Internet company followed them. Seven of the last 10 technology companies that entered the public market traded below their placement price, and four fell by more than 20 percent (according to FactSet).
Nutanix, which placed its share issue prospectus in December, decided to refrain from selling the shares until the stock market volatility diminishes, according to knowledgeable sources. The developer of data center technology, combining data storage, servers and virtualization, was going to enter the public market in late January, but his banks advised him to wait for the market to cool down, continue sources who asked them not to be named, because the discussions were private.
A spokesman for Nutanix, located in San Jose, California, declined to comment. Among the banks mentioned are Goldman Sachs, Morgan Stanley and JPMorgan.
No other high-end technology companies are publicly announced. Last month, online lender Elevate Credit delayed its share issue due to market conditions, as this January was the worst month for the Nasdaq index since 2010. This index fell by a total of 8.5 percent from the beginning of the year, although it showed some growth in the last week.
“Companies do not feel the prospect, so they say:“ Let’s refrain ”,” said Afteb Jamil, a partner in the accounting and consulting firm BDO, USA, and the head of technology and applied biomedical developments in this company. “Such a mood is definitely present.”
In accordance with the annual review prepared by BDO for 100 technology companies, less than half of financial directors expect capitalization estimates to increase in 2016.
Silicon Valley financiers are worried about this. Large IPOs are their lifeblood. It is on them that venture capitalists receive huge profits and return billions of dollars to themselves, annually invested by them in startups that ultimately go bankrupt or do not generate income.
Last year was supposed to be a record year for an IPO. The Nasdaq Index has surpassed 5,000 for the first time since 2000 and grew for the fourth year in a row. Investors have shown a desire to risk, raising the price for Amazon.com and Netflix - the two best performers of the year with a large capitalization.
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And yet, technology companies marched in the public market at the lowest rate since 2009.
Instead of an IPO, the fastest-growing companies rose in the course of megacycles of cash in the private market in assessing capitalization and the multiplicity of annual income, which exceeded the contributions of investors in the public market. Hedge funds and private equity firms distorted the IPO cycle, sending a lot of money to the company, but not rewarding early investors and employees as they do when they publicly offer shares.
Private late-stage financing almost doubled - from $ 8.9 billion in 2013 to $ 16 in the past - according to the National Venture Capital Association; among the companies were Uber, Airbnb, SpaceX and SoFi, each of which was estimated to be at least $ 1 billion.
Such companies may have raised enough funds to act for a long time, but many venture capital companies from the 140-plus list, valued at $ 1 billion or more, are faced with the need to adopt a more rational environment - venture investor David Golden says.
This could mean a cycle of highly diluting private investment, selling a business at a loss to some investors, or entering the public market at a placement price lower than the earlier investors paid.
“People just have to get back to reality,” says Mr. Golden, managing partner at Revolution Ventures in San Francisco and former head of technology investments at JPMorgan. “When the markets speak, we may not like what they say, but we must listen.”
Nutanix stock issue, which - according to sources - can still happen when the markets are stabilized, will be an instructive event. One of the fastest growing technology companies in Silicon Valley grew by $ 145 million in 2014 and reached a capitalization estimate of $ 2 billion ($ 13.40 per share).
According to the Nutanix prospectus, the real value of its convertible preferred share of the D series (the beginning of the fiscal year 2014) rose by 53 percent - from 10.72 dollars in July 2014 to 16.36 in October 2015.
Any comparison with recent activity in the public market suggests that Nutanix will be forced to reckon with the new reality. Nimble Storage has lost almost three-quarters of its value since October, and Pure Storage lost approx. 25 percent of its price to enter the public market on October 7.
Considering more broadly, it can be said that any action of a software firm that causes high growth without profitability leads to collapse. The cloud index, prepared by Bessemer Venture Partners and tracking cloud software providers (43 companies) represented on the public market, has fallen by 29 percent since January 2016.
The Nutanix board will have to make a difficult decision. If the company comes out, after all, with its IPO and with a price per share of $ 10.93, the funds of a group of investors who invested in 2013-14 would be treated as additional issued shares, further diluting the balance of its shareholder base.
This is a type of protection known as “ratchet”, which has been built into many late expensive stages in recent years, especially by investors in Box and Square.
But at the same time as the difficulties on the IPO market began, private tours also became more difficult; unconventional investors began to leave the arena.
There is no easy way out for Nutanix. And given their number, if the company does not reduce costs and does not sacrifice growth, then it eventually starts looking for borrowed capital. In 2015, Nutanix spent $ 161.8 million on sales and marketing, which is 67 percent of revenue. Net loss was $ 126.1 million, which is only slightly less than all cash and cash equivalents in the accounts.
From July 2013 to October 2015, the number of employees increased more than fivefold - from 247 to 1,368, “and we expect a significant increase in the total number of employees in the future,” said registration papers.
Here is the main reason why the company announced an increase of $ 200 million in its original prospectus.
Revenues from IPOs plus company cash, short-term investments and the possibility of obtaining a loan should be sufficient to meet its capital requirements for the next 12 months, according to the prospectus.
The main thing that Nutanix or any other venture capital company needs is a less volatile stock market, says Golden from Revolution. Nineteen times this year, the Dow Jones index rose or fell by at least 200 points.
“When swinging up and down reaches a couple of hundred points a day, investors lose confidence, and it’s not easy for the underwriters to evaluate the stock market,” Mr. Golden says.
After the market stabilizes, company executives can go through the painful process of allowing public market investors to reassess their business and can then determine whether the offer is worth the risk.
“You can sell shares in a good company at a good price,” continues Mr. Golden. “The fact that the selling shareholder is ready to take determines whether the IPO market is open or closed.”
More than three months passed since Square and the Match Group “debuted”, but no software and Internet company followed them. Seven of the last 10 technology companies that entered the public market traded below their placement price, and four fell by more than 20 percent (according to FactSet).
Nutanix, which placed its share issue prospectus in December, decided to refrain from selling the shares until the stock market volatility diminishes, according to knowledgeable sources. The developer of data center technology, combining data storage, servers and virtualization, was going to enter the public market in late January, but his banks advised him to wait for the market to cool down, continue sources who asked them not to be named, because the discussions were private.
A spokesman for Nutanix, located in San Jose, California, declined to comment. Among the banks mentioned are Goldman Sachs, Morgan Stanley and JPMorgan.
No other high-end technology companies are publicly announced. Last month, online lender Elevate Credit delayed its share issue due to market conditions, as this January was the worst month for the Nasdaq index since 2010. This index fell by a total of 8.5 percent from the beginning of the year, although it showed some growth in the last week.
“Companies do not feel the prospect, so they say:“ Let’s refrain ”,” said Afteb Jamil, a partner in the accounting and consulting firm BDO, USA, and the head of technology and applied biomedical developments in this company. “Such a mood is definitely present.”
In accordance with the annual review prepared by BDO for 100 technology companies, less than half of financial directors expect capitalization estimates to increase in 2016.
Silicon Valley financiers are worried about this. Large IPOs are their lifeblood. It is on them that venture capitalists receive huge profits and return billions of dollars to themselves, annually invested by them in startups that ultimately go bankrupt or do not generate income.
Last year was supposed to be a record year for an IPO. The Nasdaq Index has surpassed 5,000 for the first time since 2000 and grew for the fourth year in a row. Investors have shown a desire to risk, raising the price for Amazon.com and Netflix - the two best performers of the year with a large capitalization.
')
And yet, technology companies marched in the public market at the lowest rate since 2009.
Instead of an IPO, the fastest-growing companies rose in the course of megacycles of cash in the private market in assessing capitalization and the multiplicity of annual income, which exceeded the contributions of investors in the public market. Hedge funds and private equity firms distorted the IPO cycle, sending a lot of money to the company, but not rewarding early investors and employees as they do when they publicly offer shares.
Private late-stage financing almost doubled - from $ 8.9 billion in 2013 to $ 16 in the past - according to the National Venture Capital Association; among the companies were Uber, Airbnb, SpaceX and SoFi, each of which was estimated to be at least $ 1 billion.
Such companies may have raised enough funds to act for a long time, but many venture capital companies from the 140-plus list, valued at $ 1 billion or more, are faced with the need to adopt a more rational environment - venture investor David Golden says.
This could mean a cycle of highly diluting private investment, selling a business at a loss to some investors, or entering the public market at a placement price lower than the earlier investors paid.
“People just have to get back to reality,” says Mr. Golden, managing partner at Revolution Ventures in San Francisco and former head of technology investments at JPMorgan. “When the markets speak, we may not like what they say, but we must listen.”
Nutanix stock issue, which - according to sources - can still happen when the markets are stabilized, will be an instructive event. One of the fastest growing technology companies in Silicon Valley grew by $ 145 million in 2014 and reached a capitalization estimate of $ 2 billion ($ 13.40 per share).
According to the Nutanix prospectus, the real value of its convertible preferred share of the D series (the beginning of the fiscal year 2014) rose by 53 percent - from 10.72 dollars in July 2014 to 16.36 in October 2015.
Any comparison with recent activity in the public market suggests that Nutanix will be forced to reckon with the new reality. Nimble Storage has lost almost three-quarters of its value since October, and Pure Storage lost approx. 25 percent of its price to enter the public market on October 7.
Considering more broadly, it can be said that any action of a software firm that causes high growth without profitability leads to collapse. The cloud index, prepared by Bessemer Venture Partners and tracking cloud software providers (43 companies) represented on the public market, has fallen by 29 percent since January 2016.
The Nutanix board will have to make a difficult decision. If the company comes out, after all, with its IPO and with a price per share of $ 10.93, the funds of a group of investors who invested in 2013-14 would be treated as additional issued shares, further diluting the balance of its shareholder base.
This is a type of protection known as “ratchet”, which has been built into many late expensive stages in recent years, especially by investors in Box and Square.
But at the same time as the difficulties on the IPO market began, private tours also became more difficult; unconventional investors began to leave the arena.
There is no easy way out for Nutanix. And given their number, if the company does not reduce costs and does not sacrifice growth, then it eventually starts looking for borrowed capital. In 2015, Nutanix spent $ 161.8 million on sales and marketing, which is 67 percent of revenue. Net loss was $ 126.1 million, which is only slightly less than all cash and cash equivalents in the accounts.
From July 2013 to October 2015, the number of employees increased more than fivefold - from 247 to 1,368, “and we expect a significant increase in the total number of employees in the future,” said registration papers.
Dow vs Nasdaq
Here is the main reason why the company announced an increase of $ 200 million in its original prospectus.
Revenues from IPOs plus company cash, short-term investments and the possibility of obtaining a loan should be sufficient to meet its capital requirements for the next 12 months, according to the prospectus.
The main thing that Nutanix or any other venture capital company needs is a less volatile stock market, says Golden from Revolution. Nineteen times this year, the Dow Jones index rose or fell by at least 200 points.
“When swinging up and down reaches a couple of hundred points a day, investors lose confidence, and it’s not easy for the underwriters to evaluate the stock market,” Mr. Golden says.
After the market stabilizes, company executives can go through the painful process of allowing public market investors to reassess their business and can then determine whether the offer is worth the risk.
“You can sell shares in a good company at a good price,” continues Mr. Golden. “The fact that the selling shareholder is ready to take determines whether the IPO market is open or closed.”
Source: https://habr.com/ru/post/298934/
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