In a year when large swaths of the economy sputtered due to the pandemic, Wall Street opened its doors to new entrants with 218 companies raising $78 billion through initial public offerings. That marked a 36% increase in number of deals, and a 69% increase in dollars raised when compared to 2019.
“While the COVID-19 pandemic sent global markets into a nosedive in March, the IPO window did not stay shut for long, and activity resumed at a rapid pace in the second half,” according to IPO tracker Renaissance Capital, pointing to the strong debuts of technology and healthcare companies which together represented 72% of all new offerings.
Washington state also saw a surge in initial public offerings in 2020 and followed the national trends. All four of the Washington companies that priced shares through public offerings — Accolade, Athira Pharma, Silverback Therapeutics and ZoomInfo — operate in the health, biotech or technology arenas. And all but Accolade saw their stock prices more than double; Accolade just missed achieving that milestone with a stock price that surged 98% from the time of its July offering.
The startling year for IPOs led Renaissance Capital to succinctly conclude in its annual report: The IPO Market Has the Best of Times in the Worst of Times.
And it wasn’t just the raw number of public offerings. IPOs saw overall gains of 75% in 2020, the highest returns in 20 years. Meanwhile, the Renaissance Capital Index of recent IPOs soared 113%, outperforming the S&P 500 by nearly 100 percentage points.
What’s even more remarkable is that the report did not even include the surge in so-called SPACs — special purpose acquisition companies.
SPACs, including one involving Seattle home services technology company Porch in December, emerged as a viable alternative to traditional IPOs in 2020. An estimated 219 SPACs raised $73 billion this year, according to research from Goldman Sachs reported by TechCrunch.
Together, these two public offering vehicles meant that over $150 billion was raised — a record figure that The Wall Street Journal said defied expectations.
Combining the SPAC phenomenon with the surging IPO market created an unprecedented period in which entrepreneurs decided to take companies public, even as millions of smaller businesses were shuttered due to COVID-19.
Those companies at the forefront of digital transformation — for example Snowflake in cloud computing and Airbnb in travel — posted massive valuations following their IPOs while more traditional businesses suffered.
“There does appear to be a curious dislocation between the stock market exuberance — including IPOs — and the massive challenges in the broader economy,” said Seattle venture capitalist Bill Bryant.
The national unemployment rate in the U.S. stood at 6.9% at the end of October, nearly double the rate from just six months prior.
Paul Meeks, the lead portfolio manager for the Wireless Fund and a close follower of the IPO market, noted that “the analog-digital transition that began years ago has been accelerated by COVID in triple time.”
Companies specializing in areas such as cloud computing, artificial intelligence, cybersecurity and work from home technologies have “captured the imaginations of investors just like the dot com companies did in the late 90s,” he said.
And while Meeks said there are some “outrageous valuations” being placed on companies completing IPOs, he thinks there’s a difference between today’s crop of new issuers and those of the late 1990s.
“Some real crap snuck by the IPO goalie in the late 90s,” he said. “Today, most of the companies are much better after incubating longer and being more carefully groomed by VCs. Interest rates are pinned to the floor, so that also helps.”
Bryant, a partner with Threshold, agreed that part of the 2020 IPO surge was due to many well-funded companies finally pulling the trigger after several years on the sidelines.
“There is also a bit of a catch up happening where companies that could have gone public circa 2016-2019 elected to remain private as late stage investors showered them with hundreds of millions per raise,” he said.
Even with 2020’s surge in IPOs, there are still more than 513 so-called unicorns, privately-held companies valued at $1 billion or more, according to CB Insights. Washington state alone now boasts 10 unicorns — up from zero five years ago.
With so many privately-held companies holding high valuations, some think that the IPO market will continue to hum.
“I would imagine that 2021 will look a good deal like the past year from an IPO perspective,” said Bryant. “While we’ve reached peak SPAC, there are a large number of at scale, fast-growth companies that will go public barring a collapse brought on by a recession.”
In the Pacific Northwest, Bryant is keeping an eye on a number of companies that could go public: Auth0, Icertis, Outreach, Remitly, Qumulo, Extrahop, Nintex, Convoy, OfferUp, Rad Power Bikes, Tanium, Vacasa and Puppet.
“Not all of these will file. But if market conditions hold, I wouldn’t be surprised if 8-to-10 of these were public by year end,” he said.
On a national basis, Bryant is watching: Robinhood, Instacart, Affirm, Coinbase, Oscar, UIpath, Stripe, Chime, Didi, Bytedance and Grab.
“Many of the marquee private tech companies, or at least many of the obvious IPO candidates, went public in 2020, so that while the tech IPO party should continue to rage in 2021 there’ll be fewer partygoers,” he said.
Here’s a closer look at the four Washington state IPOs from 2020 and how they performed:
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