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When design software company Figma revealed plans for its stock market list this week, it felt like a throwback to an earlier era of the technology financing market.
Chief Executive Dylan Field cited the reason the initial public offering would be good for his company after a larger rival Adobe acquisition was blocked by regulators. It was a kind of péan to be made public, rarely heard by the founders of tech companies these days.
The New York Stock Exchange list is an issue of “good corporate hygiene, brand awareness, liquidity, strong currency, access to capital markets,” giving Figma’s customers the opportunity to share their benefits.
The Field’s praise for Wall Street warms the hearts of investment bankers who hope that the recent rise in IPOs will turn into a steady stream, and sees investors in venture capital companies who have been waiting for a long time to cash out the venture boom. It comes when the “exit” (events in which venture investments are realized) is beginning to recover.
Through public listings, acquisitions and acquisitions, venture exits reached $67.7 billion in the second quarter of this year. This was a big jump from $38.5 billion a year ago, and it was the most powerful show since the end of 2021.
This wasn’t coming too early. The lack of exits has been a dirty secret to the venture capital industry, despite artificial intelligence fueling the new investment boom. Since interest rates began to rise in 2021, ending the short IPO boom, the value of the exit has become a new NADIR.
However, it is very early to read too much of this year’s rebound. The beginning comes from a very low level. After peaking at $91.7 billion in 2021, the value of the exit fell to just $151 billion in 2024.
According to hedge fund court, the exit was only 40% of the value of the new VC investment last year. With a partial recovery this year, they rebounded to roughly match their new investments. However, a healthy venture investment market that brings stable returns to investors will need the value of the exit to reach twice the level of new investments, according to Coatue.
The amount returned to investors is small compared to the great value bound by illiquid private companies. Estimates of the total value of private unicorns (companies over $1 billion) range from $3.5TN-6TN.
The large amount of capital available in the private market continues to give many tech companies little reason to make it public. When Openai raised $400 billion in March, it didn’t just set a new record for its biggest private funding. It also surpassed the $29.4 billion raised on Saudi Aramco’s 2019 IPO, the largest stock list in history.
However, after a lack of exits over the past three years, investors are ready to grab a comfortable straw. The strong performance of a few recent IPOs led by Cryptocurrency Company Circle expects a newer list, but few notable private tech companies are thought to be ready to be published.
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Another encouraging sign is the willingness of some businesses that have raised money to bite bullets at the peak of the 2021 venture boom and accept that it is far less valuable today. When online bank chimes went public last month, the stocks were $27 each, receiving a huge discount of up to $69 in the final private round of 2021. With such a “downround IPO” occur, venture investors want the stigma that is usually associated with Turn Blue valuations to pass.
Meanwhile, some venture capital companies are trying to adopt private equity techniques to encourage more transactions. As reported by the Financial Times this week, several companies are working on “rolling up” their companies. They buy many companies in the same industry and combine them into a single, large business to cut overhead. With less leveraged and friendly venture capital meetings, supporters want to convince the founders of high-tech that this represents solid strategic outcomes rather than short-term financial engineering associated with private equity.
All this should bring a steady recovery for investors, even if the actual recovery is slow. However, despite the AI investment boom, the venture industry is still heavily dependent on profits that exist only on paper.
richard.waters@ft.com
