The Tech IPO market has been frozen since last year and we are all waiting for a few blockbuster deals like Instacart, Reddit, Stripe and DataBricks to happen to thaw the market. In the meantime, I spent some time looking into the 2021 Tech IPO cohort. I knew the returns for the 2021 Tech IPOs have been abysmal for the IPO investors. But I want to see how capital (in)efficient these companies are as this would also inform the general appetite for venture capital down the road. I expected the returns to be underwhelming but it turns out underwhelming will be an understatement. Of the 61 Tech IPOs I tracked based on the Crunchbase list, 17 (~28%) of them have market caps below its equity paid-in capital as of 8/17/2023. Namely, these companies are worth less than the amount of money shareholders put in. In addition, 56 out of the 61 or ~92% companies have negative retained earnings. In other words, these companies haven’t made enough money to cover their initial losses since their founding and chances are some of them will never be profitable, i.e. WeWork, Rent the Runway, Clover Health. A screenshot is attached above and the spreadsheet I built is accessible through this link.
The total market cap of these 61 companies were $312B as of 8/17/2023 with the total equity paid-in capital of $180B and total retained earnings of -$101B. Given most of these companies are more than 10 years old, this makes me question if venture capital is the right way to build sustainable corporations. If you look at this list, they are mostly consumer, fintech or SaaS businesses. These are not biotech or deep tech companies that require decades of R&D to mature. Why did WeWork need to burn $16B to build an office co-working business, Rent the Runway need to burn $900M to build a cloth rental business, The Honest Company need to burn $440M to sell eco-friendly diapers and Oatly need to burn $665M to sell oat milk???!!! Business owners who have built their business without venture capital would scoff at the waste here. I could totally understand why there’s very little funding for DTC brands these days. *Investments* into these brands did not generate sustainable profits.
Imagine that IPOs are no longer an option for unprofitable tech startups. What do you think will happen? I believe there will be less mindless chasing of fluffy growth and more focus on profitability and sustainability. Companies don’t need to growth hack their metrics to get to IPO and cash out. In fact, most public investors don’t believe these hyped up IPO stories any more. Some may argue that long term funding for biotech and deep tech will dry up if they can’t IPO but I respectfully disagree. Biotech and deep tech require very patient investors who can take very high risks and I don’t believe public market investors fit that profile very well. Private market is the way to go for these very long term investments. With these very unprofitable 2021 IPOs, I believe we are going to see changes of funding through the whole pipeline of startups from pre-seed to IPO. There will be a renewed focus on efficiency, profitability and sustainability and chances are the upcoming IPOs will be much better than the 2021 cohort.
Meanwhile Market share in AI drive neurological weapons and its netcentric warfare products are exploding. https://odysee.com/@psinergy:f/trim.D5E8F851-4FF8-483C-B72A-7590D29617E2:4