In his Financial Times article, Jonathan Ford discusses the trend towards the decreasing number of initial public offerings, as many startup founders choose late stage funding rounds over listing their companies in the public market. Ford notes the following benefits and drawbacks to this trend:
For technology company founders, staying private for longer can be beneficial by allowing them to focus on their core operations rather than the demands of public shareholders. This allows them to develop their businesses, placing them in a stronger financial position when the choice is made to eventually undertake an IPO. This helps founders avoid a repetition of the dot-com bubble by building companies with sustainable revenue models rather than taking them public prematurely.
The downside of electing to take late stage financing over an IPO is that as greater numbers of investors compete to finance a limited number of startups, the result is often overvaluation. Ford remarks that this can lead to substantial losses for investors, as valuations are not sustained once the companies undergo an IPO and become publicly traded.
Ford’s conclusion is that although this tech boom differs from the dotcom bubble, a greater number of IPOs may be beneficial for today’s tech market. For subscribers to Financial Times, click here to read the full article.