The later in 2015 that a company has filed, the more likely it is that it will price down in its IPO.
In 2015, 168 IPOs have raised $29.5 billion, pricing an average of -4.8% below their midpoints. Before Labor Day, 35% of 131 deals priced below the range; after Labor Day, 70% of 37 deals did. It has been a tough year for the IPO market overall, but perhaps no one has felt it more than the venture capital firms and private equity groups that have seen pushback on the pricing of their holdings.
| IPOs before and after Labor Day | |||||
| Timing of IPO | Number of IPOs | Proceeds Raised ($mm) |
Average IPO price vs. midpoint | 1st-day pop | Return at 11/20 |
| Before Labor Day | 131 | $22,269 | -1.4% | 15.8% | -8.2% |
| After Labor Day | 37 | $7,237 | -17% | 8.9% | 11.5% |
| Total 2015 | 168 | $29,506 | -4.8% | 14.3% | -3.8% |
There have been 83 venture capital-backed IPOs this year, 62 of which came before Labor Day, compared to a total of 39 private equity-backed deals in 2015. A similar pattern has emerged in their pricing and returns. From deals completed before Labor Day, both have seen negative total returns (-3% for PE; -7.5% for VC). However, after Labor Day, severe pricing pressure gave way to positive returns. PE-backed deals priced down -17%, returning 14%. VC-backed deals priced an average of -19.5% below the midpoint with an average return of 14%. In a year that has been tough for tech, venture capital firms have brought 18 tech IPOs to the table, while private equity has brought just two. Two others tech companies have come to market from the company’s founders and from a spin-off.
2015: Tricky for Tech
With just 22 tech IPOs so far this year, 2015 is likely to see the lowest number of tech deals since 2009, when just 17 priced. No tech deals came to market this year in August or September, when the VIX spiked to levels last seen in 2012. The tech IPO market was stronger before August, when 15 companies priced an average of 3.7% above their range with an average first-day pop of 21.6%; however, those companies are now down -3%, on average. Only three tech deals have priced above the range and still have positive overall returns: Shopify (SHOP), GoDaddy (GDDY) and Rapid7 (RPD), and all three came before Labor Day. In October and November, seven tech deals priced, but to get done they had to price an average of -24% below the midpoint. The upfront haircut appears worthwhile, however, as these deals average a total return of 8.1%.
Although overall returns improved after Labor Day, the best and worst tech deals of 2015 came before Labor Day. Shopify leads all 2015 tech IPOs with a 66% return, followed closely by GoDaddy at 64%. The worst overall performance is MaxPoint Interactive (MXPT), which had lost -86% as of Friday’s close. After Labor Day, Pure Storage is the only deal to price at its midpoint; the other six post-Labor Day tech IPOs priced below the midpoint, and three were below the range. Adesto Technologies (IOTS) slashed its price the most, cutting 55% off of its originally proposed deal size to raise just $25 million in October. A few weeks later, Xtera Communications (XCOM) cut its deal size 50% to get done, further indicating the increasing difficulty for tech IPOs, and especially for the smaller, more niche players.
