Silicon Valley's still-private tech giants must think that Christmas has come early! When blank check company Social Capital
Hedosophia (IPOA.U) announced its intention to raise up to $575 million to purchase a technology unicorn, they promised to provide an
attractive alternative to the traditional IPO market, which they contend discourages going public through suboptimal price
discovery. According to Social Capital, “limited price discovery and short-term focused investors” have resulted in systemic
underpricing of technology IPOs relative to non-technology IPOs.
To correct the inadequacies of the traditional IPO process, Social Capital plans to purchase at least one of the estimated 150
unicorns with a valuation as of the last round of financing of at least $1 billion. They will use their experience in “value creation”
in technology companies like Slack, Intercom, Netskope and Wealthfront to offer tech executives and VCs who want to
monetize their asset a superior alternative to an IPO. Paraphrasing Samuel Goldwyn: “We’re overpaying, but it’s worth it.”
Provoked by Social Capital’s assertion that in 2016 technology IPOs were significantly underpriced compared to non-technology
IPOs by 31% to 13% based on the first day of trading, we decided to investigate.
Our report is only available to clients of IPO Intelligence and IPO Pro.
