What Causes Surges in Tech Company IPOs and Exits?

The goal in Venture Capital, by way of technology, is “to rapidly create new giant technology companies that could lead in brand new, high growth categories. Ride-sharing (Lyft & Uber), work-space sharing (WeWork), food-delivery (UberEtas, Deliveroo, Doordash), couch-sharing (Airbnb) you name it. The promise has been that these technology giants can approach the size, scale, reach, and ultimately, market capitalization of the FAANG companies (Facebook, Apple, Amazon, Netflix, Google), and Alibaba/Tencent.”

That, a thought from Vitruvian Medical Device’s CEO Vinod Mahendroo, affirms a point that many working in Venture Capital frequently reiterate, that the development of Companies the likes of which go public, or substantially exit through acquisition, is not the same as IP commercialization, new business development, R&D, nor most startup development.

Venture Capital investment by design and intention, seeks out the development of “Companies” (Corporations as legal entities) wherein Innovation and Marketing are paramount.

Thus the trends are rather straightforward to model and even predict because such companies are NOT the result of founders alone.

Such startups take about 7 years to start exiting.

The last economic bust was in 2009/2010

When that happens, as it recurringly does and will gain…

People look instead for work. Investors slow high risk investment.

  • 2011-ish entrepreneurship starts accelerating again
  • 2017 started the roughly-7-years-later

We like to perceive that startups and founders alone are the catalyst of venture development.

That’s not remotely true.

  • Startups require employees. Our workforce can’t afford to take the risks of working for startups (less income and stability) when the economy is questionable.
  • Startups require corporate partners or executives with experience who mentor. They tend not to do that when the economy is bad and there is little value in spending their focus here.
  • Startups require capital. No, not all need investment. But frankly, most do. When the economy is in the tank, people with wealth aren’t as exuberant.
  • Startups need founders. When times are tough, we need to focus on paying our mortgage.

You get the idea.

What caused the recent surge, and will again cause the next surge, of tech companies going public?

Little more than timing.

If we as a society want to perpetuate that, and soften the busts, and booms, so as to more regularly have innovative new companies putting people to work, it starts with appreciating the impact of economic policy and ensuring our government (whichever party is in office) makes it easier for everyone to take the risk involved in starting something new.

We’ll bust again at some point. Our present enthusiasm for startups and debate of venture capital will wane; just as it did in ’09… and 2001… and before that, and then 7–10 years later someone will again be asking this question.

 

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