The venture-capital offices around Silicon Valley remain largely empty, but their coffers will soon be brimming after what has shaped up to be a surprisingly resilient year for technology startups.
The initial public offerings this week of DoorDash Inc. and Airbnb Inc. cap a string of listings that have helped make this the most lucrative year on record for IPOs in terms of money raised.
More than $157 billion has been raised as of Thursday, according to data provider Dealogic—over a third of that in the past 11 weeks—and the number of listings is the largest since the final hurrah of the dot-com boom in 2000.
The soaring public offerings are showering returns on some of the biggest names in tech investing, in particular Sequoia Capital, which backed both DoorDash and Airbnb as well as cloud-computing company Snowflake Inc. and videogame company Unity Software Inc., all of which ranked among the year’s 15 biggest listings, according to Dealogic. The outcome is a far cry from the warning Sequoia sent to its founders and CEOs in March urging them to prepare for turbulence and disruption because of the pandemic.
The startup bonanza hardly seemed certain earlier in the year, as the coronavirus pandemic gripped the country, laying waste to millions of jobs and entire industries, and venture firms braced for depressed valuations and startup failures. Instead, the technology industry went on a tear as services like food delivery and collaboration software became more valuable in the remote-work era.
Startups that had long sought the relative shelter of the private markets are now trading at valuations unthinkable early in the year. Airbnb and DoorDash both priced their IPOs well above their initial guidance and their stock jumped from there.
DoorDash on Friday was trading with a market capitalization of about $59 billion, after being valued at more than $15 billion in the private market earlier this year. Airbnb closed its first day valued at more than $100 billion based on a fully diluted share count after sinking to an $18 billion valuation early in the pandemic.
Sequoia, founded 48 years ago, is the largest outside shareholder in Airbnb, with a stake worth more than $5.5 billion at the IPO price. The firm said it invested in the startup across nine years and seven rounds. It reaps about a 7,000-times gain on its earliest investment, valued at less than 1 cent a share, adjusted for stock splits, according to Airbnb’s IPO filing. Airbnb priced the shares in its IPO at $68 apiece, and the stock closed Thursday at $144.71. Sequoia increased its stake through the offering, rather than selling shares.
The gain is reminiscent of Sequoia’s early investment in Alphabet Inc.’s Google, which resulted in roughly a 200-times return, and Benchmark Capital’s early bet on Uber Technologies Inc., which brought that firm a 620-times return, said University of Florida finance professor Jay Ritter, who has collected IPO data for decades.
Alfred Lin, a Sequoia partner who sits on the boards of both Airbnb and DoorDash, said the big hits show the importance of being selective in an industry whose general formula is to make many bets expecting most won’t work but a small number will pay off richly.
“Historically, the average return in venture is not that interesting, so you have to be very, very focused on picking the right companies to make the return,” Mr. Lin said. Sequoia’s stake in DoorDash was worth more than $5.2 billion at its IPO price.
Venture capital is a big industry with myriad players, but a handful of big names show up repeatedly in tech IPOs this year, showing that a few firms still dominate the venture purse strings. Part of that is due to firms raising record-sized funds. Andreessen Horowitz last month raised two funds totaling $4.5 billion, a sum that was unheard of a few years ago.
“More and more power, and more and more money, is concentrated in the hands of fewer large VC funds. No doubt about it” said Adam J. Epstein, a former investor who now advises startups and boards.
Other winners include SoftBank Group Corp., which suffered a string of setbacks last year but hit big with its stake in DoorDash, where the investor’s Vision Fund is the largest outside shareholder. Founders Fund, started by investor and entrepreneur Peter Thiel, said its Airbnb stake was worth about $3.8 billion at the close of the market on Thursday. Founders Fund also enjoyed a payday from the dual direct listings in September of data-mining company Palantir Technologies Inc. and software firm Asana Inc.
DST Global, founded by Russia-born investor Yuri Milner, has an Airbnb stake that was worth roughly $962 million at the public offering, representing a nearly 2,000% gain for DST based on the share price at the venture firm’s earliest investment, according to Airbnb’s IPO filing. DST Global said it also had a stake in DoorDash.
Longtime Silicon Valley venture firms General Catalyst, GGV Capital, Norwest Venture Partners and Andreessen Horowitz, as well as startup accelerator Y Combinator, among others, have also benefited richly from the string of tech IPOs this year.
The IPO stampede will likely continue through December, normally a quiet month. Founders Fund and DST Global are poised to cash in when e-commerce startup Wish makes its public-market debut, expected next week.
The handsome paydays—at a time when much of the country is still struggling with the coronavirus—are an example of how the pandemic has widened the country’s wealth gap, tech industry critics say. And valuations are benefiting from low-interest rates, which are intended to blunt the economic blow of the pandemic but which have also pushed investors to seek bigger returns in tech.
The boom also shows just how much work and life has transitioned online, which suggests the trend could continue.
“Part of what we are seeing here is the recognition that large swaths of the economy remain fertile for ongoing digital transformation,” said Albert Wenger, a managing partner at New York-based venture firm Union Square Ventures.
This story has been published from a wire agency feed without modifications to the text
