Tencent Technologies News, on Friday, Lyft, one of the two giants of the U.S. Internet About Vehicles, will be listed on the market. According to US media reports, the latest generation of Silicon Valley start-ups are now competing to list on the open market, giving hope to large and small investors eager to invest in these high-profile, fast-growing companies.
For new investors, these relatively mature companies may reduce drastic investment volatility, such as huge losses or profits.
But it may also mean that the fastest growth phase of these companies is over. Therefore, in this wave of technology companies'listing, elite investors such as sovereign wealth funds and venture capitalists will gain a larger share of the profits than new investors, which is more and more likely.
This change reflects a massive shift in the way American entrepreneurs raise money to build their own companies. Instead of swiftly turning to the open market and subsequent external scrutiny, as Amazon and Google did, they have built huge businesses with fewer financial disclosure requirements, backed by years of private funding.
Youbu has raised more than $20 billion over the past decade. Lyft, a smaller rival, priced its IPO at $72 a share later Thursday and is expected to list on Nasdaq on Friday. The company raised $4.9 billion in seven years.
In the 1990s Internet bubble, many start-ups went public only a few years after their establishment. Some companies, such as Pets.com, have very little revenue, which is only in the Silicon Valley legend today.
For more than a decade, the combination of policy changes and huge new wealth in the technology industry has been changing the development model of start-ups.
Mutual funds and hedge funds (typical investors in start-ups'IPOs) began to buy shares of large non-listed companies, which became a way for new companies to accumulate more shares before they went public. Other large investors, including large sovereign wealth funds and super-large Softbank Vision funds, have joined in to create a more active market.
According to CB Insight, which tracks start-ups, venture capital investment in American companies rose to $99.5 billion in 2018, the highest level since 2000.
These investments have pushed the valuation of start-ups to unusual heights. According to CB Insight, there are at least 333 so-called unicorns (non-listed companies valued at more than $1 billion). In 2014, there were only 80 unicorns.
Youbu, the largest private company expected to enter the stock market this year, is valued at more than $70 billion in the private market. In the open market, this is roughly the same size as corporate giants such as Goldman Sachs Group and CVSHealth.
Some industry groups and investors urging less regulation say the emphasis on the private market is due to the Sarbanes-Oxley Act, a federal law passed in 2002 that tightened accounting rules for listed companies after the accounting scandal at the beginning of this century.
In addition to improving disclosure requirements and other changes, the law requires executives to certify the accuracy of the company's financial statements. Some say the higher costs of ensuring compliance may prevent small companies from going public.
By contrast, private companies need much less information to disclose in their operations. They are not obliged to submit quarterly earnings reports or audited annual financial statements to the Securities and Exchange Commission. They also need not widely disseminate the latest information on business development to the public.
Others said the decline in IPOs began before the Sarbanes-Oxley Act. They attributed the change to a wave of federal deregulation, which made it easier to raise funds and sell companies in private. Lighter antitrust enforcement has sparked a wave of mergers and acquisitions, allowing small companies to sell to big companies rather than to go public.
At the same time, the new law makes it easier for private companies to sell securities to qualified investors across the country, thus increasing capital from private equity and venture capital.
Whatever the driving factors, the final result is a significant decline in the number of Listed Companies in the United States. According to a working paper released last year by the National Bureau of Economic Research, the number of Listed Companies in the United States has dropped by 52% since 1997, slightly higher than 3600 in 2016.
Some analysts predict that Youbo, Lyft and other well-known start-ups will be warmly responded by institutional investors, who usually buy newly issued shares, although the potential rise may be smaller.
However, investors have reason to be skeptical about buying shares of new listed companies at high prices. According to a recent study by analysts at Goldman Sachs Group, the market value of companies that have completed their IPOs has actually fallen by an average of 8% over the past two years. In the same period, the S&P 500 index rose by about 12%.