By Heather Somerville
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 big winners include SoftBank Group Corp., which suffered a
string of setbacks last year but hit big with its stake in
DoorDash, and Founders Fund, started by investor and entrepreneur
Peter Thiel, which 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 didn't respond to a request for
comment.
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 of 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.
Write to Heather Somerville at Heather.Somerville@wsj.com
(END) Dow Jones Newswires
December 11, 2020 14:40 ET (19:40 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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