IPO fever hits unicorns in city’s tech sector

Source: Crain’s New York Business | Greg Davis | April 1, 2019

The same week that Lyft broke a logjam of tech companies waiting to go public, New York's most valued startup, WeWork, acknowledged that it lost $1.9 billion last year on $1.8 billion in revenue, and two highly visible digital consumer companies reached the coveted $1 billion valuation mark.

The question now is how many New York unicorns—privately held companies worth at least $1 billion—will join the IPO rush gathering momentum in Silicon Valley. It'll be an important measuring stick of how much the city has closed the gap with the West Coast. Lyt's very successful IPO--oversubscribed and with a first day stock pop--will put pressure on New York companies to follow suit to cash in as well.

The list of potential IPOs among the city's unicorns reached 23 with both Rent The Runway and the mattress company Caspar getting cash infusions valuing the companies at $1 billion. Twenty three  is an impressive number but in all CB Insights lists 333 unicorns. Silicon Valley added 32 last year alone.

The most important one to watch is WeWork. Red ink isn't a barrier to going public; no company in history had lost more money in the year before its IPO ($911 million) than Lyft. What will be a problem for WeWork is talk that its $47 billion valuation isn't justified. Its model of leasing large blocks of space and then renting chunks out to smallish companies is merely a twist on what has been a low-margin business. WeWork plans to sell stock but hasn't said when.

Also in the spotlight is fast- growing real estate firm Compass, No. 4 among New York unicorns. Last year it began offering agents stock, and it has signaled an IPO is in its future.

The next New York IPO is likely to be Peloton. Heavy advertising has spun the home-exercise company ahead of rival Soul Cycle, according to an analysis by Second Measure. Soul Cycle considered an IPO last year.

Speaking of advertising, consumer-oriented tech companies such as optical firm Warby Parker have run TV ads to build their brand and increase market shares.

Our most successful public tech firm is MongoDB, founded by industry icon Kevin Ryan and fellow DoubleClick alumni. While most New York unicorns marry a local strength like advertising or media with tech, MongoDB specializes in database management.

Its shares went public in October 2017, jumped 30% on Day One, treaded water for four months, then began an almost unbroken climb. Its market cap is $8 billion, though the company still loses money.

Not far behind is Etsy, the arts and crafts platform which treaded water for several years until new CEO Josh Silverman pulled off a turn around that has the stock trading near its all-time high.

Not all city tech players are primed to sell stock; media companies Vice and BuzzFeed haven't shown profitable business models.

New York startups such as Tumblr and AppNexus have sold themselves for big returns, but it is successful IPOs that create the virtuous cycle of big paydays that spur more startups and windfall tax revenues and boost our economy.

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Chelsea McCullough