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Tech Startups Drop Stay-Private Mantra as Wall Street Beckons

Tech Startups Drop Stay-Private Mantra as Wall Street Beckons

Frothy public markets have been chipping away at the long-held view that venture-backed tech companies should stay private as long as possible. Over t

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Frothy public markets have been chipping away at the long-held view that venture-backed tech companies should stay private as long as possible.

Over the past decade, many tech entrepreneurs couldn’t be bothered to go public, a step accompanied by extra cost, regulatory oversight and the stock market’s stress. They had an ever-expanding availability of private capital for their funding needs.

But in the second half of this year, that calculus has changed due to successful tech initial public offerings, high prices in tech stocks generally, and the popularity of special-purpose acquisition companies, or SPACs, that lower some of the hurdles of traditional IPOs.

“It’s now less expensive to raise capital in the public markets than the private markets,” something that hasn’t happened in a long time, said Tomasz Tunguz, a partner at Redpoint Ventures.

Still, the median age of venture-backed tech companies holding IPOs this year is a mature 12 years, according to data compiled by Jay Ritter, a professor of finance at the University of Florida. And the late-stage venture market remains robust, with the number of deals valuing venture-backed companies at $1 billion or more reaching a record in the second quarter, according to PitchBook Data Inc.

This post first appeared on wsj.com

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