Venture backed companies have been staying private longer than normal because: i) private capital is readily available; and ii) public markets will beat these companies up on valuation as many have been overvalued by venture funds (see Blue Apron). This led us to ask: how many rounds has it historically taken tech companies to go public? Based on the data from 113 IPO’s, the answer is 4 preferred stock rounds (through the Series D) which really means 6 total rounds once you factor in the seed and angel rounds. The data and observations are below.
-The median and average number of preferred stock rounds were both 4. Note this data does not show whether there were multiple occurrences of the same round (for instance B, B1, B2) or bridge rounds. Both are unlikely snice these companies all were successful enough to go public, but nonetheless the data is deficient from that standpoint.
-The data shows that public companies today are indeed taking on more private rounds before they go public than predecessors did. The years shown above are when each company filed their last S1 — note sometimes they go public they year after they make that regulatory filing. Two of the companies filed S1’s in 2017. Both of those took 6 preferred stock rounds to go public. Interestingly 10 of the companies listed above filed S1’s in 2016, taking 4 priced rounds to get there. Finally 12 of the companies listed above filed S1’s in 2015, taking only three rounds to get to IPO.
Finally, knowing that it generally takes 6 total rounds to go public, we can use that data to back into how much equity founders and employees can expect to own at each round. Assuming a company sells between 20% to 35% of their equity at each round, the table below will provide some idea for how much equity founders and employees combined will own at each round prior to IPO/sale. Again the data is imperfect, but certainly interesting.
The lesson: the fewer rounds you need to get to IPO/sale, the more equity you’ll own, so stay as cheap and lean as you can.
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