A healthy market for initial public offerings needs two things: companies that are ready and willing to go public and investors looking to buy the new shares. Even though Silicon Valley reacted to Donald Trump’s election with visceral dread for a host of civil liberties reasons, the tech companies that had been planning IPOs have billions of reasons to keep things moving as he settles into the presidency.
Following a slow IPO market throughout 2016—the slowest since the recession—the backlog of companies that will be ready to go public next year is growing. Snapchat, which recently renamed itself Snap, has filed confidentially for an IPO of as much as $4 billion early next year, say three people familiar with the matter. Smaller private companies such as meal-kit deliverer Blue Apron have started interviewing banks, while companies including cloud-software maker MuleSoft have appointed firms to help it price public offerings, according to two people familiar with those arrangements.
No notable companies that have begun officially pursuing IPOs have called things off because of Trump’s election, the people say. If anything, these companies may accelerate the process to get themselves listed before Trump makes any policy decisions that could roil investors, says Lise Buyer, founder of IPO advisory firm Class V Group.
One campaign promise Trump has stood firm on is lowering the corporate tax rate from 35 percent to 15 percent. If that happens, “the small-and mid-cap space, which is what tech IPOs tend to be, it’s going to be in their favor,” says Kathleen Smith, principal at Renaissance Capital, which manages IPO-focused exchange-traded funds. If they’re willing to wait for Trump-era changes, companies that had been basing IPO valuations on a 35 percent rate can expect bigger paydays.
That leaves the stock market, though. How equity investors are faring will arguably have the biggest impact on whether the IPO machine keeps spitting out new public companies. “I don’t see Trump’s election as a panacea for tech IPOs,” says Buyer. “It’s very hard to see how the election of the Donald could not create volatility.”
That’s because the only sure thing about Trump thus far is that you never quite know what you’re going to get. If equity investors feel the need to avoid risk, new tech IPO shares are a harder sell: They have no trading history; the companies are typically young; and they’re asking shareholders to bet on growth rather than stable returns. This dynamic helped bring new listings to a halt early this year, amid concerns about China’s economy and spasms in credit markets.
Still, if Trump manages to appoint a balanced cabinet and conduct himself without the erratic policymaking hinted at on the campaign trail, investors could remain calm, Buyer says. The Chicago Board Options Exchange Volatility Index (VIX), a measure of investor unease, had been at stomach-curdling levels above 20 in the days approaching the election but fell back to safer thresholds (below 15) the day after.
The tech startups that have gone public in the U.S. in 2016 have performed well. Those 24 companies have climbed more than 35 percent, well above the 9 percent the tech companies in the S&P 500 index have gained. In the estimation of Renaissance Capital’s Smith, just about every company is “being told by their advisers that they should get ready and come out in 2017.”
The bottom line: The slow pace of deals is likely to pick up next year, despite—or in some cases because of—Donald Trump’s election.