Square’s IPO valuation cut signals tough 2016 ahead for ‘unicorns’

Visual from company's social media page. November 2015

Square Inc‘s initial public offering, priced at a 30 percent discount from the payments and lending company’s private valuation, is one of the loudest signals yet that technology firms are struggling to keep their multibillion-dollar market caps.

While some of these “unicorns,” referring to private companies valued at $1 billion or more, will buck that trend, bankers expect a procession of others to have to cut their values over the next year.

Investors have begun to price private companies more consistently with the public market, which has taken a more conservative approach to valuation.

Already this year, one-third of U.S.-based tech companies that went public priced their shares below their private value, according to data provided by market intelligence company Ipreo and data provider Pitchbook and analyzed by Reuters.

A 30 percent drop puts Square‘s valuation discount among the steepest since the start of 2014, below the 40 percent of big-data company Hortonworks Inc and 32 percent for storage company Box Inc.

Square set a price range on Friday that values the company at up to $4.2 billion, about a third less than the $6 billion valuation at its last private fundraising.

The San Francisco-based company faces not only a market that has lost its appetite for stratospheric valuations, but also investor uncertainty about the company’s ability to compete in the crowded payments space as well as its leadership’s dedication. Square‘s Chief Executive Officer Jack Dorsey is also CEO of Twitter Inc.

Square‘s push to go public before the end of the year also suggests that 2016 may be a more hostile environment to raise cash, according to bankers.

With its losses up and revenue growth slowing, analysts saySquare needs the financing from an IPO.

The challenge of maintaining valuations goes beyond tech companies headed for Wall Street.

Within the last two months, many startups raising a Series B, or a funding round for mid-stage companies, have struggled to keep their valuations intact, said Rob Coneybeer, co-founder of Shasta Ventures.

“You are definitely seeing companies taking longer to raise money,” he said. “You are definitely seeing companies coming back to raise money at a lower valuation.”

And late-stage private companies are also finding it tougher to raise cash at the same valuation.

“If you’re an investor in the pre-IPO market, you’re going to start questioning your methodology,” said Tomasz Tunguz, venture capitalist at Redpoint Ventures. “The valuation of the public market is ultimately the one that’s going to win.”

Also Read:

Square Inc initial public offering priced at 30% less than last valuation

Vinod Khosla leaves mobile payment company Square’s board ahead of its IPO

Square could take hit on IPO with Jack Dorsey leading Twitter

(Editing by Stephen R. Trousdale and Lisa Shumaker)

Reuters

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.