IFR held its US ECM Roundtable on October 24 as stock market indices were nearing historic highs.
US equity capital markets have enjoyed a banner year in 2019, at least in terms of volume. Private unicorns have begun their long-awaited transition under the public markets, driving IPO volumes to new levels. Biotechs, a sub-sector of that transition, have found a good reception for their funding needs, and foreign companies are offering US investors a growing array of opportunities.
And yet, all is not right.
As an asset class, IPOs have dramatically underperformed, eroding not only investor confidence but that of venture capitalists, employees and other stakeholders.
Ride-hailing providers Lyft and Uber Technologies, fresh off the year’s largest IPOs, have left public investor portfolios nursing billion-dollar losses. They were joined by equally problematic debuts from SmileDirectClub and Peloton Interactive.
Then there was WeWork, which was forced to seek a highly dilutive lifeline that was marketed at a fraction of its last private valuation, albeit a small one.
Still, there were bright spots in the IPO market. Beyond Meat and Zoom Video Communications highlighted investor appeal of scaling large, addressable markets.
A view of dysfunctional US equity capital markets, both public and private, was evident and raw across the community from IBs, VCs and investors to regulators and employees.
The Roundtable panellists offered insightful analysis of that dysfunction and some possible remedies.
Capital markets are awash with liquidity, a wave that extends across the private and public markets. And regulators are making it easier for private companies to stay private for longer by seeking to extend liquidity to retail investors.
Direct listings are a possible solution. Others are to right-size offerings and to retool lock-up agreements to market realities.
There have been times of stress for equity capital markets in the past – Google in 2004, and Facebook in 2012 were criticised over their IPO outcomes. Then, as now, US equity capital markets must evolve to meet future challenges.
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