The good news: VC firms are pouring more money into startups than they have been in recent years. IPO demand is way up, 222 last year- the most since 2000.
And the bad? Some experts and analysts are warning that it may not be the best of ideas for some firms to hop on the train of investing in the the most valuable startups.
Well, its not that it’s always a bad thing. Just that reacting only to the public market could be potentially damaging for the firm in the long run. The most valuable companies have an incredible amount of influence, and smaller companies definitely aim to emulate them. Peter Delevett at San Jose Mercury News has recently reported that this waxing IPO demand is comparable to the dot-com bubble of the 1990s. Delevett cites quite a few statistics in his report, but the biggest take-away might be this: though CB Insights reports that 25 private companies were valued above $1 billion dollars by their investors in 2010 alone, only 45 companies managed to seal a merger deal or IPO of similar figures within the past ten years.
Delevett’s sources are just encouraging VCs to be responsible. After all, everything is dependent on just how hot the IPO period is; once the market begins to settle, a company may find itself having a hard time recouping those monetary losses. In a market so historically volatile, it just is not recommended to rush into an IPO if the company is only dealing with a fund of a few hundred million dollars.
Maybe this all does seem like common sense. But it must not be, for so many experts to comment on the dangers of following the leader. Not every company is a “unicorn” (a term used to describe financially promising, and therefore rare, companies) like Snapchat. It’s oftentimes best to wait and feel out the situation.