Jeff Richards

The real winners of 2013: Tech IPOs from 2012

January 7, 2014: 6:00 AM ET

Last year's banner year for tech IPOs has a lot to live up to.

By Jeff Richards


FORTUNE -- The year 2013 was a banner year for venture-backed technology IPOs. According to the National Venture Capital Association, 82 VC-backed companies raised $11.25 billion in IPOs in 2013, the most VC-backed IPOs since 2007. Public market investors showed strong interest in many of these offerings at IPO as well as afterward -- the average IPO from this class had traded up 64% through the end of the year (and 15 were up more than 100%).

From the vantage point of venture capitalists, founders and employees of these tech companies, however, the most important measure of a company's IPO is how the stock is performing a year or two down the road. The reason for this is simple: Most VCs and employees aren't selling at the IPO. The standard lockup (a window in time where insiders cannot sell shares) is typically six months, and many insiders and employees will wait (or vest) and sell down their positions over time. Performance beyond the first year is also critical for the health of the overall IPO market, as public market investors who bought into high-performing IPOs are often inclined to support additional offerings over time (in other words, the Class of 2012 is an important leading indicator for 2014 and beyond).

So for technology investors (and the pension plans, endowments, and individuals that invest with them) and employees, the important question to ask is, "How is the IPO Class of 2012 doing?"

The short answer -- unbelievably well. To the tune of over $100 billion of market capitalization increase since IPO. To look deeper, I reached out to Deutsche Bank's Ted Tobiason, whose team helped craft the following data points (all data as of 1/2/2014):

    • The average tech IPO from 2012 is up an astonishing 170% from its offering price.
    • 18 of 42 tech IPOs from 2012 are up over 100% from their offering price, while just nine trade below their offer price and four have been acquired (Acquity, Eloqua, ExactTarget, and Kayak).
    • The IPO Class of 2012 has added more than $111 billion of market capitalization since IPO ($57 billion by Facebook, $54 billion by all other IPOs combined).
    • Here are the top 10 performers from the IPO Class of 2012, ranked by percentage increase from the IPO offering price to Jan. 2, 2014 (market close last week):

Note that this data reflects an analysis for 42 of the 49 IPOs from 2012, as the NVCA data also includes biotech IPOs, while our analysis does not

While IPOs from high-profile companies like Facebook (FB) get the bulk of media attention, an astonishing amount of value has been created broadly by the IPO Class of 2012 over the past two years. In fact, more value has been created by these companies since IPO than was created prior to IPO: The $54 billion referenced above is up from a starting point (at IPO) of $33 billion.

So what conclusions can we take away from these data points? To be fair, they have to be taken in the context of an overall bull market which saw the NASDAQ Composite (COMP) rise 56% and the Dow (INDU) 34% from the beginning of 2012 to the end of 2013. Nonetheless:

  1. 1. Public market investors are clearly showing a massive appetite for new offerings and the growth rates that typically come with them; the average IPO from 2012 and 2013 was growing at 44% in the calendar year of its IPO.
  2. 2. The Class of 2012 performance is not just driven by a few outliers. While the Top 10 drive up the average (mean) performance considerably (to 170%), the median for the Class of 2012 is an impressive 84%.
  3. 3. Pricing at the time of IPO is often considered an indicator of the "hotness" of an IPO, but may not be a great indicator of future performance; all five of the top performers from the Class of 2012 priced below the midpoint of their IPO filing range.

It will be interesting to see how the Class of 2013 fares in 2014, when lockups expire and early shareholders and employees can begin to sell their holdings.

They've got big shoes to fill -- the Class of 2012 has knocked it out of the park.

Jeff Richards (@jrichliveis a managing partner at GGV Capital, a $1.6 billion venture capital firm investing across the U.S. and China; Disclosure: GGV Capital is an investor in YY. 

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