Silicon Valley’s Year of the Unicorn IPO – Separating Reality from Hype
May 2, 2019, by Sabrina Lowell in Business Ownership Financial Planning Investment Management Real Estate
Tags: Bay Area, Business, Financial Planning, Investing, IPO, real estate, silicon valley
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With 2019 in full swing, the initial public offerings (IPO) momentum that began in 2018 has paved the way for a historic year for new issues. Names like Uber, Lyft, Airbnb, Slack, Pinterest, Postmates, WeWork, to name a few – all blue chip “unicorns” preparing to list on major stock exchanges – have investors, employees and the rest of the country anticipating a windfall of multi-billion dollar transactions over the remaining eight months of the year.
Even with 2018’s volatility on Wall Street late in the year, it wasn’t enough to curb the market’s appetite for IPOs in 2019. According to IPOScoop reports, there were 233 new initial public offerings in 2018 that together collected $54 billion during their initial IPO sales[i], so it is not surprising that more IPOs are joining the market in 2019.
While this is undoubtedly an exciting time for those involved – and those who stand to be involved in the future – there is certainly an element of media hype that builds around so much activity. And when it comes to wealth planning, there are wide-ranging implications for individuals, families, and businesses that should be addressed both pre- and post- IPO. This article intends to set aside for a moment the starry eyed excitement and what-if speculation and get down to tactical steps people should take during this time.
Planning Ahead
If we roll back the clocks, Carl Richards, in his 2011 New York Times article[ii] aptly references a study by what was then US Bancorp Piper Jaffray that looked at 4,900 IPOs from May 1988 to July 1998. By July 1998, less than one third of the new issues were above their initial offering. Even more startling, almost a third were no longer traded (that is, they went bankrupt, got acquired, or were no longer traded on an active market). It’s difficult to know if you’re investing in Amazon or Groupon, and that is why planning is so important!
Here are a few things to address with your financial advisor:
Other Wealth Planning Considerations
Besides putting a plan in place, what else should you be considering if your company is scheduled to go public in 2019? Here are some additional factors to evaluate.
Another consideration is how this IPO activity impacts women investors and employees. 2019 is a very different year for women – professionally and personally – with more opportunities for a growing number of women in the tech sector. There’s now a lot of research around success in organizations where there are women at the table, and from an investment standpoint I think we’ll see a lot more on this topic to come.
In general, a good rule of thumb is simply not to count your chickens before they hatch and to have a plan for multiple possible scenarios. Patience is a virtue and a strength. Spend less than you make today and automate what you can for savings (maximize 401K contributions and use a pay-yourself-first auto savings approach non-retirement accounts). None of this is new or ground-breaking, but in these unprecedented times, it’s always wise to keep one foot planted on the ground while reaching for the stars.
[i] IPO Scoop Reports, Accessed January 1, 2019, IPOScoop.com.
[ii] Richards, Carl. “Think Twice About That ‘Hot’ New I.P.O..” The New York Times. 7 Nov. 2011, NewYorkTimes.com.
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