Most of these have been around for nearly a half decade, can’t they just remain private companies operating off their profits? What is the mechanism for VC investors exiting when it just goes private, what payoff will they accept?
For instance, Stripe is valued at >$70b. They processed $1 trillion in payments in 2023, brought in $12 billion in revenue, which is 1.2% of payment volume. $100 million in profits.
Running as a modest private business just doesn't make sense when you've raised venture capital at 700x your annual profits. So, IPO it is.
https://www.trueup.io/tech-stock-declines
Out of 17 YC companies that have gone public, 3-4 have been delisted, 7 have lost >80% of their value, another 7 has lost 10% to 50% of their value. Only Reddit and Instacart have gained 47% and 31% respectively. Sounds a lot like bagholding to me.
Here: https://www.marketsentiment.co/p/the-yc-report
Regarding Stripe, if investors own just 50% of the company (highly probable, given how much they've raised), it'd take 350 years to pay them off. Payments is a high-volume, low-margins business.
In fact, even if Stripe 10x'd their revenues, it'd still be 35 years before they bought out all their investors. if you think I'm being unfair, look at the numbers Paypal and Adyen are doing and assess their valuation and you'll realize Stripe is extremely overvalued.
Adyen is trading at 60x profits; PayPal is trading at 2.7x revenues and 19x profits.
What matters more is change relative to it's market cap at IPO. And yes this is significantly worse for newer companies. There is a clear trend showing the 2010-2022 tech IPO market pushed valuations pre-IPO to insane levels such that post-IPO growth was limited or even negative meaning retail investors never had an opportunity to hold equity.
Personally, I assume they'll do some layoffs & cut spending to increase their margins, by, say, 4-5x, before they IPO.
How are you meant to profit when you have a product that costs a lot to run, that has an expected price of $0.