US VC-Backed Tech IPOs Underperform The S&P Eight To One by CB Insights
Despite winners like Facebook and Ambarella, US VC-backed tech IPOs from the past three years are significantly underperforming the S&P.
The rise of mega-rounds or “private IPOs,” i.e. startups raising hundreds of millions of dollars at high valuations while still private, has led to speculation that all the returns will have been squeezed out of these companies before they go public.
That prompted us to look at how tech IPOs have performed in recent years. The answer is … not good.
Lee Ainslie's Maverick Capital had a difficult third quarter, although many hedge funds did. The quarter ended with the S&P 500's worst month since the beginning of the COVID pandemic. Q3 2021 hedge fund letters, conferences and more Maverick fund returns Maverick USA was down 11.6% for the third quarter, bringing its year-to-date return to Read More
We looked at all US VC-backed tech IPOs since Facebook‘s May 2012 public offering through October 2015 and found that the return was a lowly 7.05% over that time period (assuming you invested in all these companies on the first day of trading’s closing price, and invested the same amount in each stock).
For context, the S&P 500 return was 60.5% over that same time period, while the Dow Jones Industrial Average returned 42.8%.
An equal weight S&P 500 ETF (RSP), which is a better equivalent for our theoretical tech IPO investments, since it assumes an equal investment into each S&P 500 component, is up even more over the same time period: 67%.
More simply, your total return would be over 8x times higher if you invested in the S&P 500 instead of putting the same amount of money into every single VC-backed tech IPO since May 18, 2012 (the day Facebook went public). Just over half of the IPOs included in this analysis happened since 2014.
This number is more notable when looking at some of the winners buoying returns for tech IPOs such as Ambarella (up over 700% since IPO), ServiceNow (232%), and Facebook (167%), among others.
Some of the worst performers have been Rocket Fuel (down 92% since IPO), Castlight Health (-87%), and Uni-Pixel (-84%).
Note: For companies that were acquired post-IPO, we have used the acquisition stock price.