In recent months, investors have grown increasingly cautious about the IPO market, and for the hottest tech companies around, it appears their moment in the sun continues to fade.
Nearly a dozen tech companies that have gone public since in 2014 have seen their share prices fall below their offering prices, according to a new report in the Wall Street Journal. And that corroborates with numerous other industry reports that show air leaking from the tech bubble.
That could certainly be a problem for companies such as Square, which filed its IPO papers last week with a valuation near $7 billion, as well as for a host of tech companies whose red-hot valuations now appear to be cooling. In recent years, companies at the top of the valuation pyramid include ride share company Uber, which is valued at $50 billion, apartment share site Airbnb, with a valuation of $25 billion, and messaging platform Snapchat, with a valuation of $16 billion.
But the diminishing values of these companies could also have a trickle down effect on your own company, particularly if you're in tech and hoping to go public this year and next. The changing market dynamics might also suggest that if you're looking for investment capital to fund your business, or if you're hoping to be acquired, you might get less than top dollar.
Here are three tips for maintaining a high valuation:
1. Don't offer a commodity product.
Companies like cloud storage company Dropbox, which is still private and has a valuation near $10 billion, could face problems going public, the Journal reports, because it faces competition from some of the biggest companies in the world, such as Apple, Amazon and Google, which all offer cloud data services.
2. Consider staying private.
Companies that go public face relentless public scrutiny. By not going public, you face a smaller set of investors who may have a more consistent set of expectations. Though, it should be noted that investors may start to get antsy if an exit doesn't materialize within a certain timeframe.
3. Feel free to exit, in certain industries.
As venture investors recalibrate their investments in tech, they'll be looking for the next best opportunity. While tech IPOs are at their lowest number since 2008, health care, including biotech, is one of the hottest sectors of the year for number of filings, per Renaissance Capital's third quarter report. Consumer products companies, representing such categories as physical fitness and pet products, also had a strong showing, representing nearly a quarter of IPOs in the third quarter.
Among the companies whose share price has fallen below an opening day price, are Inc. 5000 company Coupons.com, the online discounter, whose stock price has fallen 41 percent in the last year to $7.97; Founders 40 online babysitting and senior assistance company Care.com, whose stock is down 54 percent to $5.92. There's also Founders 40 email and security software company MobileIron, whose stock has dropped 61 percent to $3.88 year to date.
A Square spokeswoman declined to comment for this story. None of the other companies mentioned in this story in connection with their valuations responded by deadline.