The I.P.O. Comes Roaring Back in the Pandemic

The I.P.O. Comes Roaring Back in the Pandemic

SAN FRANCISCO — As the coronavirus spread in March, Vroom, a start-up that sells used vehicles online, shelved its plans to go public and rushed to shore up its operations.But with many dealerships closed under shelter-in-place orders, people started buying more cars online, benefiting Vroom with record sales in March and April, the company said.“We saw the whole world stabilizing,” said Paul Hennessy, the chief executive. “At the end of April, we said, ‘OK, maybe we should actually go on the offensive here.’”Vroom, which is based in New York, capped that offensive by going public last week. Its share price more than doubled on the first day of trading as the company raised $495 million from its offering.Vroom is part of a group of start-ups that have moved quickly to go public as the initial shock of the coronavirus has worn off. The stock market, which plummeted when the outbreak swept the United States, has rallied strongly in recent weeks. Since its nadir in late March, the S&P 500 index has climbed 40 percent.As the market has bounced back, SelectQuote, an online insurance provider; ZoomInfo, a sales software data provider; Warner Music Group, a record label; and Vroom have gone public. And more initial public offerings are on the way.Lemonade, an insurance start-up valued at $2.1 billion, announced last week that it had confidentially filed to go public. DoubleDown Interactive, a mobile gaming company, also filed to go public this month.Some of the biggest Silicon Valley start-ups are taking steps toward an I.P.O., too. Airbnb, the home rental start-up valued at $31 billion, said it hadn’t ruled out going public this year. Palantir, a digital surveillance company valued at $20 billion, is preparing to file for an I.P.O. in the coming weeks, said a person briefed on the start-up’s plans, who declined to be named because the talks were private.Palantir declined to comment; Bloomberg reported earlier on its I.P.O. plans.“The window is open,” said Previn Waas, a partner focused on I.P.O.s at the professional services firm Deloitte. “Everyone has figured out that a virtual I.P.O. is possible. There’s an appetite for companies to go public.”Jeff Thomas, head of West Coast listings and capital markets at the Nasdaq stock exchange, said, “Everybody who was in process is gearing back up.”Morgan Stanley had spent the last few months helping companies affected by the coronavirus find financing in every form — except public offerings, said Colin Stewart, Morgan Stanley’s head of technology equity capital markets. The market was too volatile, and companies had to assess how the virus had changed their financial forecasts, he said.But now with the stock market more stable, the situation has changed. “It’s clear there is a lot of pent-up investor demand to look at I.P.O.s,” Mr. Stewart said.Wall Street is embracing them even though many of the companies are losing money. Vroom lost $143 million last year on $1.2 billion in revenue, according to its disclosures. The food delivery start-up DoorDash, which filed in February to go public and has seen increased use in the pandemic, has also burned through hundreds of millions in cash and is unprofitable.Last year, high-profile money losers such as Uber and Lyft also went public — and promptly skidded in the stock market. Their disappointing performances and the failed I.P.O. of WeWork set off a wave of prudence across the start-up world.But excitement for new listings — especially for fast-growing tech companies — has sidelined the question of profitability. Investors have become more tolerant of money-losing companies because the virus has accelerated the adoption of technology like e-commerce, virtual learning, streaming, telehealth and delivery, said Gavin Baker, chief investment officer at Atreides Management, which invests in private and public companies.“Covid pulled the world into 2030,” Mr. Baker said.Not all of the companies that were on track to go public this year may make it, given how the economy is reeling from the pandemic. In early March, EquityZen, an investment service that tracks I.P.O.s, published a list of nine potential candidates for the year. Four — including the home rental company Vacasa, the 3-D printing company Desktop Metal and Velodyne Lidar, which makes technology for driverless cars — have since laid off staff because of the coronavirus.“If we wrote the list today, it would have a very different set of components,” said Phil Haslett, a co-founder of EquityZen.Airbnb, which had said it would go public this year, was hit especially hard by the travel shutdown. It raised new funding in April and cut a quarter of its staff. Asked about going public this year, Brian Chesky, its chief executive, said in a recent interview: “You can deal with some volatility, but there is a threshold. We’re kind of feeling out where that threshold is.”The window for I.P.O.s right now may be small. A second wave of virus-related shutdowns could send the stock market into another tailspin. Companies also need to navigate disclosing their second-quarter financials, as well as holidays like Labor Day and Yom Kippur. Plus there is the November presidential election, which may create volatility in the market.As a result, more companies than usual are aiming to go public in August, a month they traditionally avoided because people were often on vacation, Mr. Thomas of Nasdaq said. The exchange is telling companies to be ready to go public any time, he said, and to have alternative financing ready in case they can’t.For chief executives trying to take their companies public now, the timing is a nail-biter. Henry Schuck, founder and chief executive of ZoomInfo, had been planning to get his company out to the stock market in late March. But when the virus hit, he started checking the VIX, an index that measures stock market volatility, every day. The index had rarely topped 20 over the past decade, but in March, it topped 80.“The market was just not in a place to have an I.P.O. come out,” he said.In May, after the market had stabilized, Mr. Schuck decided to go for it. But there were other challenges. While executives typically go on a “roadshow” to pitch their company’s shares to investors, he was stuck at home.So he crammed back-to-back virtual meetings with investors into a week. Even though he was at home, he said, he made sure to dress up and even wear shoes. On the morning of ZoomInfo’s I.P.O. on June 4, Mr. Schuck hit a ceremonial virtual button to open trading, alongside his wife and 4-year-old daughter. ZoomInfo’s shares rose more than 60 percent on the first day of trading.Mr. Hennessy of Vroom also held a virtual roadshow, taking meetings with investors via teleconference from his home in Suffern, N.Y. He said he appreciated the efficiency of the roadshow, which would normally have lasted two weeks across multiple cities.On the day of the I.P.O. on June 9, Mr. Hennessy and his executive team could not travel to Nasdaq, where Vroom was listing, to press the opening buzzer since the exchange was not open to visitors. Nasdaq provided Vroom’s employees with an app to upload photos of themselves, which the exchange displayed on its tower in New York’s Times Square.Vroom’s office, nearby at 37th Street and Broadway, remained closed, but a few employees in masks went to see their faces displayed on the tower, Mr. Hennessy said. He said he had preferred it to an in-person ceremony, since people in the whole company got to participate by sending in photos and sharing screenshots of themselves on the tower.“Those Nasdaq moments are over in a few minutes with some confetti,” he said. “This lasted a couple of hours.”


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