DoorDash investors are fearful of getting Snowflaked

Bids and offers.
Bids and offers.
Image: Reuters/Lucas Jackson
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Even by 2020 standards, Snowflake’s initial public offering was bonkers—the cloud-computing company’s shares more than doubled in price during the first day of trading. Upstarts like DoorDash, the largest US food delivery company, are beneficiaries of that meteoric offering, as Snowflake’s success has created a flurry of demand for shares of pre-IPO companies.

“Snowflake is becoming a verb, as in, ‘I don’t want to be Snowflaked,’ meaning I don’t want to be left out,” said Greg Martin, founding partner of Liquid Stock, which provides financing for shares of pre-IPO companies and tracks private-stock prices. “It comes up in almost every conversation.”

Private-company shares are illiquid and difficult to trade, and information about those transactions can be hard to come by. Bids for shares of DoorDash surged 40% between September, when Snowflake went public, and November 2020, according to Liquid Stock data. Bids for e-commerce company Wish, which is also planning an IPO, jumped more than 50% during that span.

DoorDash is set to begin trading on the New York Stock Exchange today after pricing its IPO at around $102 per share yesterday. That’s higher than the $90 to $95 range signaled last week.

To be sure, Snowflake isn’t the only reason there’s red hot demand for private tech companies. They are rallying for the same reason their peers in the public markets are—in a world of ultra-low interest rates, investors are scouring the planet for anything with a hint of yield, and tech companies are seen as one of the few assets that offer growth. That’s driving institutions like hedge funds and sovereign wealth funds to pile into private markets.

Shares in private companies tend to take off when they file confidentially for an IPO because it lowers the liquidity risk (the concern that an investor won’t be able to easily trade the stock), and they get another boost when investors finally see the S-1 registration statement, which provides more information about the company. “There are usually two bumps” in price before the IPO, Martin said. “Unless the numbers don’t meet expectations, or investors learn something in the S-1 that doesn’t fit their narrative.”

Investors are betting the Covid-19 pandemic has accelerated the shift to digital, and that things like Zoom calls, food delivery, and electronic signatures will be the norm even after the virus is contained.

Airbnb, however, didn’t get an uplift from the outbreak, as lockdowns froze the travel industry. But by November, the home-sharing company’s private shares had made up some ground from the lows earlier this year, according to Liquid Stock. Investors were bidding around $55 for Airbnb’s secondary market shares, which are now expected to fetch between $56 and $60, according to a filing. The company’s shares are set to price today (Dec. 9) and to start trading on Nasdaq tomorrow.

The gyrations in Airbnb shares show that tech companies aren’t always immune to disruptions in the broader economy. But for now, investors are more focused on successes like Snowflake than they are on the risks. “No one wants to miss the next Snowflake—it was a seminal moment,” Martin said. “But there’s only one of them. Everyone isn’t Snowflake.”