Snap is on a streak. Shares of Snapchat’s parent company climbed 11% on Friday after soaring 44% the day before in their market debut. Already, the public offering has made a lot of people very rich: Snap’s cofounders, its longtime employees and venture capitalists, and—in a double win for teens—a private high school in Mountain View.
Now that one proverbial unicorn has departed Silicon Valley’s enchanted wood, the question is whether more will follow. With nearly 200 startups valued at $1 billion or more, a lot of investor money is riding on it. In San Francisco, guessing which company will go first—Uber or Airbnb? Palantir or Pinterest?—has become a trendy parlor game.
For IPO hopefuls, Snap’s reception should be promising. The markets have not only shrugged off Snap’s many question marks—its dubious billing as a “camera company,” 2016 net loss of $514 million, and tyrannical capital structure—but also wasted no time in pushing its market cap past that of HP and Discover.
And yet private tech darlings still have a good reason to stay private: a growing hoard of cash to keep them going. Private equity funds had stockpiled $754 billion of uninvested money as of June 2016, and venture capital funds had $121 billion. Those investors have grown more selective in deploying capital, but only where the risk is highest. That’s left young startups starved for financing while richer, late-stage companies like Uber and Airbnb gorge themselves on cash.
This means that rather than funding bold bets, investors are increasingly stashing their money in the biggest and most established ones—arguably stifling innovation instead of fostering it, as well as reducing those big startups’ incentive to go public. That means fewer opportunities for those outside the rarefied air of Silicon Valley to share in the fortune, as Snap’s investors have.
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