Physical Address
304 North Cardinal St.
Dorchester Center, MA 02124
Silicon Valley’s hottest startups are finding ways to stay private for longer, dashing the hopes of investors waiting for a public listing to cash in on their stock.
A series of recent technology deals have provided the biggest the beginning with billions of dollars in new capital to continue to grow and give employees a way to exercise valuable stock options — solving two of the main issues that have traditionally pushed companies to go public.
Artificial intelligence and data analytics company Databricks raised $10bn in December, the largest venture capital fundraising round of 2024. That followed SpaceX’s $1.25bn raise in November, making it the world’s most valuable private startup, and the pull of OpenAI at $6.6bn in October.
“We are already operating as a public company,” Databricks chief executive Ali Ghodsi told the Financial Times about the latest round of funding – so much money that he said investors gave $19bn. “The first thing we could announce is (this year), but we have conditions now.”
These deals highlight a new class of startups, often larger than their peers in the public markets, with a scale and sophistication never before seen in the private markets.
Although small groups – including the number of private equity-backed startups – expected to take advantage of strong US equity markets to float this year, the biggest tech companies, especially AI, are under little pressure to follow suit.
“They have so much access to so much money that there is no incentive for them to publish”, said Kelly Rodriques, chief executive of Forge Global, a private company stock market.
Private equity markets have been in decline for the past few years. The seven largest private companies in the US are worth $695bn today, according to Forge Global, with SpaceX and OpenAI alone worth more than $500bn.
The emergence of a group of large business firms facilitated and contributed to that expansion. A decade ago, it was rare for any VC to write a single check for $100mn. Today, some investors are willing to invest many times that amount.
Josh Kushner’s Thrive Capital has invested more than $1bn in each of Databricks, Stripe and OpenAI over the past two years, as part of a strategy that doesn’t resemble traditional investments.
15 to 20 startups, including Databricks and Stripe, “have IPOs like private companies”, according to Mitchell Green, managing partner of Lead Edge Capital and investor in Alibaba and Uber.
Having found a way to grow and provide exits for their shares – a key weapon in the battle for talent – private companies are also avoiding some of the more difficult aspects of going in society.
“If you have a bad quarter, you can have activists,” said Luke Ward, chief investment officer at Baillie Gifford, which has invested in SpaceX. “There’s an argument that some of these pioneering companies wouldn’t have been able to do what they did if they were in the public markets and had those short-term pressures. “
But the analysis of public markets can also be important, since private startups can have a value that seems to be excluded from the strength of their business. WeWork’s $47bn valuation, acquired during a funding round led by SoftBank in 2019, dropped after it launched its road show before the planned IPO, for example.
“It feels like VC companies are in a parallel universe that has no connection to the real world,” said the head of investment at a US investment firm that invests in many venture firms, which requested that they should not be mentioned. “They have their own values, their own money, that’s automatic. It’s a pass-the-package game.”
Far from the top tier of startups, some companies have already gone public or are preparing to do so – though often for esoteric reasons.
ServiceTitan, a software company, listed on Nasdaq in December. The company’s decision to float was prompted by the terms agreed with its sponsors during the financing round in November 2022.
As part of the deal, led by private equity group TPG, ServiceTitan has agreed to “engage the IPO ratchet”. In fact, that set the time to go public, beyond which the company would have to list at a higher price or pay more money to those investors.
Others will be pushed to the public markets because they need to give early adopters a way to exercise their options before they expire or vest, at which point they are taxed as capital.
Futures sales have been the catalyst for some of the biggest IPOs of the past 18 months, including Instacart, Klaviyo and Rubrik. That has not hindered their success, and the shares of each company have risen significantly since their market debut.
That could encourage fast-growing startups waiting to list, such as Dataminr, Netskope, CoreWeave and Klarna, according to Rodriques.
Currently, there is little demand for start-ups in Silicon Valley to initiate IPO processes. “Databricks, Stripe, companies that can (get money), won’t go public in 2025,” said Kyle Stanford, lead VC analyst at PitchBook. “The first companies that will come out will be the forced ones. It will be a bunch of people testing the waters before they become $50bn companies.
