What’s driving the surge in activity?
We think that part of the answer is that technology disruption is happening across a growing number of sectors. Back in 2015, the majority of late-stage companies were limited to the SaaS (software as a service) or mobile space. These days, technology is touching health care, financials, education, retail, and many other areas, creating more late-stage businesses than ever before.
Another trend that’s driving change in the private market is that earlier-stage companies are raising more capital at higher valuations. It’s not atypical for us to see companies raising at 100x current revenue (annualized revenue run rate), meaning that a company with US$10 million annual recurring revenue (ARR) can raise capital at a US$1 billion valuation.
And finally, companies are staying private longer, in an effort to remain focused on long-term growth objectives and ultimately be more competitive. As a result, since 2008, the number of publicly listed US companies has decreased from about 5,000 to about 4,200, while the private-equity-backed universe has nearly doubled to over 8,600 companies.2
Importantly, while the number of listed companies has stayed more or less flat, that’s not because companies are no longer going public. In fact, through just the first half of 2021, there were more IPOs and more dollars raised in those IPOs than in nearly any of the past 20 years (Figure 2). And for those who might wonder, this activity isn’t a result of the SPAC fad — the data excludes closed-end funds and SPACs. So, if there have been over 450 IPOs in the past year and a half, why isn’t the number of publicly listed companies going up? We believe this is an artifact of a robust M&A and take-private market, not a reflection of the desire for new public company formation.