The financing environment for startup companies in the technology sector has changed substantially over the last few years. As evidenced by findings in CB Insights' latest report, The 2020 Tech IPO Pipeline, tech companies have raised more funding than ever before by accessing the private venture markets. These startups reach unicorn status well before completing an initial public offering or other exit.

Source: CB Insights

While private capital formation continues to rise exponentially, IPO levels have remained relatively stagnant since numbers dropped in 2015. The CB Insights report noted that 22 tech IPOs were completed in 2019. Compared to 19 IPOs in both 2018 and 2017, tech IPO numbers have not seen dramatic increases since dropping to 16 in 2015 from 33 in 2014. The median amount of private venture capital tech startups raise prior to an IPO has significantly increased between 2012 and 2019. In 2019, tech companies raised a median of $281 million prior to going public, compared to $239 million in 2018 and $64 million in 2012. In aggregate, tech companies have raised $26.3 billion in 209 deals in 2019, compared to $21.9 billion in 235 deals in 2018. By contrast, 2012 saw 111 private venture capital raises in the tech sector, yielding $1.6 billion in proceeds—a fraction of 2019 levels.

Not only are tech companies raising large sums of private capital, they are doing so through larger deals, including "mega-rounds", which are capital raises of $100 million or more. Tech companies in the IPO pipeline completed 102 mega-rounds in 2019, compared to 68 in 2018. The number of tech mega-rounds has surpassed the number of tech IPOs.

Source: CB Insights

The volatility associated with next year's U.S. election is anticipated to limit the window for companies, in and out of the tech sector, to complete an IPO. This will likely continue the trend of companies raising funds through the private markets, and also considering alternatives to the IPO, such as a direct listing or M&A transaction.

Visit us at

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2019. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.