2018 left some very clear signs about the way the businesses (crypto or otherwise) raise funds. ICOs have all but died out, disguised as token sales launched from lightly-regulated tropical islands. The great move to allow investors of all backgrounds and creeds to be in with a chance of funding early innovation has been curtailed. And now, upon analyzing data from CB Insights, it looks like IPOs are on their way out as well.

For blockchain companies, particularly in the US, there’s a distinct move toward STOs. At it’s most basic, that means tweaking existing securities exemption laws to make token sales legal.

However, the original method of allowing the (accredited) public to buy-in to companies IPOs are on their way out, too. And that may mean a return to the elitist system of yesteryear where the capital stays in the hands of VCs and private investors.

According to CB Insights, a tech market intelligence platform and data analyst used by the likes of Microsoft and IBM, 2018 was actually a record fundraising year for tech IPO pipeline companies. However, some 81 percent of tech IPOs were unprofitable. In fact, IPOs have never been so unprofitable for investors.

After extensive analysis of 286 of the most highly valued tech companies of the US, CB Insights concludes that it’s time to accept that IPOs are on their way out as well. And that a comeback isn’t going to happen.

IPOs and the Tech Market

One indicator of the health of the tech sector often looked at is the number of companies going public. It’s a rather basic rule of thumb, but often a sign that the industry is doing well. The more IPOs, the healthier the space. Just look at how few IPOs there were around the time of the dot-com crisis between 1999-2000, for example.

However, that’s a rather facile indication of the state of an industry, when you consider that more IPOs doesn’t mean more profitability for investors. Furthermore, tech stocks have never had it so hard as December 2018. As the report states:

It might be time to realize that IPOs are never coming back.

The report shows which companies are most likely to go public in 2019, with Cloudflare, Pinterest, and inVision among them. However, it dives deeper into the state of the tech market and reveals some interesting data that suggests that IPOs are on their way out–or at least, losing popularity. Here are the main takeaways:

1. Companies are Taking Longer to Go Public

Comparing the data from 2013 to 2018, CB Insights found that companies are now taking a lot longer to hold IPOs than they did before. The median time for holding an IPO is 2013 was a lot shorter than in 2018 as you can see from the figures below. In fact, in 2018, holding an IPO now takes more than three years longer.

There are of course several reasons behind this, not least the fact that there is plenty of private capital out there. Many companies simply hold what is referred to as “private IPOs.” These are essentially $100m+ rounds of funding available to private companies rather than going public.

Look no further than crypto darling Bakkt as a shining example of this raising over $182 million from big-name private investors. With no IPO and definitely no ICO, Bakkt will be entering the blockchain space this year. As the CB Insights report points out, why go public when there’s plenty of private capital at the ready?

Softbank alone financed almost as many private IPOs in 2018 as real public ones, which could explain the lack of profitability of tech IPOs last year — most of the unicorns are being privately financed.

2. Promising Companies are Cherry-Picked by Private Buyers Before IPO

There were plenty of promising companies that were about to go public last year, including Glassdoor, Qualtrics, and AppDynamics. So what happened?

A private buyer stepped in at the 11th hour and the scooped the company up before it went public.

3. Private Equity Rivals Strategic Buyers for Tech High-Flyers Before They Go Public

Returning to the previous point, when companies can find angel investors, strategic buyers or VC capital, there is no need to go public. Take a look at the figures from major VC firm Vista Equity below, for example.

Some of the other major private investors in 2018 included Sequoia Capital, Andreessen Horowitz, and Tiger Global, topping the list with the highest amount of billion-dollar Tech companies in their portfolios.

Conclusion? IPOs are Becoming a Thing of the Past

With so much private funding available, an abundance of strategic buyers, and plenty of VC capital at the ready, there seems little point for companies to hold traditional IPOs anymore unless they are forced to go public due to a lack of options. But according to the data, these are unlikely to be the ones that will make money or make the private investor picks. ICOs are dead. And it looks like IPOs aren’t far behind.

All images from CB Insights 2019 Teach IPO Pipeline Report.