The past year has been a bonanza for tech public market debuts, featuring some of the biggest IPOs ever , a record stretch for the New York Stock Exchange and the emergence of direct listings and special purpose acquisition companies. Whatever party is taking place, public investors don't seem to be invited. From Snowflake's $3.9 billion IPO, the most ever raised by a software company, to the hotly-anticipated listings from Airbnb , DoorDash and Coinbase , all the investment gains have been swallowed up by big institutions that got in before the stocks were openly traded. The underwhelming after-market performance is the result of a decade-long swarm of private cash into what was previously a niche venture capital industry. Hedge funds, private equity firms and sovereign wealth funds have poured money into the start-up ecosystem, allowing companies to put off dealing with the pesky public markets for as long as possible, while keeping their financials mostly opaque. Investments in late-stage private U.S. tech companies, or what the National Venture Capital Association calls growth equity, jumped to a record $96.6 billion last year, up more than fivefold from a decade earlier, according to the association's annual yearbook . Venture investing is also at an all-time high, climbing to $164 billion last year from $31.8 billion in 2010. Venture-backed companies that went public last year had a combined market value of $477.2 billion, based on their valuation at first trade, according to IPO data compiled by University of Florida finance professor Jay Ritter. That's more than double the total from 2019. From 2013 to 2018, the number never reached $100 billion, Ritter's data shows. The trend shows no sign of abating. Payments company Stripe raised $600 million in March at a staggering $95 billion, higher than the market cap of all but 19 U.S. tech companies. Elon Musk's SpaceX was valued at $74 billion in April. Companies in the IPO pipeline include cloud software vendor Databricks , which raised money in February at a $28 billion valuation, and fintech company Marqeta , valued in the private markets at over $16 billion. There's also trading app Robinhood , which is reportedly getting bids from secondary investors in the $40 billion range. By the time public investors get a crack at the hottest businesses, they're already large-cap stocks with several years of growth baked into their market cap. 'Hits business' Of the 56 U.S. tech IPOs since the beginning of 2020, only 16 are trading above their opening price, according to data from FactSet and analyzed by CNBC. Of the other 40, about half are still above their offer price, meaning the few investors who received IPO allocations in those companies have made money. Christina Kramlich , a financial advisor at Chicory Wealth, says IPOs are generally a risky bet. As of late, the market is adding in lofty prices. "It's always been a hits business, but that's especially true with companies staying private longer," Kramlich said. "By the time they hit the public market, their last valuation was really high." Snowflake has dropped 6% from its first trade in September as of Thursday's close. Airbnb is about 7% below its opening price in December, and DoorDash is down 25% from its IPO opening that same week. Dating app Bumble , which went public in February, has lost almost half its value since its initial open and online lender Affirm is down 40% from its debut trade in January. An investment in a fund tracking the Nasdaq at any of those times would've performed significantly better. Direct listings have generally held up more favorably, with analytics company Palantir up over 100% from its open in September and collaboration software vendor Asana up 22% from its debut on the same day. However, cryptocurrency exchange Coinbase has plunged 39% since listing last month. Squarespace , the latest direct listing, hit the market with a $6.6 billion valuation on Wednesday, about 34% below where it raised private capital in March . After a two-day rollercoaster, the stock is slightly above where it opened. A number of venture-backed companies have taken advantage of the boom in SPACs , going public through a reverse merger with a blank-check firm. SPACs have tended to focus on targets that aren't quite as big and may have more capital-intensive business models. Proponents of SPACs have said they offer a wider swath of investors an opportunity to get in at an earlier stage, because in prior years these companies would continue to rely on private investors for financing. For the most part, they've yet to provide returns to new shareholders either. Real estate site Opendoor , online health company Hims & Hers , insurance-tech services Clover and Metromile , and 3D-printing company Desktop Metal have all dropped in value since their deals were completed. Much of the challenge newly-public tech companies face is a macro market rotation out of technology as concerns about higher interest rates and inflation push investors to stocks that are deemed safer. Since peaking in April, the Nasdaq has dropped over 4%, while an index of cloud-computing stocks is down 11%. The Dow Jones Industrial Average is up less than 1% over that stretch. "We've seen a real retrenchment since early April," said Steve Koenig , an equity analyst covering software at SMBC Nikko Securities, in an interview. "Things have gone into reverse for the high-beta, high-multiple stocks." One IPO Koenig tracked closely was UiPath , a developer of software for automating repetitive office tasks. UiPath raised $1.5 billion in its in April offering , the third-biggest U.S. software IPO on record, according to FactSet. The company was valued at about $35 billion after its first trade, two months after raising private capital at a similar price. UiPath has gained 15% since the opening trade to $75.40 at Thursday's close, making it one of the better after-market performers among the recent crop of IPOs. Koenig initiated coverage this week with the equivalent of a buy recommendation and an $80 price target. "If there's any bearish case here, it's that the stock is by most metrics pretty darn expensive," Koenig said. That's what gives people pause." He's bullish on the fundamentals. Koenig projects UiPath will increase revenue 36% this fiscal year to almost $825 million, and says it's a leading disruptive technology in the $16 billion automation market. The company is also "best in class" at retaining customers and getting them to boost their annual spending, Koenig said. Offline to online In looking at the broader universe of emerging internet and software companies and recent IPOs, Koenig said the rapid and ongoing shift in spending from the physical world to digital products will continue to propel the tech industry. Therefore, even if companies are going public with historically high valuations, the upside opportunities are plentiful. Investors may just have to wait out this period of market turmoil. "The companies that are going to capture that value are a lot of the software companies that have differentiated next-generation technology," Koenig said. Procore CEO Craig "Tooey" Courtemanche agrees. "That's the bet," Courtemanche said in an interview on Thursday, after his software company debuted on the New York Stock Exchange. "I believe public markets see it as day one." The stock closed at $88, valuing Procore at over $11 billion. Procore's technology is used by construction companies that are bringing complicated workflows online and trying to improve communication and collaboration between workers in different locations. Revenue last year climbed 38% to $400.3 million, but Courtemanche says the company has penetrated less than 5% of its existing markets because the construction industry has been so slow going digital. By Courtemanche's estimation, "50% of the people we're talking to are using pen and paper and Microsoft Outlook to manage their construction companies," he said. "It's literally analog."
