Snap Inc. and Spotify are poised to go public in the new year. They have stolen the spotlight as two of the tech world’s most consumer-facing brands, but a handful of other innovative private companies could outshine them in the coming months. And millions of dollars provided by big backers may propel them to the public market as early as 2017.
In 2016, 105 companies went public — the lowest number of IPOs since 2009. Recently, a lot of attention has surrounded shiny household names like Uber, whose financial picture, it turns out, doesn’t live up to its sexy image, with the ride-hailing company losing more than $800 million in the third quarter alone, despite its $69 billion valuation. Uber’s just one example of an incredibly well-funded company whose real worth may not live up to its hyped valuation.
“The number of IPO exits will be well positioned to rebound heading into 2017,” according to CB Insights and KPMG’s quarterly Venture Pulse report.
With fewer companies hitting the public market, investors have been focused on private behemoths that have raised mind-boggling amounts of venture capital. In the third quarter alone, VC-backed companies raised $24.1 billion globally, $14.4 billion of which was raised in the US. Here are a few companies that have raised the most capital and are ready for center stage in the new year:
Though taking pride in being the “world’s most secretive startup,” Magic Leap raised $794 million in its last round of funding and $1.4 billion to date, from backers like Google (GOOG, GOOGL) and Alibaba (BABA). That values the company at $4.5 billion. Based in Florida, Magic Leap’s technology is hard to describe (or imagine), because it has yet to release a product.
What we do know is it’s a “mixed reality” experience, which will give you the ability to superimpose 3D images on the image of reality. This year we may finally see a product hit the market. Even if the price point is steep, we’ll be able to get a glimpse into Magic Leap’s vision.
The New York City-based co-working startup had a whirlwind year, raising $430 million, which has brought its valuation to $16 billion. WeWork opened 58 new locations in 11 new markets, including China, launched its co-living concept, WeLive, in DC and NYC, and grew WeWork Enterprise to more than 450 big-company members, like Dell and Sprint (S). With such a ubiquitous presence, WeWork’s accelerated growth will likely continue in 2017 and its regional competitors may not be able to lure freelancers away from the convenience of having a passport to WeWork’s global locations.
The internal office communication platform has also become a mainstay for consumers. User friendly, intuitive, and widely adopted, the messaging app raised $200 million and is now worth $3.8 billion. Slack is now the messaging service of choice for 4 million (and counting) daily users and 1.25 million paying users. The app will only continue to gain traction, as it’s the perfect hybrid of g-chatting and emailing. Slack’s founder and CEO Stewart Butterfield also co-founded photo-sharing site Flickr, which he sold to Yahoo Finance’s parent company Yahoo (YHOO) for $35 million. Butterfield is highly regarded among his peers as well as his employees, which is indubitably a factor in getting investors to believe in him and the company he’s built.
San Francisco-based Affirm is another startup that boasts a successful serial entrepreneur as founder. Max Levchin, the co-founder of PayPal (PYPL), secured $100 million in funding this year. One of his biggest backers? Fellow PayPal co-founder and Trump adviser Peter Thiel. Levchin started Affirm four years ago to provide loans to people looking to make big-ticket purchases. Though the company has yet to achieve unicorn status, it’s quickly inching toward the $1 billion benchmark — it’s now valued at $800 million. With Wall Street heavyweights growing increasingly interested in backing alternative lending platforms — Morgan Stanley (MS) is providing a $100 million credit line for Affirm — this is a startup that may gain more traction in 2017.
Two-year-old organic grocery delivery service Thrive Market raised $111 million this year and a total of $141 million. After being rejected by over 50 venture capital firms, the founders Gunnar Lovelace and Nick Green reached out to self-help speaker Tony Robbins, fitness celebrity Jillian Michaels, and New Age health guru Deepak Chopra, who were the company’s first investors.
Now, targeting middle-class Americans who live in places without a Whole Foods (WFM) around the corner, the company guarantees its products cost 25% to 50% less than what you would see at a normal health foods store. Thrive Market has been able to carve out a space in the e-commerce delivery market, dominated by incumbents like Amazon (AMZN). But as it grows its private label offerings, more families may be opting to choose Thrive.
Unicorn status won’t be as critical in 2017
Though it was a banner year for these aforementioned startups, other once-promising startups fell from grace in 2016. “Dead unicorns,” or companies that have fallen from their $1 billion + valuations, have proliferated the market. Once valued at $9 billion, Theranos has experienced a complete fall from grace, after its “revolutionary” technology was debunked as faulty. Evernote, the note-taking and archiving technology company, has had tumultuous executive turnover as it prepares to go public.
But if it’s any consolation for the smaller players that aren’t getting heavily funded, the Venture Pulse report notes that unicorn status is becoming less critical. “In 2015, companies fought to achieve unicorn status, when perhaps their real valuations did not warrant it,” the report stated. “The impact of failed unicorns and unicorns not being able to achieve their private sector valuations upon IPO led to a dearth of unicorns in the first 3 quarters of 2016.”
Instead, companies are getting more realistic valuations that reflect their current value, to avoid any hyped exuberance when they do go public. “On the investment side, with the clamor to find the next unicorn decreasing,” the report stated, “investors are becoming more tactical with their investments.”
Jules Walker, director of venture capital practice at KPMG, added: “VC investors are taking more time to evaluate deals than they had in the past. They are scrutinizing the benefits and risks associated with every deal and undergoing far more due diligence. While fewer deals may be completed — the most promising companies are still finding investors.”
One thing’s for sure: Silicon Valley is no longer the only hub of innovation. Magic Leap, one of startups that received impressive funding and buzz this year, is based in Florida. Silicon Alley (New York), Silicon Beach (Los Angeles) and Silicon River (Boston) are no longer on the margins of innovation. 2017 will be the year for entrepreneurs to further shake up the status quo.
Disclosure: Yahoo Finance parent Yahoo owns shares in Alibaba.