Silicon Valley's hottest startups are finding ways to remain private longer, dashing the hopes of investors waiting for massive public listings to cash in on their holdings.
A series of recent technology deals have provided the largest Start-ups With billions of dollars in new capital to continue growth and give employees a way to cash out valuable stock options — solving two of the key issues that have traditionally driven companies to go public.
Artificial intelligence and data analysis company Databricks Raised $10 billion In December, it was the largest venture capital fundraising round of 2024. This followed SpaceX's $1.25 billion raise in November, making it the world's most valuable private startup, and OpenAI's $6.6 billion raise in October.
“We operate like a public company already,” Ali Ghodsi, head of Databricks, told the Financial Times about its recent fundraising campaign — a round that was so oversubscribed that investors offered $19 billion. “The earliest we can go public is (this year), but we have flexibility now.”
These deals highlight a new class of startups, often much larger than their public market counterparts, with scale and sophistication unprecedented in private markets.
While smaller groups – including a number of Private equity backed startups – It is expected to take advantage of the booming US stock markets to float this year, but the largest technology startups, especially those working in the field of artificial intelligence, are under little pressure to follow suit.
“They have great access to capital at scale, and there is no incentive for them to go public,” said Kelly Rodricks, CEO of Forge Global, a marketplace for private equity trading.
Private markets have exploded over the past few years. The seven largest private companies in the United States today are worth $695 billion, according to Forge Global, with SpaceX and OpenAI alone valued at more than $500 billion.
The emergence of a cadre of mega-project companies has enabled and benefited from this expansion. A decade ago, it was rare for any venture capitalist to write a single check to a $100 million startup. Today, some investors are willing to invest many times that number.
Josh Kushner's Thrive Capital has invested more than $1 billion in Databricks, Stripe, and OpenAI in the past two years, part of a strategy that bears little resemblance to traditional venture investing.
The 15 to 20 largest startups, including Databricks and Stripe, “have effectively positioned themselves Initial public offerings As private companies,” says Mitchell Green, managing partner of Lead Edge Capital and an investor in Alibaba and Uber.
Having found a way to scale and provide ways to leverage their equity — a vital weapon in the fight for talent — private companies are also evading some of the cumbersome aspects of going public.
“If you have a bad quarter, you can get hit hard, and you can have activists,” said Luke Ward, an investment director at Baillie Gifford who has invested in SpaceX. “There is an argument that some of these leading companies would not have been able to do what they did if they had been in the public markets and exposed to those short-term pressures.”
But scrutiny of public markets can also be valuable, where private startups can receive valuations that appear disconnected from the strength of their core businesses. WeWork's $47 billion valuation, obtained during a SoftBank-led funding round in 2019, fell after it launched its roadshow ahead of a planned IPO, for example.
“It's as if venture capital firms exist in a parallel universe that has no connection to the real world,” said the chief investment officer of a US institution that invests in multiple venture firms, who requested to remain anonymous. “They have their own valuations, their own liquidity, and it's self-generated. It's a pass-the-pack game.”
Beyond the top tier of startups, some companies have gone public or are preparing to do so – although often for esoteric reasons.
ServiceTitan, a software company, listed on the Nasdaq in December. The company's decision to float was driven by terms agreed with the project's backers during the November 2022 financing round.
As part of that deal, led by private equity group TPG, ServiceTitan agreed to “a double-digit IPO raise.” In effect, this set the countdown to going public, after which the company would have to list at a higher price or pay more proceeds to those investors.
Others will be pushed into the public markets because they need to give early employees a way to cash out stock options before they expire or vest, at which point they are taxed as income.
Looming stock maturity dates have been a factor in several of the largest IPOs of the past 18 months, including Instacart, Klaviyo, and Rubrik. This has not hampered their success, as each company's shares have risen significantly since their debut on the stock market.
This could stimulate other fast-growing startups awaiting listing, such as Dataminr, Netskope, CoreWeave and Klarna, according to Rodricks.
Right now, there's little need for big startups in Silicon Valley to go public. “Databricks, Stripe, the companies that can (access funding), won’t go public in 2025,” said Kyle Stanford, senior venture capital analyst at PitchBook. “The first companies to exit will be the ones that had to exit. There will be a group of water testers before they become $50 billion companies.
