Mezzanine/Pre-IPO Private Placements

Thursday, February 7, 2019
1:00 p.m. – 2:00 p.m. ET

The U.S. capital markets remain an attractive source of capital for emerging companies in the life sciences sector. Over 21.7% of the 2017 IPOs were life sciences companies. Many of these IPOs were preceded by late stage (or mezzanine) private placements made principally to U.S. institutional investors.

In our session, partners Anna Pinedo and David Bakst will focus on:

  • Financing alternatives for pre-IPO companies;
  • The late-stage (or “cross-over”) private placement market;
  • Considering milestones when planning a financing strategy; and
  • Post-IPO alternatives, including registered direct offerings, PIPE transactions, at the market offerings, and related financing considerations

To register, please click here.

CB Insights recently published its seventh annual Tech IPO Pipeline Report.  The report notes that in 2013, the median time between first funding and IPO for U.S. VC-backed tech companies was 6.9 years compared to 10.1 years for tech companies that went public in 2018.  As we have noted in previous posts, tech companies continue to raise more significant amounts of funding prior to undertaking their IPOs.  In 2018, tech companies raised, on average, $239 million before undertaking their IPOs, which is almost 1.4x the amount raised in 2017, and over 3.7x as much as 2012 figures.

The number of new private tech unicorns has outpaced the number of tech IPOs in 2018.  After 2014, tech IPOs declined significantly and have remained at those depressed levels, with only 19 tech IPOs in 2018.  By contrast, there were 45 tech companies that became unicorns in 2018.  The mega-round financing trend, wherein companies raise over $100 million per round, was also prevalent in the tech-sector, with almost 120 mega-round financings completed in 2018.

Tech-focused private equity firms continue to acquire majority stakes in tech companies that are nearing liquidity opportunities, whether IPOs or M&A exits.  However, M&A exits continue to replace IPOs.  The report cites as examples Qualtric, Adaptive Insights, and AppNexus.

More companies continue to raise large sums of capital through late-stage or pre-IPO private placements as they prepare, or in some cases delay, going public. Tech companies are among the most highly-valued of these private companies. A recent study by CB Insights looked at the capital raised by tech companies that went public in 2018. It was found that, on average, these companies raised over $103.0 million in pre-IPO funding. This is almost 2.5 times more than capital raised in 2017, in which tech companies raised $41.9 million, on average, before their IPOs. Xiaomi Corporation and Spotify Ltd raised the most capital pre-IPO with $3.4 billion and $2.3 billion of funding secured, respectively. 2019 promises to continue the trend of larger pre-IPO financings, with companies that have raised as much as $16.9 billion poised to go public next year.