IPOs Crash, Startup Valuations Plunge, Era Ends

[marmar]

IPOs Crash, Startup Valuations Plunge, Era Ends
by Wolf Richter • January 20, 2016


[font color="blue"]An ugly time for IPO stocks.[/font]

Hortonworks shares crashed 37% on Tuesday after it became known that it had filed a registration statement with the SEC last Friday for a proposed follow-on offering to raise $100 million. This will substantially dilute current stockholders.

The company, which sells big-data software based on Apache Hadoop, went public in December 2014 with great hoopla and an IPO price of $16. Shares then spiked to $29.20. Despite yesterday’s plunge, they continue to fall this morning and as I’m writing this are trading at $10.17. That’s 35% below the IPO price and 65% below their high.

The company has an unbroken record of net losses exceeding its revenues. And so far, the more it sells, the more it loses. Its $33 million in sales in the third quarter generated $44.5 million in losses. With cash going up in flames at this pace, it was time to raise new cash at the expense of current investors.

Digital payments company Square plunged 7.8% on Tuesday and another 9.5% this morning, to $8.57, plunging right through its $9 IPO price. When it went public last November, the startup exuberance of 2013 and 2014 had already curdled. To push the deal out the door, it had to cut its IPO price below its valuation established during the last funding round. When shares popped to $13.07 on the first day and then rose to their peak of $14.78, everyone breathed a sigh of relief. It just didn’t last long. .....................(more)

http://wolfstreet.com/2016/01/20/ipos-crash-startup-valuations-plunge-era-ends/

[Tansy_Gold]

1. This was well worth the read. Thanks!

A snip, with my emphasis:


Investors are fretting about cash burn, and about the current generation of startup managers that has no clue how to get their companies to generate a profit. Instead they’re relying on easy-to-get VC money and then IPO money to fund their operations. Twitter still hasn’t figured out how to make a real profit, and Hortonworks has to raise new money to be able to keep burning through investor cash: and look what happened to their shares.

Investors finally see these things and shudder.