Lyft IPO’s biggest winner may be startups’ private valuations

Bloomberg

Tech unicorns got a bounce in their step with Lyft Inc’s initial public offering valuing it at $22.4 billion after its first day of trading.
Ride-hailing’s No. 2 provider in the US first raised its target range and then expanded its offering to raise $2.34 billion. While the shares closed up only 8.7 percent compared with the 21 percent surge at the opening bell, that’s still a validation by public investors of the company’s pre-IPO valuation, said Barrett Daniels, a Deloitte partner who specialises in IPOs.
“This is a very good sign for any company currently in the IPO pipeline,” Daniels said. “There were some who thought the private markets were valuing some of these companies too high. This feels like early evidence that that isn’t the case.”
There’s no doubt that investors will continue asking whether private valuations for unicorns — startups valued at more than $1 billion — are out of sync with what those businesses will be worth when they go public.
Some companies, such as Dropbox Inc, waited years to grow into ambitious private valuations and then more or less retain their value as public companies. Others, notably Snap Inc, rose to great heights on the public markets only to fall, and then fall some more.

Uber Watching
But the herd of unicorns looking to follow Lyft, which was valued at $15.1 billion in its last funding round, can be assured that public investors don’t think their private predecessors are deluding themselves. Perhaps watching most closely was Uber Technologies Inc, which is expecting to publicly file for its offering in April, kicking off a listing that could make the company worth as much as $120 billion, people familiar with the matter have said.
Other companies considering going public before the end of the year — Pinterest Inc and Slack Technologies Inc to name a couple — will also be evaluating Lyft’s success, especially after the federal government shutdown made for a chilly start to the year for US IPOs.
After Lyft’s co-founders Logan Green and John Zimmer rang the Nasdaq opening bell from a driver centre in Los Angeles, shares took more than two hours to start trading. Zimmer said they decided to forgo the traditional opening ceremony on the floor of the exchange to be with the company’s drivers.
“We want to make a point that you can both invest in communities and invest in great business,” Zimmer said in a Bloomberg Television interview. “Its fun to ring the bell with several members of our driver community.”
Green and Zimmer will maintain near-majority control of the company through Class B shares that carry the voting rights of 20 ordinary shares.
As the first big US technology listing of the year, all eyes are expected to remain on Lyft as a litmus test for public market investors and their appetite for money-losing tech companies.
This month, Lyft disclosed in its IPO filing with the Securities and Exchange Commission that it lost $911 million on revenue of $2.2 billion in 2018. That compared with a loss of $688 million on revenue of $1.1 billion the previous year.
Investors didn’t seem to mind that the company was losing money. .
The lead bankers for the offering — JPMorgan Chase & Co, Credit Suisse Group AG and Jefferies Financial Group Inc — presented over nine days to more than 600 investors, said a person familiar with the matter who asked not to be identified because the meetings were private.
In all, more than two dozen banks were listed in the company’s filing as participating in the offering. JPMorgan served as the stabilisation agent, giving it a chance to earn additional fees by ensuring the first day of trading went smoothly with limited stock price fluctuations.