Redefining IPO Strategies: The Shift from Traditional to Secondary Markets
In the past decade, Forerunner Ventures has emerged as a pioneer in supporting consumer startups like Warby Parker, Bonobos, and Glossier, none of which have followed the conventional path of an initial public offering (IPO). Instead, specific routes such as a special purpose acquisition vehicle (SPAC) for Warby Parker and the acquisition of Bonobos by Walmart illustrate a growing trend in the startup ecosystem. Meanwhile, Glossier remains privately owned along with other design-centric brands in Forerunner’s diverse portfolio.
New Norms in Public Offerings
For Kirsten Green, the founder of Forerunner Ventures, the absence of traditional IPOs among her portfolio brands does not signify a setback. Rather, she views the current landscape as a shift towards alternative methods of going public. “In today’s environment, nearly every alternative to the traditional IPO has become the new norm,” she noted, emphasizing the evolving strategies that startups are increasingly adopting.
Recent Success Stories
Among Forerunner’s noteworthy investments are fintech startups Chime and smart ring manufacturer Ōura, founded in 2012 and 2013, respectively. Both companies have exceeded valuations of $5 billion, validating their resilience amidst competitive markets. Notably, while Chime confidentially filed for an IPO, Ōura is not currently pursuing a public offering, prioritizing growth instead.
Value Beyond Public Listings
Green recently expressed her confidence in Ōura during a panel discussion at TechCrunch’s StrictlyVC event, despite the CEO’s statements on delaying IPO plans. She praised Ōura as an “off-the-charts phenomenal company” and reiterated that the focus remains on its continued growth rather than immediate exit strategies.
The Rise of the Secondary Market
Green highlighted a significant trend: the increasing reliance on the secondary market, where companies can manage liquidity and investor exposure without the pressure of immediate public offering requirements. “We’re engaged in the secondary market, buying and selling,” Green remarked, illustrating how this market shift is both practical and strategic for venture capital firms.
- Many startups are delaying IPOs, requiring higher valuations to go public.
- The secondary market allows investors to unlock returns and manage their investments effectively.
Benefits of Market Participation
One of the advantages of frequent participation in the secondary market is enhanced price discovery. Green explained that the presence of multiple participants in price-setting creates a more efficient evaluation, even if it sometimes results in discounted valuations for certain investments. Specifically, she cited Chime’s fluctuating valuation, which dropped from $25 billion in 2021 to as low as $6 billion, only to rebound to $11 billion recently based on secondary market dynamics.
Strategic Investment Focus
For Green, the strategy of investing early in companies provides Forerunner with a unique position compared to other venture firms. She emphasized the firm’s systematic approach of identifying shifts in consumer behavior paired with emerging business models, which has yielded significant success in the past decade. Companies like Bonobos and Glossier thrived during the mobile-social revolution, while new models like The Farmer’s Dog, a subscription-based dog food service reportedly generating $1 billion annually, highlight Forerunner’s ongoing focus.
Conclusion
As the venture capital landscape evolves, the appetite for immediate exits is gradually shifting towards a more patient approach. Green advocates for recognizing that not all companies follow the same growth trajectory, underscoring the need for adaptability and creativity in investment strategies. The goal remains clear: foster and support the development of great companies over time.
For additional insights from Green, you can listen to her full discussion in the latest episode of the StrictlyVC Download podcast.