US-listed tech companies face cash crunch after burning through billions from IPOs

Technology groups that have recently listed in the US burnt through more than $12bn of cash in 2022, with dozens of companies now facing difficult questions over how to raise more funds after their share prices tumbled.

High-growth, lossmaking groups dominated the market for initial public offerings in 2020 and 2021, with 150 tech groups raising at least $100mn each in the period, according to Dealogic data.

As the proceeds from the dealmaking frenzy start to run low, however, many face a choice between expensive capital raises, extreme cost cutting, or takeover by private equity groups and larger rivals.

“[Those companies] benefited from the very high valuations but unless you’re really bucking the trend your stock is way down now. That can leave you kind of stuck,” said Adam Fleisher, a capital markets partner at law firm Cleary Gottlieb. “They have to figure out what is the least bad option until things turn around.”

Last year’s market downturn led to widespread talk in tech circles of a newfound focus on profitability and cash generation, but a Financial Times analysis of recent filings highlights how many companies still have a long way to go.

Of the 91 recently listed tech groups that have reported results so far this year, just 17 reported a net profit. They spent a cumulative $12bn in cash last year — a total that would have been even worse were it not for the standout performance of Airbnb, which generated more than $2bn. On average, cash-burning companies spent 37 per cent of their IPO proceeds during the year.

About half of the 91 were lossmaking at an operating level — meaning they could not simply cut back on investments if they needed to conserve funds.

Meanwhile, their shares have declined an average of 35 per cent since listing, making further share sales appear expensive and dilutive for existing investors.

Fleisher predicted that “some will sell equity on the cheap if they’re very desperate . . . [but] there has not been robust follow-on activity” so far.

Falling valuations are partly due to rising interest rates, which reduce the relative value investors place on future earnings. However, the declines also reflect concerns about the near-term outlook, which could add to the challenges of reaching profitability.

Ted Mortonson, a tech strategist at Baird, said: “Going into 2023 [order] pipelines were good, but the problem is getting new orders to replenish that . . . it’s kind of a universal problem . . . [and] it’s going to get harder through the first half.”

Some companies are simply hoping they raised enough money while times were good to ride out the storm. Carmaker Rivian — which was not included in the analysis — spent a massive $6.4bn in 2022, but chief financial officer Claire McDonough this week said she was “confident” that it had enough cash left to last until the end of 2025.

Others are not so lucky. At least 38 of the cohort have already announced job cuts since their listing, according to, a tracking site, but more may be required: if last year’s burn rates were maintained into 2023, almost a third of the groups analysed by the FT would run out of cash by the end of the year.

The pressures have led to an uptick in takeovers that experts expect to accelerate.

“I believe you’re going to see a move out of the public markets — a lot of these companies would [traditionally] have baked for longer behind the veil of being a private company, and maybe they need more time in that space,” said Andrea Schulz, a partner at audit firm Grant Thornton who specialises in tech companies.

Baird’s Mortonson pointed to a recent deal spree by Thoma Bravo as a blueprint that other private equity firms would follow. Thoma Bravo last year agreed to buy cyber security company ForgeRock barely 12 months after its IPO, along with the slightly more established groups Ping Identity and SailPoint, which listed in 2019 and 2017, respectively.

“[Private equity firms] know a lot of these companies have to get scale, so they are acquiring the pieces to get those platforms,” Mortonson said. “[They] can buy in low . . . and one day in a few years’ time you will see combined entities go public again.”

This route can also come with complications, however. The ForgeRock deal is being probed by the US Department of Justice, and Schulz said antitrust pressure could put off some of the larger tech companies that would traditionally be tempted to scoop up businesses at a discount.

In other industries, the tough market has encouraged borrowing through convertible bonds, debt that can be converted to equity if a company’s stock hits a certain threshold. However, the terrible performance of a previous wave of convertibles issued by high-growth companies has made investors wary of tech groups.

Companies such as Peloton, Beyond Meat and Airbnb issued bonds in early 2021 that paid zero interest and would now require a massive share price rally to hit the point where they would convert to stock.

Michael Youngworth, convertibles strategist at Bank of America, said the market was currently dominated by larger companies in “old economy” sectors. “The right [tech] name with some less bubbly terms than those we saw back in 2021 would be able to get a deal done . . . [but] conversion premia will have to be a lot lower, and coupons would have to be much higher.”

Some companies are turning to more straightforward — but expensive — loans. Silicon Valley Bank chief executive Greg Becker told analysts earlier this year that the lender had seen a sharp increase in borrowing from technology companies that previously would have sold shares.

But for some companies, none of the options are likely to be appropriate. Schulz said the rush to list while valuations were high was causing a public reckoning that would traditionally have played out in private.

“What the public are now seeing is something that was [previously] digested in the VC space . . . [companies] are proving out on the public stage whether or not they have a viable product or market for their product, and there will be mixed outcomes. Some of them may cease to exist or get ‘acqui-hired’,” the practice of buying a company to recruit its staff.

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