Silicon Valley’s hottest start-ups are finding ways to stay private longer, dashing the hopes of investors waiting for snap public listings to cash in on their holdings.
A series of recent tech deals have made the biggest possible newly established companies with billions of dollars in new capital to continue growth and giving employees a way to cash out valuable stock options — solving the two main problems that have traditionally driven companies to go public.
Artificial intelligence and data analytics company Databricks raised $10 billion in December, the largest venture capital fundraising round of 2024. That followed SpaceX’s $1.25 billion in November, making it the world’s most valuable private startup, and OpenAI’s $6.6 billion stake dollars in October.
“We already operate as a public company,” Databricks chief Ali Ghodsi told the Financial Times of the recent fundraising — a round that was so oversubscribed that he said investors offered $19 billion. “Absolutely the earliest we would go public [this year]but now we have flexibility.”
The deals put the spotlight on a new class of start-ups, often far larger than their public-market counterparts, with unprecedented scale and sophistication for private markets.
While smaller groups — including numerous start-up companies supported by private capital — are expected to take advantage of the buoyant U.S. stock markets this year, the biggest tech startups, particularly those in artificial intelligence, are under little pressure to follow suit.
They “have so much access to capital to such an extent that there’s no incentive for them to go public,” said Kelly Rodriques, chief executive of Forge Global, a marketplace for private equity.
Private markets have grown in recent years. The seven largest private companies in the US today are worth $695 billion, according to Forge Global, with SpaceX and OpenAI alone valued at more than $500 billion.
The appearance of the staff of large entrepreneurial companies enabled and capitalized on this expansion. Ten years ago, it was rare for any VC to issue a check for $100 million just to start a single company. Today, some investors are ready to invest many times that amount.
Josh Kushner’s Thrive Capital has invested more than $1 billion in Databricks, Stripe and OpenAI over the past two years, part of a strategy that bears little resemblance to traditional venture capital.
The top 15 to 20 startups, including Databricks and Stripe, “effectively had their IPOs as private companies,” said Mitchell Green, managing partner of Lead Edge Capital and an investor in Alibaba and Uber.
Having found a way to scale up and provide ways to monetize their stock — a vital weapon in the battle for talent — private companies also avoid some of the grueling aspects of going public.
“If you have a bad quarter, you can be damaged by that, you can have activists,” said Luke Ward, an investment manager at Baillie Gifford that invested in SpaceX. “There’s an argument that some of those pioneering companies wouldn’t have been able to do what they did if they were in the public markets and had those short-term pressures.”
But scrutinizing the public markets can also be valuable, as private start-ups can have valuations that seem disconnected from the strength of their core business. WeWork’s $47 billion valuation, raised during a SoftBank-led funding round in 2019, plummeted after it launched its roadshow ahead of its planned IPO, for example.
“It seems like VC firms are in a parallel universe that has nothing to do with the real world,” said an investment manager at a US foundation that invests in multiple venture companies, who spoke on condition of anonymity. “They have their own valuations, their own liquidity, which they create themselves. It’s a game of adding packages.”
Far from the top of the startups, some companies have gone public or are about to do so—albeit often for esoteric reasons.
ServiceTitan, a software company, listed on Nasdaq in December. The company’s decision to go public was motivated by terms agreed with the venture’s backers during the November 2022 funding round.
As part of that deal, led by private equity group TPG, ServiceTitan agreed to a “compounding IPO Ratchet.” In effect, it set up a countdown to an IPO, after which the company would have to list at a higher price or pay out more of its proceeds to those investors.
Others will be pushed into the public markets because they need to give first-time employees a way to cash out stock options before they expire or vest, after which they are taxed as income.
Upcoming stock acquisition dates have been a factor in many of the biggest IPOs of the past 18 months, including Instacart, Klaviyo and Rubrik. That hasn’t stopped their success, with each company’s stock rising significantly since their stock market debut.
This could boost other high-growth start-ups waiting to enroll, such as Dataminr, Netskope, CoreWeave and Klarna, according to Rodriques.
For now, there is little need for top Silicon Valley start-ups to initiate the IPO process. “Databricks, Stripe, companies that can [access funding]won’t go public in 2025,” said Kyle Stanford, lead VC analyst at PitchBook. “The first companies to shut down will be those that are forced. It’s going to be a bunch of water testers before the $50 billion companies come in.”
