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Kim Goodyear, a new driver for Lyft is photographed in Toronto on Tuesday, Dec. 12, 2017.

Christopher Katsarov

Even as technology stocks suffered a huge sell-off last week, the backers of several big-name private tech companies were pushing forward with plans to do initial public offerings at lofty valuations in 2019.

Those moves are a sign companies are betting investors will see past the market volatility in search of growth – or that the negative sentiment around big tech will change soon.

Uber Technologies Inc., Lyft Inc. and data-mining firm Palantir Technologies Inc. are all exploring multibillion-dollar public offerings. Uber has been valued as high as US$120-billion by some banks, according to the Wall Street Journal, and could potentially be one of the largest IPOs ever. Lyft, which has already chosen which investment banks will lead the IPO, is targeting US$25-billion, while Palantir is valued at US$41-billion, reports say. Workplace communications firm Slack Technologies Inc., run by Canadian entrepreneur Stewart Butterfield, and delivery service Postmates Inc. are also considering public offerings next year.

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Can the market absorb so many large tech offerings in one year?

“If this market sell-off continues, it could hurt the IPO market all the way through 2019,” says Kathleen Smith, principal of Renaissance Capital LLC, a Connecticut-based firm that provides pre-IPO research and manages IPO exchange-traded funds. “It’s a little early, but we’re living through the drying- up of interest in IPOs.”

One sign of that is the Renaissance IPO Index, a portfolio of new U.S.-listed companies. In 2017, the index returned roughly 33 per cent and outperformed the Standard and Poor’s 500. This year started strong, but Renaissance’s index is down more than 5 per cent year-to-date. “Investors run to safety, and IPOs aren’t the safe spot to be,” Ms. Smith says.

The current crop of private big tech companies might be under pressure to go public, however. Ride-hailing services Uber and Lyft have roots stretching back around a decade. Palantir, the secretive data-mining company backed by Peter Thiel, was founded nearly 15 years ago. When high-growth companies stay private for that long, early investors often start agitating to cash out at least some of their holdings. The same goes for employees, who could be sitting on lucrative stock options.

U.S. market conditions have been favourable for IPOs, but a new sense of urgency may have started creeping in.

“We’ve got this backlog of very strong, very large private companies that have been talking about going public,” says Rick Nathan, managing partner at Toronto-based Kensington Capital Partners Ltd. At the same time, concerns around the end of the bull market and rising interest rates are mounting. “These companies are likely taking a look and going, this window is open now and might not be 12 or 24 months from now,” Mr. Nathan says.

Public markets have indeed turned jittery. The tech-heavy Nasdaq Composite Index has fallen more than 8 per cent since the beginning of September, while the S&P dropped more than 4 per cent over the same period. Even good news has had little lasting effect. Shares in Netflix Inc. surged last Wednesday after the streaming company beat quarterly earnings expectations, but the stock is still down more than 9 per cent since early September.

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Not everyone is expecting the lull to last long, however. The climate for tech stocks is "still going to be good for quite some time,” says Ray Wang, founder of Constellation Research Inc., an advisory firm in California. “The alternatives aren’t there in the marketplace.”

Most of the so-called FAANG stocks, which include Facebook Inc., Apple Inc., Amazon.com Inc., Netflix and Alphabet Inc., the parent of Google, were strong performers for much of the year, returning between 17 per cent and 91 per cent through to the end of August. (The exception is Facebook, which still hasn’t recovered from an earnings miss in July.) Generally, other markets were less enticing. The S&P/TSX Composite Index in Canada and the Stoxx 600 Europe were essentially flat over the same time period, while the Shanghai Stock Exchange Composite Index fell 17 per cent.

These are no ordinary tech companies, either. Uber is the leader in ride-hailing and, even though it’s not profitable, the company is diversifying its business into areas such as food delivery and freight services, Mr. Wang says.

A crop of large tech IPOs could have impacts in other markets. “If people see 10 new tech companies going out in the billions of dollars, it makes them more interested in doing venture investing,” Kensington’s Mr. Nathan says. In Canada, tech companies have raised sizable investment rounds from venture firms (including five in excess of $50-million in the first half of the year), and the trend has been to remain private for longer. Partly out of a concern that domestic public markets aren’t as receptive to tech firms, the play for some Canadian companies is to grow large enough to eventually list in the U.S. or arrange a dual listing, as Ottawa-based Shopify Inc. did in 2015.

“My hope would be that a strong U.S. market for tech IPOs does help the Canadian market,” Mr. Nathan says.

Ms. Smith, however, still has doubts. The bull run may be running out of steam, and tensions between the U.S. and China remain. High-profile tech IPOs have a history of disappointing, too. Facebook’s debut in 2012 was marred by glitches and the stock plummeted nearly 40 per cent in the following months before recovering. Snap Inc., which went public last year, has been trading well below its IPO price.

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There are a large number of companies looking to go public outside of the tech sector, too. Ms. Smith’s firm maintains a list of 800 companies with plans to go public that are collectively hoping to raise US$500-billion. The average issuance each year is roughly $145-billion. “It would take almost four years to work that off,” Ms. Smith says. “It will be a fight for capital.”

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