Companies are waiting longer before they come to market for their initial public offerings (IPOs), especially for highly valued tech companies. Private companies are putting off the significant costs and regulatory requirements of going public.

Private companies now have access to substantial amounts of capital from venture capital funds. Venture capital funds are giving their companies more time to mature. This allows companies to stay private longer and to mature their business models. Further, some big-name IPOs have struggled recently after having taken off initially, which is dissuading other private companies from following suit.

Longer Times for IPOs

The IPO used to be the penultimate achievement for a private company. The days of the booming IPO market in the late 1990s and early 2000s led many to believe that this was the path to riches for private companies. Founders and employees at hot startups wanted to cash in on their stock options and equity.

Now, companies are waiting longer to have their IPOs. The average age for a company to go public has risen from four years in 1999 to 11 years in 2014. During that time, there has been a shift in the perception of IPOs by the market. The days of a frenzied IPO market are over, for the most part. Many tech companies in particular are delaying their IPOs until they grow their businesses.

Drawbacks of Going Public

There are many drawbacks for companies going public. Going public involves a tremendous amount of expense. In addition, public companies have increased reporting and regulatory requirements.

After going public, companies must be concerned with quarterly earnings and investor telephone conference calls. Private companies are not concerned with a sell-off in their stock if they miss earnings expectations. Private companies only have to answer to a limited number of private investors instead of numerous public investors. Also, there is no chance of an activist hedge fund taking an ownership interest in a private company and demanding massive changes meant to prop a stock up for the short term.

Ease of Obtaining Venture Capital

Many late-stage private companies are finding it easier to raise capital, clearly visible from the amount of tech unicorns in the market. For example, tech startup darling Uber raised around $137 million from Microsoft alone, giving it a valuation of $51 billion. Snapchat, another tech unicorn, raised around $200 million from Alibaba, giving it a valuation of $15 billion. There is limited advantage for a private company with this type of valuation to go public until it is absolutely ready.

Poor Performance of IPOs

Another reason companies are waiting to go public is the poor performance of some big-name IPOs from 2013 to 2014. Twitter went public in November 2013 at an IPO price of around $26. The stock ran up to around $45 in the first day of trading. It got to over $74 in the months after its IPO. The stock price has fluctuated substantially since then and is trading around $31 as of October 2015, after reaching a low of $21 in late August. The stock has not performed well since its IPO.

Alibaba is another example of a poor-performing IPO. The company set its IPO price at $68 per share. The stock ran up to over $98 on its first day of trading, briefly going up to $120 a share in November 2014. The stock has fallen flat since then, reaching a low near $57 in late September 2015. The Chinese retailer is facing pressure from a volatile Chinese stock market and slowing economy.

Private companies are realizing that IPOs are not guarantees of success. The investing public is valuing these companies on a different basis than they are valued as private companies. This is forcing private companies to put off their IPOs until their businesses mature. Companies also want to avoid market volatility when having an IPO.