Investors in Amazon’s IPO made 250 times their money.
Investors in Microsoft’s IPO did even better:
They made 500 times their money.
That’s like turning a thousand dollars into half a million.
Unfortunately, earning returns like that from IPOs is a thing of the past.
But don’t despair, because big investment returns are still out there for you—
You just need to know where to look...
The Declining Tech IPO Market
To understand what’s happening in the IPO market today—and to learn why it’s not delivering market-crushing returns anymore—we turned to Jay Ritter, a finance professor at the University of Florida.
Professor Ritter studies trends in the stock market, and he just published a volume of statistics that examines IPO activity over the last several decades.
Here are a few of the most revealing highlights from his report:
Highlight #1: Declining Number of Tech IPOs
First of all, technology IPOs are happening less and less frequently.
At the height of the last technology boom, Jay notes that hundreds of tech companies were going public every year. More specifically:
In 1999, there were 371 tech IPOs.
And in 2000, there were 261 of them.
Now compare that to the anemic numbers of today:
In 2013, there were just 43 tech IPOs…
And in 2014—what many would consider a huge year for technology start-ups—there were just 53 of them.
Highlight #2: Declining Amount of Capital Raised from Tech IPOs
And as Jay reports, this is not a case of fewer companies raising more money:
In 2000, for example, proceeds from tech IPOs totaled $42 billion.
Compare that to 2014, when proceeds were less than $10 billion—that’s down more than 75%.
Highlight #3: Less “Pop”
And finally, what about the first-day “pop” of a successful IPO?
In 1999, the average first-day return from an IPO was 71.1%.
By 2014, it was just 15.5%—that’s nearly an 80% decrease.
What’s going on here?
The Mega Trend
What’s going on here is part of a major trend…
It’s a trend that Wayne and I have been writing about a lot recently.
You see, historically, institutional investors and hedge funds used to buy shares in promising high-growth companies like Microsoft at the IPO and after the IPO.
But now they’re changing course:
Now they’re investing billions into these companies before the IPO—they’re investing when these start-ups are still private.
Flush with all this cash, start-ups have no financial pressure to IPO—so they stay private longer.
For example, in 2014, the average tech company going public was 11-years-old…
Compare that to the 80s, 90s, and early 2000s, when the average tech company that went public was 7-years-old.
In those four extra years, young companies can become more mature, more stable—and far more valuable.
Critically, all that increase in value—what we used to experience as the first-day pop in an IPO—accrues not to stock market investors nowadays, but to private investors.
What This Means for You
For you, the financial repercussions of this trend are enormous.
You see, with the world's most promising companies gaining so much value while they’re still private, not as much value will be created once the company is public.
And the statistics on this point are stunning:
If you look back at private companies in the year 2000, you’ll find that just 10 start-ups had valuations above $1 billion.
Fast-forward to a month ago, and there were 108 of them.
And today, there are 117 of them.
If companies are already worth billions of dollars by the time they IPO, there are fewer gains available for stock market investors: the private investors have already squeezed out the profits.
Which is why you need to invest in these companies when they’re still private…
And now, because of new legislation called “The JOBS Act,” you can.
You see, The JOBS Act grants all investors, regardless of their income or net worth, access to these explosive private investments.
So don’t get caught on the wrong side of a major historical trend…
To capture the financial growth of the world’s most promising companies, it’s time that you start focusing on the private market.