Market size determines the IPO

IPO’s are not only an exit, they’re usually also a company’s largest capital raise.  Below we look at the size of 106 tech IPO’s.  The overall takeaway: i) the larger the size of your market, the more money you’re going to raise, especially at IPO; and ii) the year of a tech company’s IPO has no correlation with the size of the IPO.  Industry and market determine size, not vintage.




Social Media is the only space with $1bln+ IPO’s.  Social media is the marquee example of size of market determining IPO size as these companies require a lot of capital to continue to scale.  The median IPO raised $2.1bln.  The social media companies all did $1bln+ IPO’s while only Google and Alibaba have done so in any other sector.  Zynga raised $1bln in 2011, but that was based on their success of a game within Facebook.


Marketplaces.  Marketplaces have clusters, with four companies raising $60mm to $100mm, six companies raising $200mm to $866mm, and everyone else falling in between.  The most recent IPO, Eventbrite, was a $230mm offering.


E-commerce.  E-Commerce is skewed heavily by the massive Alibaba IPO ($25bln), which is particularly notable as the other giant, Amazon, IPO’d for a measly $54mm 20 years prior.  Again, the size of the market in e-commerce has increased appreciably since Amazon’s IPO in 1997, hence it’s not surprising to see the much larger raise by Alibaba.


Consumer Subscription.  There are only 4 companies in this data set so we don’t want to make generalizations, we do want to highlight Spotify.  They didn’t raise any capital in their IPO because they were profitable, and simply structured their IPO as a secondary offering.  The offering was a success and more tech companies are expected to do this going forward.


Hardware.  Hardware is much more closely clustered with a median of $214mm raised and an average of $269mm.  The low is $88m by TiVo in 1999 and the high is $732mm by Fitbit in 2015.  The size of the market has grown materially, hence the raises for more modern companies have become much larger. Note Apple in 1980 raised only $101mm.


SaaS.  Software companies seem to have the smallest market.  SaaS is very tightly clustered across the largest sample size, with an average raise of $157mm and median of $118mm. The top four raised over $400mm, but the average of the remaining 53 companies is only $122mm.


If we eliminate the names and just look at year and size, what’s the correlation between the year of an IPO and the size of the IPO? 0.05 which is practically zero.  Even if we remove the SaaS companies, the correlation is still only 0.11.  In other words the vintage of an tech company IPO has nothing to do with the size.


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