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IPO frenzy could net billions for venture capital backers

Traders work on the floor of the New York Stock Exchange.
(Scott Eells / Bloomberg)

Billions of dollars could be on the way to Sand Hill Road, home base for Silicon Valley’s venture capital elite, after a string of initial public offerings.

Venture firms netted handsome returns on paper for their early investments. While the firms mostly won’t be able to sell their shares until lockup periods expire, proceeds from exits could provide the cash for them to fund the next generation of startups.

Snowflake Inc., which was trading at a $65-billion valuation Friday, has provided the biggest windfall so far for its early shareholders. Sutter Hill Ventures, which invested when the cloud-computing business was a nascent startup, owned more than 20% of the company’s Class B shares going into the IPO, according to a filing. Its 41.9 million shares are now worth more than $10 billion.

Sutter Hill’s windfall wasn’t happenstance. Managing Director Mike Speiser also served as Snowflake’s first chief executive officer.

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Venture firms Sequoia Capital, Altimeter Partners Fund, Redpoint Ventures and multifamily office Iconiq Strategic Partners, also own Snowflake stakes worth billions, filings showed.

Gaming technology company Unity Software Inc. raised $1.3 billion in an initial public offering and rose 31% in its trading debut Friday, giving it a market value of $18 billion.

Unity provided a big return for early investor Sequoia, which owns 57.5 million shares worth $3.9 billion. Private equity firm Silver Lake owns 43.3 million shares worth almost $3 billion.

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Firms also benefited from smaller technology IPOs by JFrog Ltd. and Sumo Logic Inc. Gemini Israel Ventures, Sapphire Ventures and Insight Partners were the largest JFrog shareholders. Greylock Partners, Sapphire Ventures and Accel had the largest Sumo Logic stakes.

Companies are going ahead with IPOs while the market is strong, particularly for technology stocks, venture capitalists said.

“It’s a little bit of all the stars aligning,” said Jai Das, managing director at Sapphire Ventures. “There are a lot of companies with significant revenue run rate that can go public.”

And Das added, “There is a demand.”

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Carl Eschenbach, a partner at Sequoia, said the market for IPOs is “very robust” now.

“There’s a lot of capital sitting on the sidelines,” he said. Enterprise technology companies find that being a public company enhances their credibility when selling to new customers, he said.

Venture capital firms stand to gain from returns from deals involving startups merging with special purpose acquisition companies, also known as SPACs or blank-check companies. This week, real estate-startup Opendoor agreed to go public by merging with a blank-check company led by Social Capital’s Chamath Palihapitiya. Opendoor’s backers include GGV Capital, Norwest Venture Partners and SoftBank Vision Fund.

Venture firm Founders Fund, co-founded by Peter Thiel, will also be a beneficiary of direct listings on deck this month. It backs both Palantir Technologies Inc. and workplace software company Asana Inc., which is backed by venture capital firm Benchmark.

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Palantir is planning to go public via a direct listing on Sept. 29 that will be unusual because it will impose a partial lockup period — though less strict than in a traditional IPO. Asana is set for a direct listing the following day that won’t include such restrictions.


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