The latest bubble chatter in the tech industry came from Fitbit, the maker of high-tech pedometers. Fitbit went public last month at a $4.1 billion valuation, and the stock price has more than doubled. Is a company that made $132 million in profit last year worth almost $9 billion? Major Silicon Valley players don’t think so. Sam Altman, who runs the startup accelerator Y Combinator, called the market last month a “mega bubble” that “won’t last forever.”
But since fewer startups seem willing to submit themselves to the disclosure and discipline of the public markets, how would we know? The Wall Street Journal’s Billion Dollar Startup Club shows 100 private companies valued at more than $1 billion. Yet this year there have been only eight venture-capital-backed initial public offerings compared with 115 in all of 2014.
Aside from Tesla and a few others, most of the hot companies with eyebrow-raising values are staying private. Uber is rumored to be raising $2 billion in funding for a valuation of $50 billion. Blue Apron, which ships three million meal kits a month to hungry millennials, has taken in $135 million at a $2 billion valuation. Food-delivery companies Instacart and Delivery Hero are worth a few billion each.
Yet none is going public. The delay can perhaps be blamed in part on Sarbanes-Oxley, a 2002 law that beefed up oversight and made it more expensive to be a public company. There’s also the 2012 JOBS Act, which increased the threshold for public reporting to 2,000 shareholders from 500. Whatever the causes, there is no longer a rush to go public if companies can raise sufficient private capital. “Now, after the IPO, it’s much worse,” Alibaba co-founder Jack Ma put it in June. “If I had another life, I would keep my company private.”
As a shareholder and a lifelong bubble watcher, I’m disturbed. Public markets enforce discipline on companies and push them to improve. Look at Facebook. In the first full quarter after its 2012 IPO, the company disappointed Wall Street with only 14% of revenue from mobile—phones, iPads and other portable devices. Now mobile accounts for 98% of Facebook’s ad growth and almost 70% of its revenue. Markets rule.