Investment

ANALYSIS: SV 150 Newcomers’ Paths Paved With Investments, M&A

Seventeen companies debuted on this year’s Fenwick–Bloomberg Law SV 150 List, likely propelled by generous investment funding that contributed to their ability to grow and go public.

The 2022 SV 150 List ranks the 150 largest publicly traded technology and life sciences firms in Silicon Valley by 2021 revenue.

This year’s list broke records previously set in 2020 in terms of investment activity and the number of M&A deals among the SV 150, and the 17 newcomers’ paths to the list show that their participation in investment and M&A activity played a key role in getting them there.

The number of newcomers to this year’s list aligns with the 2021 and 2020 SV 150 Lists, which had 18 and 17 new companies, respectively. But there are signs that the investment and M&A landscape is changing, and funding may not be as readily available or plentiful for the remainder of 2022, reducing the chances that 2023’s SV 150 List will boast comparable numbers of new members.

The Newcomers by Industry

The 17 new companies represent the software, internet, biotechnology, diversified financial services, and commercial services industry groups, with the number of software companies leading the way.

More than a third (41%) of the total newcomers, and three of the four companies to break into the top 50% of the SV 150, were software companies. This influx from the software industry also aligns with the types of businesses SV 150 firms have been investing in and acquiring.

New to the List and Newly Public

Among the 17 companies new to this year’s list, 12 went public in 2021. (Note: Informatica Inc. is included in this tally, though this company initially went public in 1999, was taken private in 2015, and then had an initial public offering again in 2021.)

Bloomberg deal data reveal that the 12 companies that made the 2022 SV 150 List after going public in 2021 had higher average numbers of overall investment and M&A activity than the five companies that went public in prior years but made the SV 150 for the first time on the 2022 list.

(To compile this information, we looked at all pending and completed investment transactions and mergers and acquisitions to which the companies were a party since the companies’ formation. We also noted the earliest date of an investment or M&A transaction each entity was a party to—either as the target or seller or the acquirer—in order to measure the number of years of deal activity leading up to each company’s entry onto the SV 150, as further discussed below.)

The 2021 IPO companies averaged 9.4 transactions (investment activity and M&A deals combined) each, while the companies that went public prior to 2021 averaged 4.8 transactions. And 50% of the 2021 IPO companies had double-digit investment and M&A activity. None of the newcomers that went public prior to 2021 had more than seven instances of investment and M&A activity in their transaction histories.

The difference in investment and M&A activity between the 2021 IPO companies and the companies that went public prior to 2021 is striking, considering that the two groups of new SV 150 companies had similar total spans of deal activity, defined for the purposes of this analysis as the spans between the present year and the year of their first transaction on record. The 2021 IPO companies averaged 9.0 years of investment and M&A activity, while the five remaining companies averaged 8.2 years of investment and M&A activity.

The Importance of Investments

Despite the different levels of deal activity between the 2021 IPO companies and the companies that went public prior to 2021, the data revealed two consistent themes for all 17 newcomers: (1) the majority of the deal activity constituted investment transactions, and (2) the vast majority of investment transactions involved the newcomers as the targets on the receiving end of venture capital investments.

Of the newcomers’ 137 transactions (investment activity and M&A deals combined), 90 were investments, representing 66% of the newcomers’ total deal activity. Of those 90 investment transactions, a whopping 84% (76 transactions) were instances where the newcomers were the recipients of investment funding. Of those 76 transactions involving investment funding, 89% (68 transactions) involved venture capital.

These data illustrate how investment funding plays a key role in Silicon Valley firms’ ability to grow, go public, and to make the SV 150 list for the first time.

And this year’s funding was impressive. Of the 15 new companies to the 2022 SV 150 List that received investment funding, each company received an average of $723.8 million since their formation. The average amount received by the new companies that went public in 2021 and received investment funding (11 companies) is even higher: $888.4 million. The average amount received by each of the companies that went public prior to 2021 and received investment funding (four companies) was $271.2 million.

Fewer Investments in 2022?

The data for the 17 companies new to this year’s list suggest that tech and life sciences companies seeking to grow and become publicly traded may require more investment funding. What happens, though, if there is less venture capital funding or fewer investors willing to provide capital to startups or other private companies?

Tech and life sciences companies, startups, and other private companies are now battling against an ongoing pandemic, drops in the stock market, fears of recession, increased inflation, the Russian invasion of Ukraine, and decreases in valuations in their pushes to grow. As it stands, this quarter is set to see the fewest tech company IPOs since 2016, and tech startups have started to face layoffs, decreased availability of funding, and, consequently, the need to scale back projects or M&A opportunities. In short, the current climate has discouraged investors from funding new ventures.

If these patterns continue, the potential lack of investment funding for the remainder of 2022 and into the coming year could result in fewer IPOs and, in turn, lower the likelihood that new companies will make it onto next year’s SV 150 List.

Bloomberg Law subscribers can find related content on our M&A Deal Analytics resource.

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