• Airbnb and DoorDash, which went public on consecutive days this week, were the sixth and seventh biggest IPOs ever for U.S. tech companies.
• Snowflake's IPO in September was the fifth-biggest and largest ever for a software company.
• It follows a trend from 2019, when Uber and Lyft went public, each raising billions of dollars.

After investors spent a decade pouring money into Silicon Valley start-ups so they could keep growing while staying private, the pendulum has completely swung around, and tech IPOs are bigger than ever.

Three of the 10 biggest tech IPOs for U.S. companies, in terms of capital raised, have taken place this year. Two happened on consecutive days in the last week, when DoorDash and Airbnb started trading on Dec. 9 and 10. The other was software vendor Snowflake, which had its New York Stock Exchange debut in September.

They each raised over $3 billion and have market caps between $55 billion and $100 billion, putting them among the 30 most valuable U.S. tech companies. Before going public they commanded valuations in the double-digit billions, attracting large checks along the way from private equity firms, fund managers, strategic investors and sovereign wealth funds.

The high-valued tech companies are taking advantage of a bull market that's continued despite nine months of the coronavirus pandemic and a disastrous year for the broader economy. A healthy roster of emerging software companies, including cloud software names like UiPath and Databricks, could still fill up the pipeline in 2021.

"With the ample supply of VC money and other sources of private capital from sovereign wealth funds and mutual funds buying pre-IPOs it's pushed up the private market valuations," said Jay Ritter, a professor of finance at University of Florida and an expert on IPOs. That's "allowed companies like Snowflake, DoorDash and Airbnb to raise private capital on attractive terms, and they've been in no rush to go public as a result."

While the biggest offerings of 2020 may be in the rearview mirror, there's still at least one potential billion dollar-plus deal expected before year end from e-retailer Wish though game company Roblox reportedly pushed its IPO to 2021.

Extending the timeframe back another year, before the pandemic, two more companies — Uber and Lyft — join the ranks of the top 10 U.S. tech IPOs. Uber raised more than $8 billion in May 2019, making it the second-biggest ever, behind only Facebook, which pulled in more than $16 billion in 2012.

Lyft raised $2.6 billion in March 2019, and is eighth on the list.

Costly business model

Four of the five mega offerings between 2019 and 2020 — Uber, Lyft, DoorDash and Airbnb — are leaders in the sharing economy, meaning their models are based on peer-to-peer marketplaces. They connect businesses with consumers through technology and logistics and take a cut of every transaction.

All four companies relied on vast amounts of outside capital to grow their networks, promote their services, rapidly expand into new markets, hire aggressively and offer incentives to both sides of the marketplace. With all that cash burning, only Airbnb recorded a net profit in the latest quarter, and that was after cutting sales and marketing costs and slashing its employee base by 25% because of the pandemic.

Snowflake is different: It sells cloud software and relies on a more traditional enterprise salesforce. Snowflake raised $3.9 billion in September, the largest software IPO ever. The offering valued Snowflake at $33 billion, a number that more than doubled when the company started trading.

It was the type of first-day pop that irks IPO skeptics, who complain that tech companies leave too much money on the table, offering a free handout to new institutional investors. DoorDash and Airbnb certainly didn't help matters, jumping 85% and 112%, respectively, out of the gate.

In other words, even though they raised more money in their IPOs than just about any other tech company before them, their performance suggests they could've raised a whole lot more cash with no additional dilution.

"Other than the dot-com era (1999-2000), I've never seen anything like this across so many companies," wrote David Golden, a partner at Revolution Ventures in San Francisco who previously ran tech investment banking at JPMorgan, in an email. "And the valuations are seemingly untethered from any analytic metrics that I've understood."  

Prior offerings in the top 10 milked every penny they could out of their IPOs. Facebook was basically flat in its debut before trading lower in the ensuing weeks. Lyft rose a bit on its first day and then dropped, while Uber sank immediately.

The DoorDash and Airbnb pops were particularly notable because the companies used a hybrid auction model for their IPOs. Executives were able to solicit bids from investors and look at the entire order book before determining a price, giving them a better ability to sell shares based on actual demand, without providing the typical discount.

Both companies raised their initial range and then priced well above the top end. Still, the stocks took off at the open. Ritter says that were it not for the pseudo auction approach, it could have been worse.

"Without the requirement that investors submit a price as well as a quantity in their orders that allowed them to see the demand curve, my bet is the underwriters would've recommended an even lower price," Ritter said. "Clearly they left a lot more on the table than they needed to."

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