Pre and Post: IPO Returns Analysis

May 9, 2022

It Pays to be Early; Buying IPOs on the Open has Produced Lower Returns


With companies staying private longer, late-stage deals have surged and have been larger in size, in step with the rising demand. The private markets in essence are benefitting from a flywheel impact: more private capital available means companies can stay private longer, which then means more private capital can be deployed which leads to more private capital raised by funds. This sector report provides a detailed analysis of pre-IPO and IPO returns at lockup expiration, the average age of private companies from Series A to IPO, the increasing tilt toward later-stage investing, and the degree of outperformance of later-stage investments over early-stage investments.

Key Points

  • The analysis and conclusions in this research report are based on a sample size of 147 US-based companies that completed their IPOs between 2010 and 2021.
  • At the 6-month post-IPO mark, pre-IPO investment returns beat post-IPO returns by a wide margin. Buying IPOs on the open market has produced lower returns.
  • Later-stage pre-IPO investments outperformed early stage pre-IPO investments.
  • Abundant liquidity and flywheel impact are buoying private markets. The mean age of companies increased to 12 years.
  • The analysis does have an inherent “survivor” bias because it looks only at companies that had IPOs. Of course, not every venture-backed company has an IPO. Because failed or private companies are excluded, and the early-stage investments have a higher failure rate, the benefits of late-stage investing over early-stage investing are likely understated. To help quantify this impact, in the survivor bias analysis on Page 7 we look at the ability to achieve any sort of exit, based on investment stage of first investment.
Figure 1: Annualized Returns on Pre-IPO and IPO Investments
Source: FactSet, PitchBook, CB Insights, Manhattan Venture Research (MVR)

Executive Summary

This report provides a detailed analysis of annualized returns on pre-IPO and IPO investments over the last 10 years. The three significant takeaways from the study are the following: (1) Investing in the pre-IPO rounds of technology companies as opposed to investing at the IPO generates superior returns; (2) Within the pre-IPO rounds, returns on later-stage investments outperformed returns on earlier stage investments over the last decade; (3) Buying IPOs on the open market has produced lower returns.


The dataset includes all technology media and telecommunication (TMT) IPOs over a 10-year period - from 2011 to December 2021. We included only companies with US IPOs listed in FactSet and CB Insights during this period and excluded IPOs on non-US exchanges. The study sample does not include companies that went public through SPAC mergers. The sample size is 147 companies, comprising B2B and B2C companies, across multiple verticals including: packaged software, information technology services, internet software/services, digital commerce platforms, fintech, insurtech, digital health, EV, and providers of on-demand and peer-to-peer platforms. We excluded all IPOs in the life sciences and biotechnology space. For methodology, we compiled a list of IPOs along with the year the companies were founded, the IPO dates, the offer price, opening trade, and closing share prices as of the first day and 6-months after the IPO. The primary sources of data were Pitchbook, CB Insights, and FactSet.

The funding rounds data is from Series A to Series G and does not include seed, angel rounds, and debt rounds. Very few companies in the sample went beyond Series H so understandably the sample size is very small for the Series H round. Additionally, to maintain a consistent apples-to-apples comparison of rounds, we excluded rounds that were not assigned to any particular round. Therefore, standalone rounds with generic nomenclature such as early or late stage VC and corporate minority were excluded. Additionally, we excluded companies for which funding dates and issue prices were not available.

As a result, out of the broader 199 technology IPOs that we tracked, 52 companies were excluded due to insufficient data. The remaining 147 companies, with all the required data to compute the annualized investment returns, formed the core of our sample.

Specifically, the sample includes Series A data for all 147 companies, Series B data for 145 companies, Series C data for 133 companies, Series D data for 119 companies, Series E data for 95 companies, Series F data for 74 companies, Series G data for 40, and Series H data for 15 companies.

Figure 2: Sample Size in Each Round

For company age, we calculated the time from the year the company was founded to its IPO date. Similarly, we calculated the age of each round (Series A to H) by taking the difference between the IPO date and the date of the respective funding round.

We computed the annualized investment returns for each round until the IPO. Additionally, and more importantly, we calculated the mean annualized return at the 6-month post IPO mark, which is typically when the lock-ups expire, and pre-IPO investors are allowed the sell their holdings.

Legal Disclaimer: This report does not cover specific companies, so it does not fit within the Information Access Level Classification System(IALCS). For more details on IALCS and information on full disclaimer/disclosure, kindly refer to the disclaimer section at the end of this report.

Late-Stage Pre-IPO Investments Capture Highest Alpha

Private companies are staying private longer. Based on our study of 147 private companies that completed their IPO between the years 2011 and 2021, the mean age of companies increased to 12 years in 2021. For perspective, the average age at IPO of companies going public between 1997 and 2001 was roughly 5 ½ years, and over 9 years for companies between 2006 and 2011. Similarly, the mean duration of each funding round from inception to IPO rose materially, skewed higher by the relatively higher ages of companies that completed their IPO in 2020 and 2021.

Figure 3 below illustrates the mean time to IPO for each financing round from inception to IPO for the period 2011- 2019, compared to the mean times for 2020 and 2021 IPOs. Accordingly, the mean time to IPO from Series A round to IPO was 8.6 years for the 2011-2019 cohort and 9.7 years for the companies that completed their IPO in 2020 and 2021. Similarly, Series B time to IPO went from 7.2 to 8.6 years, Series C time to IPO went from 5.8 to 6.3 years, Series D time to IPO went from 4.6 to 5.4 years, and so on, until Series H that went up from 0.8 years to 2.1 years.

Figure 3: Mean Time to IPO of Funding Rounds Increased in 2021
Source: Factset, PitchBook, CB Insights, MVR
"As companies stay private longer, more investors are looking to get in at the pre-IPO stage, as that’s when most of the wealth creation happens."
–Ben Meng, Fund manager at Franklin Templeton

Abundant Liquidity and Flywheel Impact Buoying Private Market

Investments in private companies have surged since 2009, far outpacing the capital raised in the public markets, according to Morgan Stanley. Global alternative AUM is expected to rise rapidly to over $23 trillion by 2025 from$12.5 trillion in 2020, according to Preqin, a UK-based alternative data analytics company. It is expected to grow ata CAGR of 13.7% until 2025 driven by LPs increasingly seeking diversification, a reliable income stream, and risk adjusted returns.

Within alternative investment, private equity share is expected to grow to 70% by 2025. More importantly, the surging capital under management under alternative strategies depicts a strong trend toward private markets. The high capital inflow towards venture capital and the broader private market is evident from the rising level of dry powder available for investing. According to estimates, the dry powder was roughly $31 billion in 2020 after growing at a 60% CAGR between 2014 and 2020. Furthermore, record IPO exits in 2020 and 2021, added roughly $682 billion to the available liquidity pool in the VC ecosystem.

Figure 4: Surging Dry Powder Levels with VCs ($Mil)

Accordingly, while the number of public companies in the US declined to 5,860 in 2021 from 8,090 in 1996, the number of late-stage companies and unicorns has gradually surged. In 2021, the number of unicorns rose by 87% year/year to959 from 513 in 2020.

With companies staying private longer, late-stage deals have surged and have been increasingly larger in size, in step with the rising demand. The private markets in essence are benefitting from a flywheel impact. More private capital available means companies can stay private longer, which then means more private capital can be deployed which leads to more private capital raised by funds. Stripe for instance has no near-term plans for IPO despite a nearly $100billion valuation and roughly 12 years since its founding.

According to Pitchbook, while VC-backed companies in the US attracted $330 billion in investment in 2021, as illustrated in the chart below, nearly 70% or $228 billion of the total funding went to mature late-stage startups.

"There’s so much money available from private sources that there’s not a lot of downside to staying private other than employees who eventually want to have liquidity."
–Sarah Solum, Head of US capital markets at the law firm Freshfields

While companies’ time to market has increased, the evolving secondary markets have helped increase liquidity, enabling early backers and employees to encash their returns. Transaction volumes in the secondary markets crossed $100 billion in 2021 and are expected to reach $250 billion by 2025, per data from Common fund, an independent asset management company.

"The companies that would have gone public five years ago in smaller deals are now going public in bigger deals, and we’ve gotten through that period of waiting. We said, ‘No, it will be worth the wait’. And here we are, and it’s worth the Wait."
–Nick Giovanni, Head Global Technology, Media and Telecom investment banking, Goldman Sachs

Later Stage Pre-IPO Investments Capture Maximum Alpha

Pre-IPO investment returns outpaced post-IPO returns over the last 10 years. Furthermore, investment returns of the later stage (Series E to Series H) rounds beat returns on early rounds (Series A to D). Comparing a clusterof mean Series A to D returns with returns of Series E to H cluster, across all exit timeframes, shows a prominent out performance of later stage pre-IPO investments.

Figure 6: Mean Returns of E-H Rounds Beat Mean Series A-D Returns

Looking at returns at the 6-month post-IPO mark, early and later-stage investors realized outsized returns relative to investors who managed to get allocation at the IPO offer price (39.8%) or bought shares at the opening price (1.6%) or purchased at the first day close price (-1.4%).

Figure 7: Mean Annualized Returns 6 Months After IPO
Cross-over Investors and Shorter Time to Exit Power Late-Stage Rounds

The average VC returns have been strong across all funding stages, which has been a powerful pull for a wide investor cohort. Participation of nontraditional investors such as private equity and mutual funds surged to $254 billion in2021 from $127 billion in 2020. Contribution from the nontraditional investor cohort has grown at a 34% CAGR since2016.

Figure 8: Increasing Participation of Non-Traditional Investors

The relatively shorter time to exit and good visibility into the prospects of the company are strong attractions for later-stage investors. While 54% of the companies that raised Series A round in our study took 8 or more years toIPO, a mere 2 companies or 1.4% of the 147 companies exited in less than three years. Similarly, only 11% of Series C companies and 24% of Series D companies exited in less than 3 years. Conversely, as Figure 9 illustrates, the percentage of companies exiting in less than 3 years expanded considerably from Series E to Series H.

Figure 9: Progressively Smaller Universe of Companies Nearing Exit

Survival Bias Analysis

Our IPO analysis does have an inherent “survivor” bias because it looks only at companies that had IPOs. Of course, not every venture-backed company has an IPO. So, we also looked at the ability to achieve any sort of exit, based on the investment stage of the first investment. We aggregated IPO and M&A, and some of the M&A exits may have first had an IPO. Additionally, in our returns-to-exit study, we did not incorporate data on companies that went from private to acquired, because that data is not available.

We looked at two time frames before IPO: 11 years and 5 years. For the 11-year study, we monitored the owner ship status of 26,764 TMT companies, across verticals, that raised private funding across rounds A to K between 2010and 2021. Similarly, for the 5-year study, from 2016 to 2021, we monitored the ownership status of 15,160 TMT companies across the same verticals.


Over the 11 year period (2010-2021), of all companies that received Series A or B financings, only 27% had achieve dan exit through either an IPO (2.7%) or M&A (24.5%), 8% had gone out of business, and nearly 65% were still private.Similarly, looking at only the companies that received later-stage financing (Series C or greater), 41% had achieved an exit – nearly 12% through IPO and roughly 29% through M&A –,little over 4% had gone out of business, and roughly54% were still private.

Figure 10: Survival Rate for Clusters A – B vs. C – K over 11 Years (2010-2021)

Looking at only the last 5 years (2016 -2021), roughly 14% of the companies that received an A or B financing during that period achieved an exit, but 26% of the companies that received a C or greater round of funding achieved an exit.

So, the key takeaway is that not only are the returns superior upon an IPO to investors in later-stage financing rounds, but the likelihood of achieving any sort of exit is also much higher: 52% higher over an 11-year period, and 81% higher over a 5-year period.

Figure 11: Survival Rate for Clusters A – B vs. C – K over 5 Years (2016-2021)

Comparative Analysis – Mean and Median Returns and Age

Figure 12: Mean Annualized Returns of Pre-IPO and IPO Investments


Our Research Methodology

Manhattan Venture Research provides clients with accurate, timely, and innovative research into the companies and sectors we cover. To that end, we have established an experienced team of analysts, researchers, economists, and industry veterans that focus exclusively on private companies with a proven track record of success. Producing quality research on a private company is uniquely challenging. Our analysts communicate with ex-employees, early investors, VCs, competitors, suppliers, and others to gather valuable information about the company under coverage.This information enables us to create unique financial models that value the underlying company and provide insight to our clients and industry experts, leveraging years of experience working for bulge bracket firms.Manhattan Venture Research reports include business and financial aspects of late-stage companies. These reports include but are not limited to industry overviews, competitor analysis, SWOT analysis, products (existing and in development), management and key directors, risks and concerns, other proprietary channels, historical financials, revenue projections, valuations (using various matrices and valuation recommendation), waterfall analysis, and a capitalization table.

Information Access Level Classification System (IALCS)

Manhattan Venture Research uses an Information Access Level Classification System (IALCS) to make clear the degree of access offered by the company(s) covered in all research reports.
Each research report is classified into one of three categories depending on its classification. The categories are:

I++: The company covered by the research report provided substantial disclosures to Manhattan Venture Partners.

I+: The report was prepared following partial disclosure by the company, including publicly available financial statements, and/or is based on conversations with past or present company employees.

I: All reports are prepared using a mosaic research approach. Not all companies are willing and able to provide substantive access to management and information. In I reports no direct access was granted.

About the Analyst | Santosh Rao

Santosh Rao has over 25 years of experience in equity research with a primary focus on the technology and telecom sectors. He started his equity research career at Prudential Securities and later moved to Dresdner Kleinwort Wasserstein, Broadpoint Capital, and Evercore Partners, where he worked with the Telecom and Data Services Group.Prior to joining Manhattan Venture Partners, he was the Managing Director and Head of Research at Green crest Capital, focusing on private market TMT research. Mr. Rao started his career as a Financial Analyst in the OperationsGroups at PaineWebber (UBS) and Prudential Securities. Santosh has an undergraduate degree in Accounting andEconomics, and an MBA in Finance from Rutgers Graduate Business School.


I, Santosh Rao, certify that the views expressed in this report accurately reflect my personal views about the subject, securities, instruments, or issuers, and that no part of my compensation was, is, or will be directly or indirectly related to the specific views or recommendations contained herein.

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