COVID Changing How Venture Capitalists Invest in IPOs

It takes a high degree of due diligence for investor capitalists to rifle through the mass number of investment opportunities to find that next big initial public offering (IPO). Just like how Microsoft was started in a garage, a lot these new generation IPOs will probably start in someone’s bedroom given the way Covid-19 has changed the world.

According to a CNBC MakeIt article: “Another change toward a work-from-home world courtesy of Covid-19: Bill Gurley, who has invested in the likes of Uber and Zillow, says he’s now investing in start-ups that do not have a traditional office.”

“We are now backing start-ups without offices, which isn’t something we had done before,” Gurley, who was a long-time investor with Silicon Valley venture capital Benchmark, said in the article.

Furthermore, the article pointed out that “in a June survey by venture capital firm NFX, ‘60% of VCs said they were less likely to invest in start-ups that had the majority or all of its employees working remotely,’ the San Francisco Business Times reported.”

“Remote companies are seen as more fragile, because employees can easily leave for the next remote job, NFX managing partner James Currier told the publication,” the article added. “And according to Trulia co-founder and NFX managing partner Pete Flint, being nimble and creative, as start-ups need to, is more easily accomplished when people are together in the same physical space.”

However, that is changing for certain companies willing to look past the industry norm and consider the changing times.

“We do early stage investing. We back companies with five to 10 employees, and they are founding those without an office,” Gurley said.

IPO Chart

Getting IPO Exposure via ETFs

ETF investors looking to get broad IPO exposure without the single risk of an individual company can look to the Renaissance IPO ETF (NYSEArca: IPO). IPO seeks to replicate the price and yield performance of the Renaissance IPO Index, which is a portfolio of companies that have recently completed an initial public offering (“IPO”) and are listed on a U.S. exchange.

For investors seeking IPO opportunities on a global scale, there’s the Renaissance International IPO ETF (NYSEArca: IPOS)  adds an international spin to the IPO market. IPOS tracks the rules-based Renaissance International IPO Index, which adds sizeable new companies on a fast-entry basis with the rest upon scheduled quarterly reviews. Current IPOS holdings include SoftBank Corp, Xiaomi, and China Tower Corp.

For more market trends, visit ETF Trends.