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IPO markets and presidential elections don't mix

Apptus CEO Kirk Krappe blames down IPO market on the election, and the data bears this out

Financial trends and news by Steven Loeb
September 7, 2016 | Comments
Short URL: http://vator.tv/n/4715

The IPO market is down this year. Way down. That's especially true of tech IPOs, where there have only been three so far this year.

There are plenty of reasons that people will point to to explain why this is happening, but Kirk Krappe, CEO of SaaS application provider Apptus, has an interesting theory: he's blaming it on the two Presidential candidates.

"I’ve worked with investors closely and consistently over the past decade, and each has agreed that the presidential election plays a very important role and influences decision-making for a very specific reason: stability is king. And with this election, Americans are feeling more uneasy than ever," he wrote in a post on VentureBeat this past weekend.

"It’s no wonder the IPO market is on track for its slowest year since the financial crisis, despite recent successes having raised a few eyebrows."

He points to three reasons. First, markets like "a known quantity in the political arena." Although Hillary Clinton is just that (to her own detriment, I'd say), the fact that both she and Trump are so widely disliked is also causing problems. 

That feeds into the second point Krappe makes: that this is a year where the voters seemed to reject the politics of old, leading to the rise of both Trump and Bernie Sanders. 

"Even the campaign of Hillary Clinton, who is seen by many to represent a semblance of normalcy, has been molded by the widespread appeal for economic disruption," he said. "It is unclear what economic effect the proposed policies will have on the economy, but one certainty remains: the difficulty of assigning probability to the often contradictory economic implications."

All that uncertainty is having an adverse affect on the IPO market.

"Growth becomes more difficult to project (though not impossible) when U.S. leadership and direction is not crystal clear. In times of political uncertainty, companies are generally less inclined to take risks, which can cut down on proposed expansions or even commitments to new regions and global tech implementations," he said.

Do Presidential elections disrupt the IPO market?

It's an interesting theory on Krappe's part, that the prospect of a new President would make the market skittish, but does the data bear that out?

Data supplied to VatorNews from Thomson Reuters and NVCA, the answer seems to be, actually, yes. That's true for the IPO market overall, and for the tech in particular. 

Let's look at the numbers for the last seven Presidential elections, starting in 1988:

In 1988, with Reagan leaving office after eight years, there were 42 venture backed IPOs, down 51 percent from 86 IPOs in 1987. Of those, 23 were tech IPOs, down 44 percent from 41 the year before. 

Cut to 1992, with Bill Clinton kicking George Bush to the curb (the last time a sitting President was thrown out) there were 147 venture backed IPOs, up 22.5 percent from 120 in 1991. Tech IPOs also saw a rise, growing 18.6 percent to 51, up from 43. 

In 1996, with the economy booming, and Clinton rolling to a pretty easy victory, there were 253 venture backed IPOs, up 38 percent from the year before. Of those, 119 were tech IPOs, up 5.3 percent from 113 in 1995. 

During 2000, when the choice came down to Al Gore or George W. Bush, there were 238 venture backed IPOs, a dip of 13.5 percent from 275 in 1999. Tech IPOs took an even bigger trumble, dropping 32 percent to 167, down from 247 the year prior. 

When 2004 rolled around, and the Iraq War surging, venture backed IPOs shot up 211.5 percent to 81, up from 26 in 2003. Tech IPOs went from 10 to 29, a 190 percent increase.

The good times couldn't last, though, and we all know what happened in 2008, just as the country was getting ready to vote Obama into office: the entire economy collapsed. Venture backed IPOs went from 90 in 2007 to just seven in 2008, a drop of 92 percent. Tech IPOs went from 46 to 3, a drop of 93.5 percent. 

By 2012, things had somewhat normalized. There were 48 venture backed IPOs, down 4 percent from 50 the year before, while tech IPOs stayed exactly the same at 32. Sure, things weren't where they had been yet, but it was a lot better than four years earlier. 

Of the last seven elections, four of them have seen dips in the number of venture backed IPOs. Even if you take out 2008, since there were obviously much bigger factors causing the numbers to drop like a rock, it's still tied three to three.

In the first half of this year, there were only 18 IPOs, and three of them were tech. When all is said and done, the numbers will be down significantly from the 77 IPOs, and 19 tech IPOs, of 2015. And it will be counted as another election year where the market ran and hid because of the uncertainly of having a new president.

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