What a difference a few hours can make.
Following an up day in the local markets and a strong performance by Twilio in its public offering, the world was thrown into turmoil as the Brexit vote went unexpectedly in favor of Leave. The pound saw its value collapse, global markets slid, and, this morning, shares of companies listed on American exchanges are trading sharply lower.
Some impacts of the exit vote are immediate: The United Kingdom is no longer the world’s fifth largest economy, a title it has ceded to France. Some impacts of the vote will take longer to unfold: A second vote on Scottish independence is now very likely, for example.
From the American perspective, things are almost as you might have anticipated: Trump said some foolish things in the wrong part of the country he was trying to cheer, the President is making motions that things between the UK and the United States will remain ‘special,’ and the credit kids are ready to kneecap handicap risk profiles now viewed as more risky on their own.
But it’s not all bad news.
Twilio Holds On
Twilio’s IPO might feel like it took place more than a day ago, but that’s wrong. After ending its first day up more than 90 percent, complaints that the company mispriced its offering, leaving too much cash on the table were drowned out by the real-time Brexit tally. The next question became not how the telecom API company handled its flotation, but what gains it could hold onto in the morning.
This morning, in fact. It was a question even before the Brexit vote’s results came in. It became twice the query after. And the result? Not as bad as you might have guessed.
Today in regular trading, Twilio is currently off just around 4.5 percent to a share price of $27.48. That’s a discount, but still a large premium from its above-range IPO price of $15 per share. So, Twilio’s IPO remains a success. The company went public hours before the world decided to put a bag over its own head, and punch itself repeatedly in the abdomen. Financially, at least.
For American Tech Startups, What Changes?
I want to hazard a guess1 and say that things aren’t going to change too much here in the United States for startups as a result of the Brexit vote, measured from the start of yesterday.
To summarize the first quarter of 2016:
- Venture capitalists raised record quantities of new cash.
- Venture capitalist investment in the United States was strong.
- A weak IPO market.
And, to summarize the second quarter of 2016, up to the moment that the Brexit vote pulled towards Leave:
- Venture capitalists slowed their investment cadences, compared to year-ago periods.
- Venture capitalists lowered their aggregate investment disbursement, compared to year-ago periods.
- US public indices remained near record highs.
- The IPO market managed modest signs of life, capped with a successful offering from Twilio.
What from that second list is likely to change as a result of the multi-year exit of the UK from the EU, or a long-off Scottish vote on independence? Not much, unless some sort of recessionary contagion finds momentum. That doesn’t seem likely2.
So I don’t know where to leave you. Perhaps the best thing we can say is that companies with strong margins, secure balance sheets, and sober growth plans are going to be fine. But, as the quip goes, that’s always true. We made the same joke yesterday, though about a slightly different set of companies:
Sure. In the meantime, don’t look at your damn 401k. It’s not worth it.
- Don’t do this.
- As noted before, do not make public predictions about events still in flux.
