Will tech IPOs come back to life in the fall?

After a slow start for initial public stock offerings this year, there are some promising signs that the IPO market may come to life in the weeks after Labor Day. Yet even if the IPO pipeline starts flowing again, this year will likely disappoint investors who are yearning to take positions in the next big tech stocks.

San Jose-based unicorn Nutanix, for example, recently said it would acquire two startups, setting off rumors that the company is planning to go public soon. But unicorns have challenged the very notion of going public in recent years, because they are quite capable of fueling rapid growth through private investments, without tapping the public markets. To date, Nutanix has raised some mega-VC investments – more than $300 million over five funding rounds (including participation by InstantScale Ventures, the venture capital firm that I cofounded).

The hottest unicorns such as Uber, Snapchat, and Airbnb have not been eager to jump through the SEC’s regulatory hoops or face the scrutiny of hitting quarterly earnings targets for Wall Street analysts. They have wisely chosen to continue innovating without facing such compliance hurdles and market distractions.

New funding options are also changing the IPO landscape. Some startups are launching private stock offerings without a need to issue public shares. New online companies such as SharesPost and Digital Offering provide online platforms for individuals and small investor groups to take an equity stake.

From my perspective as a venture capitalist, I see many young companies that are pioneering game-changing technologies with seemingly limitless market potential. However, many of them lose their luster after going public and being subjected to the bottom-line scrutiny of the public markets.

As evidence of this shifting IPO climate, the total number of new stock debuts this year remains the lowest since 2009, according to data from the Wall Street Journal and Dealogic. Just 63 companies had gone public as of late August, raising a cumulative $12.9 billion. That’s a 50% drop from the year-to-date volume in 2015 and a 73% drop over the first eight months of 2014. In fact, there have only been two slower years for IPOs since 1995 – in 2003 following the dot-com crash, and in 2009 right after the Great Recession.

On the positive side, most stocks that have gone public this year have posted big gains in their share prices, well above the average returns for the Dow Jones Industrial, Nasdaq Composite, and S&P 500 stock indices. Acacia Communications, this year’s top IPO, is trading 382% above its IPO price. Twilio, the first IPO of 2016 backed by venture capital, is trading 247% above its debut.

Overall, however, the trickle of new tech stock issues has been particularly discouraging. Tech stocks have made up just 19% of all IPOs in 2016, compared to 32% in an average year. Deal flow in the technology sector declined by almost half last year, from 69 IPOs in 2014 to 35 IPOs in 2015. That marks the lowest annual number since 2009, according to the 2016 IPO Report by WilmerHale.

The tech sector’s share of the U.S. IPO market has fallen every year for the past five years, from 46% in 2011 to 23% in 2015. The vast majority of those listings were lost off of the NASDAQ, the tech heavy exchange that is home to more than 90% of technology listings.

Investment bankers say some smaller firms are preparing to price their stocks to raise critical funding for growth if the IPO window opens after Labor Day. There’s even a fairly good chance that some tech unicorns such as Nutanix and/or AppDynamics may go IPO this year. But overall, it’s likely that the IPO spigot won’t completely open again until 2017.

Chad Cardenas is President of Trace3 and Managing Director of InstantScale Ventures.