IPO mania: San Francisco braces for ‘earthquake’ of new tech millionaires
Several big-name tech companies are set to enter the public market, and the speculation over the effects of a crush of overnight millionaires overwhelming the region has reached fever pitch.
San Francisco-based companies Uber, Lyft, AirBnb, Pinterest, Postmates, and Slack are all expected to sell stock for the first time in the coming weeks, allowing tens of thousands of employees currently holding shares to grow their personal wealth exponentially, instantaneously.
Companies go public every day without any sort of fanfare or attention, but it’s not often that so many companies with high valuations will do so within such a relatively short time frame – and all within blocks of each other in a city already ravaged by the economic disparities created by the tech boom.
As with any initial public offering (IPO), it’s impossible to say how well the companies will do. But even the most conservative of calculations are predicting flurries of cash raining upon a city already ankle-deep in water.
Lyft, going first on Thursday, is hoping to enter the market somewhere between $20bn to $25bn, while its rival Uber is valued at a jaw-dropping $120bn. Pinterest was last valued at $12.3bn, while AirBnb is estimated at $38bn.
Economists have no case studies to look back on to anticipate what kind of effect this event will have on San Francisco. Twitter, which entered the stock market in 2013 at $24bn, was at the time one of the only major Silicon Valley tech companies headquartered in San Francisco. Facebook debuted at $104bn in 2012, but its Menlo Park headquarters meant the effects of sudden wealth weren’t as concentrated in one location.
“Just to put things on a Twitter scale, if Twitter was a normal big IPO, Lyft is aiming to be as big as Twitter was,” said Ted Egan, the chief economist for San Francisco’s office of economic analysis. “Uber is aiming to be five times as Twitter, and AirBnb is going to be the size of Twitter. If you think them all as earthquakes, and they all hit at around the same time, you will notice that.”
The impact of these companies going public won’t be as immediate as, say, thousands of San Franciscans winning the lottery, Egan said. There’s typically a contractual restriction preventing insiders from selling their shares within a certain time period that can range from 90 to 180 days after the date of IPO.
Either way, some San Franciscans are already concerned. In a city of such immense wealth, an estimated 7,500 are forced to sleep on the sidewalks each night. Soaring rents are forcing teachers and food industry workers out of the city, with the rising housing costs fueled in part by the tech boom.
Last week, the city supervisor Gordon Mar called for a hearing looking into the impact of these imminent IPOs.”
“While we’ve seen just this rapid growth of this tech sector and tech companies and this continual influx of new wealth and new residents filling these jobs, we’ve seen just a growing set of problems caused not just around housing affordability and gentrification, but wealth inequality and traffic congestion within the city and the region,” said Mar.
The IPOs come amid a fierce discussion over the question of whether the tech companies are paying their fair share in the city. In 2012, the city moved to phase out a payroll tax that is based on staff in favor of a gross receipts tax based off of gross earnings, a boon for burgeoning tech startups with large overhead operating costs but low revenue.
“The payroll tax has been reduced from 1.5% to .375% through the phasing of the gross receipts tax,” Mar said. “These companies that are going public, the tax that they will have to pay to the city will be a fourth of what it would have been prior to what it would have been in 2012 for the stock compensation income.”
Last fall, the issue came to a head over Proposition C, a tax measure to raise funds for homeless services. Voters ultimately approved to implement an average 0.5% gross receipts tax for companies with revenues over $50m, with tech leaders like the Salesforce CEO, Marc Benioff, and the Twitter CEO, Jack Dorsey, raising the profile of the debate with their very public battles over the tax.
Now with all these companies set to go public, Mar believes it’s more important than ever that the city’s policymakers proceed with both eyes open.
“It really is an important moment for us to look at where we’re at, after this all played out, and see what we can do, to not only ensure that the tech sector pays their fair share, but that we have a balanced economy moving ahead,” Mar said. “I think everything is on the table for consideration right now, for how we can move our city forward in a way that is more sustainable and more equitable for everyone.”