The very public battle surrounding Uber Technologies Inc. is bringing to the surface venture capital investors' concerns that the best and brightest of executives won't work for even trophy portfolio companies when those companies have a reputation for poor corporate governance.
A portfolio company's failure to attract top talent affects returns of venture capital, private equity and other investors. Hiring new talent will be the first step on Uber's road to finally going public. An initial public offering is important for early investors like venture capital firm Benchmark Capital Partners that had been holding what might be its most valuable yet-unrealized investment for nearly 10 years.
Frustration over holding onto large unicorn investments that continue to stay private — with no signs of going public — could lead to more investor activism, especially from the venture capital and private equity investors whose funds' lives are coming to an end, said Rohit Kulkarni, head of research at San Francisco-based secondary market private shares trading platform SharesPost Inc.
The value of private late-stage companies held by venture capital firms reached $1 trillion sometime during the second quarter, according to SharesPost analysis. At the same time, portfolio companies are expected to stay private even longer; estimates range up to 13 years in five years between founding and IPO. That is up from close to 10 years with firms such as Uber, Airbnb Inc. and Dropbox Inc., which are still private, and six or seven years when Facebook Inc. went public, he said.
"If you are a venture capital firm and you typically have a six- to eight-year time horizon from the first check … and you see that cycle set to expand over the next five years, it makes them (general partners) impatient (for an IPO), which could lead to activism," Mr. Kulkarni said. Overall exits were down in the first half of 2017 to $25 billion in 348 transactions as of June 30 compared to $54 billion in 821 transactions in all of 2016, according to PitchBook data.