The stock market debuts of Boston companies Toast and Ginkgo Bioworks, coming within days of each other this week, are rewriting the record books and elevating the national profile of the local tech scene.
The deals mark two of the highest valuations ever for Boston startups as they begin public trading, and have created a large pool of wealth for the local economy with a half-dozen instant billionaires (on paper). The new fortunes will help spur investment in clusters of startups in important areas like health care, cloud software, financial technology, cybersecurity, and robotics.
On Wednesday, restaurant payments firm Toast went public in an IPO that raised $870 million and valued the company at about $20 billion. By the end of the first day of trading, the stock had jumped 56 percent, putting Toast’s value over $31 billion. The firm is a leader among Boston’s financial-tech startups, which are seeking to digitize commerce and speed up all manner of monetary transactions. Toast’s triumph is a stunning rebound from a storm of pandemic shutdowns in the restaurant industry — its main customers — that forced the company to cut half its staff in April 2020.
And last Friday, life sciences firm Ginkgo Bioworks listed its shares on the New York Stock Exchange by merging with a special purpose acquisition company, raised $1.6 billion in proceeds, and closed the day worth some $20 billion. Founded by four MIT grads and a professor in 2008, the startup is at the center of the incipient field of synthetic biology, attempting to program DNA like computer software and spark a revolution in areas like drug design, cosmetics, and agriculture.
The pair join other recently completed or planned public listings around town: payments and customer service software provider EngageSmart, medical robot maker Vicarious Surgical, and medical data and analysis provider Definitive Healthcare. Taken together, the companies represent a broader surge of energy and investment in the local tech economy.
“There had been this awkward fact that every Boston IPO combined didn’t add up to Airbnb,” said Harvard Business School professor Josh Lerner, referencing the well-known California company’s $50 billion value when it went public in 2020. “Now it’s hard not to see this as a change that will breed a whole set of entrepreneurs who will follow and do fabulous things, and hopefully do them here.”
Ginkgo and Toast commanded the highest initial market valuations ever for Boston startups, according to data from Dealogic, topping the previous record of $10.7 billion set by Internet company Genuity in 2000. And they blew past the largest of more recent listings, such as Moderna, which went public in 2018 at a valuation of almost $8 billion, and DraftKings, which last year merged with a blank-check company — led by the same team of investors who organized the SPAC merging with Ginkgo — in a deal valued at $2.7 billion.
Going public is no guarantee of future success. The latest crop of Boston companies hope to avoid Genuity’s fate — it went bankrupt within two years. Much preferable would be following in the footsteps of Moderna, which has reached a stratospheric value of $178 billion thanks to its COVID-19 vaccine, or DraftKings, now worth $21 billion as its online gambling platform expands.
“It’s a watershed moment for Boston on so many levels,” said Jeff Bussgang, cofounder and general partner at VC firm Flybridge Capital Partners. “Ginkgo is one of those anchor platform companies that could spawn a lot of really interesting companies. . . . Toast is being held up as a role model around the country.”
One reason for the new wave of public listings is simple: Booming financial markets have left investors with a ton of money and an appetite for risk to bet on startups, which have the potential for the kind of big score that made legends out of early backers of companies like Google and Amazon. Worldwide, IPO activity is at a level not seen in over 20 years. And Massachusetts startups raised more private money in the first half of 2021 than they have in any prior entire year.
“It is a great time to be raising money,” said Linda Edelman, professor and chair of the management department at Bentley University in Waltham. The booming stock market and bevy of IPOs are generating more and more wealth for the pension and endowment funds, mutual funds, and hedge funds, which keeps the cycle going. “They’re not looking to take money out. They are looking to make more investments,” she said.
Proceeds from the two companies’ deals this week will go to more hiring and expanded offices. After its debut, Ginkgo announced it would occupy all 228,000 square feet of a new life sciences campus going up in the Seaport District. The original plan was to take 150,000 square feet in the Marcus Partners development, with construction slated to start next year.
Not every successful Boston company is trying to go it alone. In April, Nuance Communications was sold to Microsoft for $20 billion and Turbonomic was gobbled up by IBM for almost $2 billion. But both companies are expected to keep their operations in the area, retaining jobs and continuing to feed the local ecosystem.
Historically, some observers have tried to explain the lack of large Boston tech companies by pointing to a supposedly cautious Yankee cultural outlook, as opposed to the more free-wheeling, risk-taking outlook of Californians. But the theory is belied by Boston’s growing clusters of startups in so many areas.
“Entrepreneurship is a business where success breeds success,” Harvard professor Lerner said. “It’s clearly a virtuous cycle . . . and one or two winners can turn out to be liquidity events for many local people.”
A case in point: Toast’s founders first worked together at software developer Endeca, which Oracle bought in 2011. They then set out on their own, aiming to digitize the process of taking orders and paying the tab at restaurants. New Hampshire entrepreneur Steve Papa, who founded Endeca, was an early investor in Toast and remains one of the largest shareholders after the IPO.
In addition to fueling the startup scene, the new stock listings also create tremendous personal wealth for many involved, at least on paper.
All five founders of Ginkgo Bioworks — bioengineers or computer scientists by training — are now billionaires thanks to their equity stakes in the company, according to filings with the Securities and Exchange Commission. And other employees collectively own another 10 percent, giving them a shared stake of about $2 billion.
At Toast, the founders own different amounts of stock, but based on the first-day closing price, Stephen Fredette, Aman Narang, and Jonathan Grimm are each worth over $1 billion. Definitive Healthcare CEO and founder Jason Krantz owns shares worth almost $1 billion. And leaders at Vicarious Surgical and EngageSmart own shares worth over $100 million, according to SEC filings.
The new billionaires club also includes one tech executive whose company went public back in 2014. The value of HubSpot cofounder and chief technology officer Dharmesh Shah’s stock in his company exceeded $1 billion for the first time this month, while former CEO Brian Halligan’s stake is worth about half that.
Newly public companies typically limit stock sales for some months, though the stock market wealth should soon start seeping into local real estate, arts, and events. Philanthropy could also benefit when the entrepreneurs turn their attention to improving their communities.
“The desire for these newly minted millionaires and billionaires to give back to the community should be a positive,” Shannon Saccocia, chief investment officer at Boston Private, said. “There could be some negative impacts as well, as we already have a fairly elevated cost of living in certain neighborhoods that could increase with the success of some of these companies bringing their workforces to the Boston area.”
But it may take some time to see these effects.
“It is a great conversation for the employees of Ginkgo and all of us to be having,” said cofounder, CEO, and new billionaire Jason Kelly. “We have started to think about some stuff, but we’re trying to just get through the IPO first. It is on our minds.”
Toast has already committed to invest 1 percent of the company’s equity in a nonprofit called Toast.org, which will focus on addressing problems of food insecurity, food waste, and supporting the restaurant community.
“That’s a starting place,” said Fredette, the co-president of the company. With their personal wealth, the founders will also seek to “balance national with local investments,” he added. “Boston’s our home, so absolutely we want to make an impact here.”