This yr has already proven that startups are willing to go public in a less-than-ideal market – and get rewarded for it, too. But bankers, lawyers and investors have said recent IPO successes won’t be enough to spur greater than a dozen tech IPOs this yr.
“I don’t think we’re going to have the floodgates open as I might have thought,” Greg Martin, co-founder and managing director of Rainmaker Securities, told TechCrunch. “The flow was delayed; I thought it would happen earlier in Q1. For this reason, I believe that the floodgates will not be able to open before 2025, but we could have a healthy flow of 10 to 15 companies in a year.”
Jeremy Glaser, an attorney and co-head of enterprise capital and emerging growth firms at Mintz, said that despite the recent IPO performance so far, people need more data than simply a few weeks or months of trading to feel confident.
Looking at Klaviyo and Instacart’s performance today, you may see why people are being cautious. Klaviyo’s market capitalization is now $5.94 billion, in comparison with its IPO price of $9.2 billion. Instacart is performing higher, but is still trading below its initial IPO price of $9.9 billion. Its current value is $9.47 billion.
“I’ve been through a lot of IPO cycles, you really need a longer period where you can see a lot of IPOs stay above the IPO price,” Glaser said. “I don’t know if we’re there yet. We have some positive signs, but we need to see more companies stay above the IPO price for a longer period of time.”
Due to selections, time also has a big impact here. If a few firms had come out and gone public earlier in the yr – and if they’d performed well – it could have given other firms enough time and confidence to go through the full S-1 process before the election. However, because of the timing of the last IPOs, firms would be running out of time.
Martin added that despite the successes, he is not sure if it is really a good market to enter. Interest rates are not lower in the way many predicted and hoped for this yr, and Martin is not convinced that the economic situation is yet fully clear after the bear market in 2022 – especially with uncertainty about how markets will react after elections in November.
“I still feel like the recession isn’t over yet,” Martin said. “We had, what, 1% growth in the first quarter? Mainly macroeconomic factors, the market seems to be sensing relative stability at the moment, but it is there [are] many things that could change that. I am full of hope [the market] It remains stable. I remain optimistic at this point.”
Glaser and Martin’s opinion seems to be in line with what other people in the market are saying. A number one enterprise capital fund recently told TechCrunch that it is advising all portfolio firms that would potentially go public to attend until next yr. Colin Stewart, global head of equity technology at Morgan Stanley, he recently told CNBC that in his opinion, 10 to fifteen firms could go public this yr – in line with Martin’s predictions – and that 2025 will be higher.
Investors weren’t sure what to make of the IPO market heading into 2024. Some thought activity would start to choose up, while others thought it might be one other quiet yr, in accordance with a TechCrunch survey. Everyone looked as if it would agree on one thing: any increase in activity was likely only in the second half of the yr.
But then Astera Labs filed to go public in February, and Reddit soon followed. Next was Ibotta in March, followed by Rubrik a week later. Since then, all 4 quotations have risen and climbed on the first day of trading. Although the company’s individual shares have declined since then, they are all currently trading above their IPO prices, which were priced above their initial goal ranges.
Watching these 4 stocks successfully hit the market, it begs the query: Were investors improper about the IPO return timeline? But judging by the opinions of individuals like Martin and Glaser, probably not.
This implies that VCs will likely have to attend one other yr until the IPO market becomes a significant source of liquidity. However, exits are not completely out of the query this yr. Glaser said he is not working on an IPO, but his M&A team is the busiest it has been in a very long time. For investors expecting profits this yr, this is excellent news.