This year has already proven that startups are willing to go public in less-than-ideal markets and can reap the rewards of doing so. But bankers, lawyers and investors said recent IPO successes alone won't be enough to foster more than a dozen tech IPOs this year.
“I don’t think the floodgates will open as much as I think they will,” Greg Martin, co-founder and managing director of Rainmaker Securities, told TechCrunch. “The trickle has been delayed. We thought it would happen sooner in the first quarter. So I don't think the floodgates will open until 2025, but we're getting a healthy flow of 10 to 15 companies a year. There is a possibility.”
Jeremy Glaser, an attorney and co-head of Mintz's venture capital and emerging companies practice, said that despite how recent IPOs have performed so far, people are not confident. To do so, he said, more data is needed than just a few weeks or a month of transactions.
Looking at Klaviyo and Instacart's performance today, you can see why people are cautious. Klaviyo currently trades with a market cap of $5.94 billion, below its IPO price of $9.2 billion. Despite Instacart's strong performance, it still trades below its opening price of $9.9 billion. The current transaction price is $9.47 billion.
“I've been through a lot of IPO cycles, and it takes a really long time for multiple IPOs to outperform the IPO price,” Glaser said. “We don't know if we're there yet. There are some bright spots, but we need to see more companies outperforming their IPO prices for extended periods of time.”
Because of the election, timing is again a big factor here. If a few companies made their public debut earlier this year and did well, others would have enough time to go through the full S-1 process before the election. It may have given me confidence. However, the timing of his recent IPO will leave companies pressed for time.
Martin added that despite the success, he's not sure if this is really the right market to enter. Interest rates have not been cut this year as many predicted and expected, and Martin is concerned that the economy will continue to grow after a bear market in 2022, especially given the uncertainty of how markets will react after the election. I am not convinced that the outlook is completely clear. in November.
“It feels like we're not out of recession yet,” Martin said. “The growth rate in the first quarter was a whopping 1%? Although the market currently feels relatively stable, mainly due to macroeconomic factors, [are] There are many things that could change that.I'm looking forward to it [the market] It remains stable. At the moment I remain optimistic. ”
Glaser and Martin's opinion appears to be in line with the rest of the market. One top venture fund recently told TechCrunch that it advises all portfolio companies with potential IPOs to wait until next year. Colin Stewart, Morgan Stanley's global head of technology equity markets, recently told CNBC that 10 to 15 companies could go public this year, and even more in 2025, exactly in line with Martin's prediction. He said he thinks things will get better.
Investors weren't sure what to think about the IPO market heading into 2024, according to a TechCrunch survey. According to a TechCrunch survey, some think activity will start to pick up, while others think it will be another quiet year. One thing they all seem to agree on is that an increase in activity is unlikely until the second half of the year.
But then Astera Labs filed to go public in February, and Reddit followed suit soon after. Next came Ibotta in his March, followed just a week later by Rubric. Since then, all four companies have risen and fallen on their first day of trading. Each stock has fallen since then, but all are now trading above his IPO price. All IPO prices were above their original target ranges.
Seeing these four stocks successfully enter the market can make you wonder if investors were wrong about the IPO comeback schedule. But based on the sentiments of people like Martin and Glaser, that's probably not the case.
This means VCs will likely have to wait another year before the IPO market becomes a meaningful source of liquidity. However, withdrawal is not completely off the table this year. Glaser said that although he is not working on an IPO, his M&A work is the busiest it has been in a while. That's good news for investors looking for returns this year.