The current state of the IPO market for tech startups is a topic of much discussion among bankers, lawyers, and investors. While there have been some successful IPOs this year, industry experts believe that the market is not yet ready for a flood of tech IPOs.
Greg Martin, co-founder and managing director at Rainmaker Securities, expressed his view that the expected surge in IPOs has been delayed. He believes that while the floodgates may not open until 2025, there could still be a healthy flow of around 10 to 15 companies going public this year.
Jeremy Glaser, a lawyer and co-chair of Mintz’s venture capital and emerging companies practice, emphasized the need for more data to gauge the IPO market’s confidence. He pointed out that the performance of recent IPOs like Klaviyo and Instacart indicates caution among investors. Klaviyo’s market cap has dropped from its IPO price, while Instacart is trading below its initial IPO price.
Glaser stressed the importance of sustained performance above the IPO price over an extended period to instill confidence in the market. He believes that although there are positive signs, more companies need to stay above their IPO prices for a significant amount of time.
Timing also plays a significant role in the IPO market, especially with the upcoming election. If successful IPOs had occurred earlier in the year, it could have given other companies enough time and confidence to go through the full S-1 process before the election. However, due to the timing of recent IPOs, companies would be under time constraints.
Martin added that he is uncertain if this is a good market for companies to go public in anyway. With interest rates not being cut as expected and lingering concerns about the economy after the 2022 bear market, he remains cautious. Martin believes that there are still macroeconomic factors that could affect market stability, and he remains cautiously optimistic.
The sentiment expressed by Glaser and Martin aligns with others in the market. A top-tier venture fund has advised its portfolio companies to wait until next year before considering an IPO. Colin Stewart, Morgan Stanley’s global head of technology equity markets, also predicts that only 10 to 15 companies will go public this year, echoing Martin’s prediction.
Despite the uncertainty surrounding the IPO market, there have been some notable successes. Astera Labs, Reddit, Ibotta, and Rubrik all filed to go public and experienced successful first days of trading. Although their stocks have since retreated, they are still trading above their IPO prices.
While these successful IPOs may make one question the timeline for the return of IPOs, experts like Martin and Glaser believe that it is still too early to conclude. This suggests that venture capitalists may have to wait another year for the IPO market to become a significant source of liquidity.
However, there is still hope for exits this year through mergers and acquisitions (M&A). Glaser mentioned that his M&A practice has been busier than ever, indicating that investors can still find returns through this avenue in 2024.
