This year has already shown that startups are prepared to go public in a less than ideal market – and to be rewarded for doing so. But bankers, lawyers and investors said the recent IPO successes are not enough to fuel more than a dozen technology IPOs this year.
“I don't think we'll have the floodgates open as I might have thought,” Greg Martin, co-founder and managing director of Rainmaker Securities, told JS. “The trickle was delayed; I thought this would happen sooner in the first quarter. That is why I think that the locks cannot open until 2025, but that we can have a healthy flow of ten to fifteen companies this year.”
Jeremy Glaser, attorney and co-chair of Mintz's venture capital and emerging companies practice, said that despite how recent IPOs have performed so far, people need more data than just a few weeks or a month of trading to feel confident to feel.
Looking at how Klaviyo and Instacart are performing today shows why people remain cautious. Klaviyo currently trades at a market cap of $5.94 billion, down from its IPO price of $9.2 billion. Instacart is doing better, but still trading below its initial IPO price of $9.9 billion. It currently trades at $9.47 billion.
“I've been through a lot of IPO cycles, you really need a longer period where multiple 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 staying above the IPO price for a longer period of time.”
Because of the elections, timing also plays a major role here. If some companies had come out and made their public debuts early this year — and if they had done it right — it might have given other companies enough time and confidence to go through a full S-1 process before the election . But due to the timing of recent IPOs, companies would be short on time.
Martin added that despite the successes, he's not sure this is really a good market to enter. Interest rates are not being cut in the way many had predicted and hoped this year, and Martin is not convinced that the economy will be completely clear after the 2022 bear market – especially now that there is uncertainty about how markets will respond after the elections. in November.
“I still feel like the recession is not over yet,” Martin said. “We had, what, 1% growth in the first quarter? These are mainly macroeconomic factors, which makes it seem as if the market is experiencing relative stability at the moment, but it is not [are] lots of things that could change that. I'm hopeful [the market] stays stable. I remain optimistic at the moment.”
Glaser and Martin's sentiment also seems to be in line with what other people in the market are saying. A top-tier venture capital fund recently told JS that it was advising all its portfolio companies that could potentially go public to wait until next year. Colin Stewart, Global Head of Technology Equity Markets at Morgan Stanley, recently told CNBC that he thinks ten to fifteen companies could go public this year – exactly in line with Martin's prediction – and that 2025 will be better.
Investors weren't sure what to make of the IPO market heading into 2024. Some thought activity would pick up again, while others thought it would be another quiet year, according to a JS survey. The one thing they all seemed to agree on was that an increase in activity was not likely until the second half of the year.
But then Astera Labs filed to go public in February, and Reddit followed shortly after. Ibotta was next in March, followed by Rubrik just a week later. All four have since floated and popped on their first day of trading. Although the respective stocks have since retreated, they are all currently trading above their IPO prices – all of which were above their initial targets.
Watching these four stocks successfully hit the market makes us wonder: Were investors wrong about the timeline of the return of IPOs? But based on the sentiments of people like Martin and Glaser, probably not.
This means that VCs will likely have to wait another year for the IPO market to become a meaningful source of liquidity. This year, however, exits are not completely off the table. Glaser said he doesn't work on IPOs, but his M&A practice is the busiest in a long time. That's good news for investors looking for returns this year.
