Just a few months ago, there were high hopes on the Street that the tech initial-public-offering market was about to reopen after a yearlong hiatus. Over a few days in September, three companies broke through: grocery delivery service
Instacart,
email marketing firm
Klaviyo,
and chip design firm
Arm Holdings.
Optimists hoped a strong reception for the trio would break the logjam, and trigger exits for some of the more than 1,000 venture-based unicorns, companies with private market valuations above a billion dollars.
But the reception for the three was lukewarm. As of a few days ago, Klaviyo was 7% below its $30 IPO price and Instacart was off 21%. Arm had a slow start, briefly trading below its $51 launch, but now sits north of $73, up more than 44%, aided by a growing view on the Street that the company’s chip designs will be adopted for AI applications. There was no IPO deluge, no subsequent offerings filed or completed by tech companies of note. But conditions are shaping up for a better 2024 IPO market—maybe much, much better.
That’s the view of Lise Buyer, founder of Class V Group, a consultancy that helps companies with IPO planning. “The outlook is merry and bright for the 2024 IPO market,” she says.
For starters, Buyer thinks some venture-backed companies simply need the cash, and that an IPO has become “an increasingly appealing option,” given a weak M&A market and reluctance to take on new venture money at reduced valuations. She also notes that venture firms are in need of exits. “Yes, some will come via M&A, but they need to show some public market success if they intend to raise new funds,” she says.
Another factor, she adds, is that expected Federal Reserve rate cuts will make fixed- income investments relatively less attractive than growth stocks, reversing the pattern of the past two years and boosting interest in tech growth stories. Buyer also observes that many private companies “have all but committed to their employees that there will be an every-day liquid market for their shares….[T]hose promises are growing long in the tooth and it’s time to deliver.”
Not least, many enterprise tech providers have seen business stabilize, with “gentle signs of growth.” Her view is that “renewed, albeit meaningfully slower growth, coupled with last year’s expense rationalization/control leaves many with a genuine path to believable profitability. That helps, too.”
Write to Eric J. Savitz at [email protected]
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