The short Piece. How is the IPO market doing?
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The first half of 2022 saw 108 new listings on Nasdaq, a dramatic fall from last year, but still a decent number of new listings.
The capital raise dropped more dramatically; only $12B was raised, a fraction of what was raised in 2021.
Out of the 108 IPOs, 59 were SPAC IPOs, so several sponsors entered the market, though at a lower pace, probably due to the performance of some of the previous IPOs from 2021. This segment of the market also suffered from some new regulations and scrutiny from the SEC.
But what happened to the large IPOs that we have been expecting since 2021, such as Instacart and Discord, for instance?
They sit at the top of the backlog of companies waiting for a new market window to IPO. So even those who filed confidentially at the end of 2021, by the end of the application process with the SEC, found themselves in a very choppy market in Q2. With the FED hikes out of the way, they need more stability, less volatility, and better macroeconomics.
So, being private for longer is the game's name this year while we wait for the public market to reopen. Private markets have started to reprice, and valuations have come down to reflect what has happened in the listed comparables.
To provide liquidity for their employees, some companies, namely Instacart, Klarna, and now Stripe, have tapped the market with secondary transactions, like block sales or tenders, at lower valuations.
In a nutshell, there is no escaping the valuation compression seen in public markets, even for large growth companies that are still private. There is also no avoiding the fact that in a higher interest rate environment, the future cash flows expected of growth tech companies are a little less appealing.
We feel that liquidity is building behind the curtains, investors will step in at some stage when the valuations have come down, and the macro environment looks more stable.
In the meantime, companies may work with convertible debt instead of crystallizing the lower valuations with an equity raise, which does not price in the lower valuation at issuance.
@ipo_club
