Despite recent successes, IPO market still won't fully open until 2025

This year already proved that startups are willing to go public in a less-than-ideal market — and get rewarded for it, too. But bankers, lawyers and investors said the recent IPO successes aren’t enough to foster more than a dozen tech IPOs this year.

“I don’t think we will have the floodgates open like I might have thought,” Greg Martin, co-founder and managing director at Rainmaker Securities, told TechCrunch. “The trickle was delayed; I thought it would happen sooner in Q1. Because of that, I think the floodgates can’t open til 2025, but we could have a healthy flow of 10 to 15 companies for the year.”

Jeremy Glaser, a lawyer and co-chair of Mintz’s venture capital and emerging companies practice, said that despite how the recent IPOs have performed thus far, people need more data than just a few weeks, or a month, of trading to feel confident.

Looking at how Klaviyo and Instacart are performing today shows why people remain cautious. Klaviyo is currently trading at a $5.94 billion market cap, down from its $9.2 billion IPO price. Instacart is faring better, but still trading under its initial IPO price of $9.9 billion. It’s currently trading at $9.47 billion.

“I’ve lived through a lot of IPO cycles, you really do need an extended period of time where you are seeing multiple IPOs staying above the IPO price,” Glaser said. “I don’t know if we are there yet. We have some positive signs but we need to see more companies staying above the IPO price for an extended amount of time.”

Timing plays a big factor here, too, due to the election. If a couple of companies had come out and made their public debuts at the beginning of the year — and had they done well — it might have given other companies enough time and confidence to get through a full S-1 process before the election. But due to the timing of the recent IPOs, companies would be crunched for time.

Martin added that despite the successes, he’s not sure this is really a good market to go out in anyway. Interest rates aren’t being cut the way many predicted and were hoping for this year, and Martin isn’t convinced that the economy is fully in the clear yet after 2022’s bear market — especially with uncertainty about how the markets will react after the election in November.

“I still feel like recession is not out of the woods yet,” Martin said. “We had, what, 1% growth in Q1? Mostly macro economic factors, it feels like the market is sensing relative stability right now but there [are] a lot of things that could turn that. I’m hopeful [the market] remains stable. I’m remaining optimistic at this point.”

The sentiment from Glaser and Martin seems to align with what other folks in the market are saying, too. A top-tier venture fund recently told TechCrunch that it was advising all of its portfolio companies that could potentially IPO to wait until next year. Colin Stewart, Morgan Stanley’s global head of technology equity markets, recently told CNBC that he thinks 10 to 15 companies could go public this year — right in line with Martin’s prediction — and that 2025 will be better.

Investors weren’t sure what to think about the IPO market heading into 2024. Some thought that activity would start to pick back up while others thought it would be another quiet year, according to a TechCrunch survey. The one thing they all seemed to agree on was that any rise in activity wasn’t 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. While the respective stocks retreated since then, they are all currently trading above their IPO prices — which were all priced above their initial target ranges.

Watching these four stocks hit the market successfully makes us wonder: Were investors wrong about the timeline of the return of IPOs? But based on sentiment from folks like Martin and Glaser, probably not.

This means that VCs likely have to wait another year for the IPO market to be a meaningful source of liquidity. However, exits aren’t fully off the table this year. Glaser said that he isn’t working on IPOs, but his M&A practice has been the busiest it’s been in a long time. For investors looking for returns this year, that’s good news.