In 2023, only 148 companies completed an initial public offering (IPO). This was the worst year on record and followed a 15% decline from the number of IPO’s in 2022, another disappointing year. In 2023, ARM was the sole blockbuster tech IPO.
After a brutal two years with a paucity of tech IPOs, the market is poised for a resurgence in 2024. Why? The Federal Reserve is set to reduce rates two to three times, an election year usually bodes well for the general economy regardless of party, and a number of tech companies have patiently waited to go public and now have the numbers to make it so, according to an analysis by Constellation Research.
Not all is rosy as consumers have entered a doom spend loop and have spent down $2.1 trillion in savings since August 2021 and now sit on about $100 billion in savings (as of October 2023) down 90% in a short 26 months. Yet, a drop in Fed Rates will pave the way.
Tech IPO’s follow market trends
Constellation’s analysis shows a strong IPO pipeline in areas such as artificial intelligence (AI), enterprise cloud software, financial tech, space tech, and specifically some of Elon Musk’s companies should they pull the trigger. Simultaneously, smart money is leaving trendy categories in clean tech, ESG, and EV’s. The backlash on ESG has had its impact on funding. The results of COP 28 highlight the populist and voter backlash elected officials face and many funds have closed and liquidity is rapidly drying up.
Among the start-ups on the tech IPO watch list are: Databricks, a data and analytics company ($50bn); payments fintech Stripe ($50bn); SpaceX, estimates of $200 billion in market cap; StarLink, estimated $100 billion.
In mega categories such as AI, differences abound by region, with New York described as: “New York: Wall Street loves arbitrage and AI plays a huge role. However, this bleeds into Ad Tech, and of course pharma research.”
The bottom line is to expect 2024 to be start of a comeback for tech IPOs. So long as interest rates come down, and the Fed sticks the soft landing in an election year, the market conditions look bright. With a number of Series C, D, and E startups showing good metrics in lower CACS, greater ARPU, and rule of 40 growth, 2024 looks to be the start of the comeback.