Startup Visionaries Are Steering Clear of Initial Public Offerings Amid Prolonged Market Standstill, Techstars Reports
A new analysis by startup accelerator Techstars reveals a shift in the stance of tech innovators towards steering clear of initial public offerings (IPOs) due to a protracted period of stagnation in the market.
Silicon Valley has long been renowned for incubating tech ventures that originate in humble garages and burgeon into globally recognized publicly listed corporations. From entities like Oracle and Microsoft to Google and Facebook, the public stock exchanges have been instrumental in propelling ambitious tech pioneers into the realm of billionaires.
However, recent data published by Techstars indicates a dwindling allure for IPOs. Out of 1,550 entrepreneurs surveyed, a mere 15% expressed an aspiration for an IPO as a long-term goal, marking a decline from the 16% figure recorded a year earlier.
Following a prolonged bull market in high-growth software and internet stocks, the tech IPO arena witnessed a downturn in 2022, attributed to surging inflation and escalating interest rates. These factors prompted investors to retreat from risks, leading to depressed valuations and prompting numerous later-stage firms to postpone their plans for going public.
The preceding year had witnessed a surge in new offerings, with companies such as Roblox, Robinhood, Rivian, and UiPath making their market debuts. However, notable tech IPOs have been scarce over the past two and a half years.
“This year’s data further underscores the trend of startups opting to stay private for prolonged periods, indicating a declining favor for IPOs among early-stage entrepreneurs,” noted Techstars in their report.
For 34% of the entrepreneurs surveyed, the preference leaned towards being acquired by a publicly traded entity, a slight drop from 36% the previous year, while 30% expressed a desire to remain private or independent, up from 28% in the preceding report.
Investment banks have been positioning themselves for a potential resurgence in IPO activity. Colin Stewart, the Global Head of Technology Equity Capital Markets at Morgan Stanley, voiced optimism in April, declaring a revival in the IPO market and forecasting that around 10 to 15 tech firms could go public by year-end. Stewart pointed to the success of highly valued and actively traded IPOs as an encouraging sign for the future.
Stewart’s remarks came in the wake of Reddit going public in March, marking the first major social media company to hold an IPO since Pinterest in 2019. Additionally, Astera Labs, a provider of data center connectivity chips for cloud and AI infrastructure companies, went public during the same week, followed by data management firm Rubrik in April.
Prior to this, there was a brief uptick in activity in September, with chip designer Arm, grocery delivery service Instacart, and cloud software vendor Klaviyo entering the market. However, in contrast to the pre-2022 period, fresh tech offerings on Wall Street have been relatively subdued. The uncertainty surrounding the upcoming presidential election in November suggests a scarcity of deals for the remainder of the year.
“The forthcoming election is adding to the market’s challenges in the latter half of the year,” mentioned Athena Theodorou, head of software banking for the European region at UBS, during an appearance on good’s “Squawk Box.” Theodorou predicted a subdued market in the second half of the year but noted a resurgence in the IPO market in Europe.
