As we reach the midpoint of 2023, it’s safe to say that the Initial Public Offering (IPO) market has been a bit of a disappointment. Despite our best efforts as TechCrunch+ reporting crew, there haven’t been any particularly exciting IPOs in the first half of the year. However, we’re starting to see some signs that the market is about to pick up steam.
Why We Should Expect More IPOs in the Second Half
According to a report by Silicon Valley Bank (SVB), which was published earlier this year, institutions are not expecting a flurry of IPOs in the near future. However, the bank also predicted that as "the market gets clarity on the [interest] rate ceiling [and] forward revenue multiples align with long-term averages and pent-up demand builds from institutional investors" and unicorns, we should expect no fewer than ten IPOs in the back half of the year from venture-backed companies.
We’ve since spoken to Arjun Kapur, a managing partner and founder at Forecast Labs, on the IPO question. Forecast Labs is a sister entity to Comcast Ventures, which invests in areas of strategic interest to its parent company, Comcast NBCUniversal. Forecast, in contrast, trades equity for access to television advertising, essentially offering lower-than-market rate CPA-based advertising on the tube for equity.
Kapur’s perspective backs up SVB’s predictions, but he takes a more granular approach. He argues that during the tail end of the last venture boom, lots of tech companies raised money at rather expensive multiples of the potential revenue they’d make in the future. This means that startups that raised capital at a multiple that would take them a few years to grow into are now in even worse shape than we previously thought.
The Impact of Venture Round Pricing on IPOs
Kapur’s perspective highlights the impact of venture round pricing on IPOs. When tech companies raise money at high multiples, it can create a mismatch between their private valuation and public valuation. This can lead to difficulties in achieving an attractive IPO price.
However, Kapur notes that there are some encouraging signs. We’ve seen a recent, modest reflation of tech revenue multiples, which could provide some lift for tech shares. Additionally, the fact that we have seen a more limited series of rate hikes could lower the valuation pressure between their last private rounds and potential IPO pricing.
Interest Rates and Their Impact on IPOs
The impact of interest rates on IPOs cannot be overstated. More "rate path clarity" for hikes would be supportive for new IPOs, according to Fin. We agree, but clarity about slower rate hikes would be even better.
What’s Ahead for the IPO Market?
So, what can we expect from the IPO market in the second half of 2023? Based on our analysis and expert opinions, it seems that the market is starting to look more enticing than the first half of the year. We may not see a repeat of the frenzied IPO activity of 2021 just yet, but we could be looking at a steady increase in new listings.
Conclusion
The IPO market has been a bit of a disappointment so far this year, but it looks like we’re on the cusp of a turnaround. With the market starting to look more enticing and interest rates potentially stabilizing, it’s not too early to start thinking about what the second half of 2023 might bring.
As TechCrunch+ reporting crew, we’re excited to be back in the thick of things, analyzing S-1 filings and hammering away on IPO news. Stay tuned for more updates from us!
Topics
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