It’s a touchy time for private companies to consider an IPO. Though 2023 ended with some macroeconomic green shoots (looking at you, slowing inflation), interest rates are still high, geopolitical troubles abound, and recession fears are sticky.
And the IPO drought of the past two years has left startups, VCs, and bankers in a state of anxiety-riddled paralysis.
“There’s a pretty good cohort of ‘in-line’ companies that are just sort of waiting,” said Javier Avalos, CEO and cofounder of Caplight. “They could be public companies today, and they’re just waiting for the market to clear up a little bit. They want to see that IPO window crack open.”
In other words, someone’s gotta go first. There are a number of likely go-public candidates that I’ve come across in my reporting. That eclectic group includes Databricks, Canva, Turo, Chime, Klarna, Stripe, Fanatics, Liquid Death, Reddit, and Shein. Some, like Shein, have reportedly confidentially filed for an IPO, while others remain speculative.
I don’t envy these management teams. Some will be forced to make an incredibly difficult decision this year, balancing their cash runway with the anxiety of investors, who are under increased pressure of their own to return capital to LPs. These startups will also be negotiating a weird year with yet another wild card – the presidential election, which makes a Q4 IPO something that at minimum might make companies do a double-take.
Part of the trouble is that no one in a position of unequivocal strength is incentivized to be the guinea pig that opens the market. They have the luxury to wait for a better climate. To wit: None of the five most buzzed-about startups on the secondary market right now are believed to be prepping for a public offering—that group includes SpaceX, ByteDance, OpenAI, Anthropic, and Cohere, according to Avalos.
So the likely first round of IPO candidates will go public because they’ve run out of other options, whether that be raising more venture capital on attractive terms or finding someone to buy employee stock.
“These companies are so massive, and they need so much capital,” said PitchBook senior venture capital analyst Vincent Harrison. “The more large companies chasing the pool of private capital, the competition becomes so fierce that it’s just like ‘okay, maybe we’re better off going to the public markets.”
The ‘we had no choice’ IPO doesn’t tend to go well. Take Instacart, which went public in September at $30 a share and was expressly looking for liquidity. News stories called Instacart a “blockbuster IPO,” and while shares popped on listing day, Instacart’s stock has since fallen more than 20%.
This raises another question: What even is a “blockbuster IPO”? It strikes me as a phrase that’s out of date, at best. It evokes a bygone time in tech, when sky-high revenue projections or user growth mattered most. Neither Snap nor Uber was profitable when they went public, something this year’s crop of IPO candidates won’t be able to readily get away with. In Hollywood, a blockbuster is a big-budget movie that’s broadly popular and commercially successful. In Silicon Valley, everyone seems to have their own definition of a blockbuster IPO. For some it’s a big first-day pop, to others it means raising a boatload of money. But however you define it, 2024 is not looking like it’ll be a year with a lot of public market blockbusters. Despite rumblings that big names like Canva or Databricks are contemplating going public, FPV Ventures cofounder and managing partner Pegah Ebrahimi told me that those names, if we see them take the leap at all, aren’t likely to be the first ones we see.
“We’ll see IPOs pick up this year, but don’t expect anything crazy,” she said. “The top 1% can definitely go now, but the first wave likely won’t be the cream-of-the-crop names…We’ll instead see higher volumes from middle of fairway companies that won’t be blockbuster debuts and are thinking ‘might as well go, we’ve been waiting for a while’.”
The thing I’ve always loved about IPO discourse is that it’s messy, convoluted, and often extreme (hence, the use of adjectives like “blockbuster”). And the reality is, until companies file their S-1s and show us their books, there's simply no way to judge a strong IPO candidate from a dud, or to distinguish a company going public thanks to the momentum of its business versus one going public out of desperation. So the waiting game continues—for startups to get the nerve to take the leap into the IPO process, and for investors to peruse the financials.
We’re also coming out of a 2023 marked by Hollywood blockbuster flops, from Aquaman 2 to The Marvels to Shazam! Fury of the Gods. Maybe it’s not a good time for blockbusters of all kinds anyway.
Or maybe a “blockbuster” just isn’t what it used to be.
Scoop: Great Hill Partners is seeking a buyer for One Inc and has hired an advisor to run a process for the fintech, according to four banking and private equity executives. One Inc is expected to sell for $1 billion to $2 billion, they said. Founded in 2012, One Inc provides a payments platform that's used by insurance carriers. Great Hill acquired One Inc in January 2020. One Inc declined comment while Great Hill did not return messages for comment.—Luisa Beltran
And now for this month’s cartoon from Ian Foley…
See you tomorrow,
Allie Garfinkle
Twitter: @agarfinks
Email: alexandra.garfinkle@fortune.com
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