The tech Initial Public Offering (IPO) market seems poised for a resurgence. As we approach the brink of 2024, two expected IPOs stand out for the future of tech market debuts: Arm Holdings and Instacart.
Arm & Instacart: Leading The Charge
On one side, we have Arm, a company capitalizing on the ever-increasing demand for processing power in the world of Artificial Intelligence. On the other, there's Instacart, the grocery delivery giant whose rapid growth can be attributed to pandemic-induced demand shifts.
Their impending IPOs aren't just events; they're referendums on the appetites of investors. As many as 1,400 companies are waiting to test the IPO waters. The performances of Arm and Instacart might just be the lighthouse these companies need.
The Changing Landscape of IPOs
It's worth noting how the IPO dynamics have shifted. Gone are the days when the market was flooded with over 350 venture-backed companies making their debuts in a year. Now, investors have become more discerning. The key question isn't just about growth, it’s also about sustainability. There's a heightened scrutiny over whether these companies are on a path to profitability or are just money pits requiring incessant capital injections.
With only 43 U.S. venture-backed startups going public, the anticipation around Arm and Instacart, coupled with other potential 2023 debuts like Klaviyo, could rejuvenate this space. Arm's targeted listing valuation between $60-$70 billion makes its Nasdaq listing one of the most significant since Rivian in 2021.
Facing Reality Post 2021’s Bull Run
A focus on Instacart's journey offers insights into the challenges startups face today. Instacart's recent internal valuation plummeted to $13 billion from a high of $39 billion in 2021. This sharp reevaluation serves as a stark reminder of the market's volatility and the pressures of maintaining valuation.
Further emphasizing this point, Ben-Tzur notes the emerging trend of companies liquidating or resorting to fire sales. The reality is clear: many startups, which might have been prime IPO candidates a few years ago, no longer fit the bill.
What Lies Ahead
It's impossible to ignore the pattern of public listings from 2021. Companies like Coinbase, GitLab, and SentinelOne are trading below their IPO price. Given this backdrop, companies aspiring for public listings now must demonstrate both resilience and adaptability.
Startups eyeing IPOs have been restructuring their businesses and emphasizing KPIs over the last two years, hoping to align with the metrics valued by public investors.
A Glimmer of Hope
Arm, Instacart, and Klaviyo's filing decisions signal a possible end to the 20-month IPO hiatus in the tech sector.Their performances will set the tone for the plethora of startups contemplating their own IPOs.
The tech IPO resurgence, if it occurs, will be a testament to these companies' resilience and the market's enduring faith in innovation. Companies must prove their worth in the marketplace, with time being the ultimate test of their value.