Recap: The New Tech IPO Landscape
With layoffs, shake-ups, and surprising stars, the tech initial public offering market has been volatile lately as it rebounds from a particularly dry period. But will that rebound continue? And when’s the best time for companies to go public? As part of the Private Capital Conference, Jessica Lessin, CEO and founder of The Information, explored smart IPO strategies for today’s market with two experts:
- Michael Harris, global head of capital markets, NYSE Group
- Jean Park, partner, Cooley
Is the IPO Market Rebounding?
Lessin started off the conversation by asking Michael Harris about Reddit’s recent successful IPO, which saw the stock jump 48% at its debut. She asked what his experience was like in bringing the company out, and what he thought the broader implications were for the IPO market.
“It was a great example of a very successful offering,” Harris said. “It traded well right out of the gate, traded well by the end of the week and was well received by the public. From an IPO perspective, it brought an interesting mix of buyers.”
As for macro trends, Harris said, “Including the total equity capital market pool converts, follow-ons and IPOs, you’re seeing activity that’s up roughly 300% relative to last year. So things are steadily improving.”
Promising Positivity
Lessin asked Jean Park, who is a sought-after adviser to pre-IPO companies, what she’s seeing from her clients.
“We’re starting to see green shoots,” Park said. “Certainly the conversations and the boardroom dynamics have felt more hospitable to the topic of IPOs, as opposed to an earlier period when people were putting it aside and saying, ‘We need to focus on pivoting the business and the path to profitability.’ That’s still there, but now there’s optimism to the dialogues.”
But it’s not all blue skies. Park acknowledged that the slowdown isn’t over yet. “The kind of companies that two or three years ago would’ve been inundated with calls from advisers and bankers with, ‘Oh, you can be the next one to go’...aren’t getting as many of those calls anymore. The likelihood of being able to make a debut feels very different now.”
Buyers Are Going Back to Basics
Lessin talked about how structural issues were changing the types of buyers, and noted the reduction in the purchase of broad mutual funds in certain categories. She asked Harris his thoughts on the subject.
Harris responded by saying that the bar has become much higher for buyers. “The perspective of buyers has gravitated from the growth at all costs that you tended to see back in 2021 to much more of a back-to-basics version of how you look at the business.”
That back-to-basics approach also includes making sure the right management is in place. “There’s a certain credibility of management that has to be there,” said Harris. Another wrinkle is that the IPO process has become more extended than it was in previous cycles. “So for a lot of companies that are going public now, they’ve been in front of public-facing investors for several years.”
Prepping for Going Public
A lengthy pre-IPO period can be advantageous for both companies and buyers. Park said companies should view this as an opportunity to fine-tune their businesses. “There’s a lot of things that you can be doing right now to prepare yourself for the public markets. You can utilize this time to build a more mature level of operating.”
Harris agreed, adding, “The next crop of companies that come public are going to be some of the best-run companies. Because they’ve experienced a downturn in their business, they’ve been able to reduce cash burn substantially. They’ve survived a very tough funding environment. And I think that type of discipline is important as you make that transition to the public markets.”
The Future Looks Brighter
If the green shoots Park has observed bloom into successful IPOs, it looks like the market will be more welcoming to tech companies going public. And if one of the conditions is that companies need to be more buttoned up, that can only be good for both the business and the buyers.