The initial public offering (IPO) landscape of 2024 has been dynamic, even if quieter than many had predicted. A diverse range of companies spanning technology, real estate, fashion, and beyond went public. In aggregate, these companies successfully raised $9.1 billion on public exchanges, marking a two-year high in activity. As we hit the mid-year mark, we'll delve into some of our initial 2024 IPO picks and outline the trends we foresee for the remainder of the year.
Notable IPOs & All Things AI
Reddit set the pace with a successful market debut, highlighting robust investor interest in tech and real estate innovations. Reddit's stellar first-day performance, with shares surging 48%, defied earlier market doubts and underscored strong investor confidence.
Investor interest in artificial intelligence (AI) IPOs has also surged dramatically in recent years, reflecting a growing enthusiasm for cutting-edge technologies. Companies like Astera Labs and Tempus captured significant attention from investors eager to capitalize on the rapid advancements in artificial intelligence and machine learning.
Astera Labs, which specializes in connectivity solutions for data-centric systems, has peaked investor interest due to its innovative approach to enhancing the performance and reliability of AI-driven applications. Its recent IPO attracted not only tech-focused investors but also those interested in the burgeoning semiconductor sector, where AI integration is increasingly important. The company’s stock surged over 70% on its IPO debut.
Tempus, known for its AI-driven healthcare technology, similarly sparked excitement among investors keen on the convergence of AI and biotechnology. Tempus' ability to harness vast datasets to personalize cancer treatment plans has resonated with investors looking to support companies at the forefront of precision medicine. Its stock jumped over 12% at its IPO after pricing at the top of its expected range, with a valuation of over $6 billion.
As companies like Astera Labs and Tempus continue to demonstrate tangible successes in applying AI to solve complex challenges, investor appetite for AI-focused IPOs is expected to remain strong.
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Upcoming IPOs to Watch
As highlighted in our 2024 IPO Outlook, Skims and ServiceTitan continue to be promising IPO candidates. Skims, last valued at $4 billion, represents a compelling opportunity in the consumer industry, driven by its inclusive brand ethos and rapid revenue growth. Its strong brand may also resonate with individual investors looking for investment opportunities in companies they use and love.
After postponing its IPO plans in 2022, ServiceTitan eyes a resurgence, looking to capitalize on increasing demand for technology solutions in service industries. There have been few updates to their respective companies filings, but both remain interesting prospects for 2024.
While not one of our initial picks, StubHub is reportedly gearing up for a summer IPO. The company is aiming for a valuation of at least $16.5 billion. A longtime player in the ticketing industry since its inception in 2000, StubHub was acquired by eBay for $310 million in 2007, only to be reacquired by co-founder Eric Baker in 2020 for $4 billion through his new company Viagogo. Working closely with JPMorgan and Goldman Sachs over the past two years, StubHub's IPO plans mark a significant move as it prepares to re-enter the public market.
International Strategy and Market Adaptation
While they initially confidentially filed for a U.S. IPO, circumstances appear to be favoring a European IPO for Shein. Shein's decision to pursue a London Stock Exchange listing over a U.S. IPO highlights strategic maneuvering amidst regulatory and trade practice scrutiny. With a targeted valuation of $64 billion, Shein's move reflects considerations of investor sentiment amid global political dynamics.
Emerging Trends
The IPO market has been influenced by a mixed bag of trends and market dynamics. Fluctuations in interest rates play a pivotal role in IPO dynamics, influencing investor appetite and valuation considerations. Lower rates can impact borrowing costs and market liquidity, which can also impact IPO timelines. Interest rate reductions by the European Central Bank and Bank of Canada in June have signaled the onset of monetary easing among major global economies.
Meanwhile investors remain cautiously optimistic of additional action by other central banks. The Federal Reserve in the United States is anticipated to implement a rate cut in the coming months, markedly less than the originally anticipated three cuts this year. These changes reflect a coordinated effort among central banks to navigate economic challenges and stimulate growth.
The upcoming U.S. presidential election also introduces significant uncertainty into the IPO landscape. Despite historical trends indicating minimal impact on IPO activities, the polarized political climate and potential policy shifts could sway market sentiment. Companies may delay IPOs to avoid market distractions or shifts in investor focus during the election cycle.
While most IPOs historically proceed unaffected by elections, heightened social unrest or market volatility preceding the election cannot be ignored. Companies planning to IPO may wait for a hopefully more stable, post-election market environment to enhance investor confidence.
Geopolitical uncertainty can cause companies to push out IPO timelines as well. Golden Goose's IPO postponement due to European political turmoil underscores how geopolitical events, such as elections, can disrupt market conditions and investor confidence. This cautionary tale highlights the need for companies to assess timing carefully amid fluctuating market sentiment.
Private Markets Offer Opportunities
With subdued IPO activity, investors are turning to the private secondary market for both liquidity and investment access in venture capital-backed tech startups. The lack of exit opportunities creates an issue for many venture capital and private equity firms. Evelina Anttila, CEO and managing partner of early-stage Swedish VC Wellstreet, highlighted “a well-working VC market requires a well-working exit market.”
Because of this, institutional investors are turning to platforms like EquityZen to sell pre-IPO. These investors aim to diversify their portfolios and return capital to limited partners, especially in a tough funding environment. In 2023, venture capital fundraising in the U.S. plummeted to its lowest levels in six years, totaling $67 billion, a 50% decrease from the previous year.
The growing secondary market has created opportunities for new investors looking to acquire stakes in startups at discounted valuations. Firms like Lexington Partners are taking advantage of this opportunity. The firm raised a $23 billion fund to capitalize on the secondary market surge.
In the second quarter, the average private company traded at a 33% discount to its last round of primary funding on EquityZen’s platform. While not without risks like potential illiquidity and more limited information than in the public markets, our data indicates that there still are attractive buying opportunities given valuation corrections over the past two years.
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Outlook
Looking ahead, the IPO landscape presents both challenges and opportunities amidst evolving economic conditions and geopolitical uncertainties. Companies navigating these dynamics must exhibit strategic foresight and flexibility, while navigating risks associated with global events and political changes. Companies must have a strong balance sheet, robust business model and significant management support to successfully navigate an exit that benefits all shareholders.
The IPO market is not the only avenue for exits and investment access to growing tech companies. In addition to going public, many are considering acquisitions or internal tender offers as shareholder liquidity alternatives. While going public remains a critical avenue for capital-raising and expansion, the private secondary market has emerged as a vital alternative, especially during a quiet IPO market. Investors and shareholders are increasingly exploring this growing market and its opportunities while we await a proper IPO resurgence.
