The initial buzz around IPOs returning in 2024 has dimmed significantly even though there has been a surge in market optimism initially this year. NASDAQ CEO Adena Friedman lately poured cold water on the idea and outlined the reasons for a significant wave of IPOs from tech startups is unlikely. She laid out the underlying market realities at the Axios BFD event.
The S&P 500 has gained about 22% this year and it is a figure that would typically signal readiness for fresh public offerings. Friedman points out that the growth is misleadingly skewed toward a handful of large-cap titans like Apple, Nvidia and Microsoft. Their performance has buoyed the index and has masked weaker trends in other parts of the market. 2023 has been less of a success story for small-cap companies. Small-cap indexes are down around 10% and this reflects the ongoing caution of investor toward companies without the safety of large capital reserves and established revenue streams.
The environment spells trouble for startups eyeing a public debut. Investors are less likely to gamble on companies still in the red or reliant on external funding to sustain growth. Companies eager to IPO face a harsh reality and it is that they need at least a year of solid financial performance to be attractive to investors. This is a hurdle and many startups cannot yet clear following the economic volatility of 2022 and 2023. The era of “growth at any cost” has been forced into recalibration and IPOs have become the casualties of the shift.
Another factor at play is the growing allure of staying private. A powerful secondary market has emerged where investors can buy stock in private companies through approved channels. It gives late-stage startups a way to secure liquidity without facing the volatility of public markets. The option has become a sanctuary for companies reluctant to test their fate with public investors. Telemedicine provider Ro valued at $6.6 billion in its last fundraising round highlighted the advantages of staying private. It signals an industry-wide pause on the IPO track.
Friedman remains cautiously optimistic for a more IPO-friendly environment in 2025. She acknowledges that current conditions are not ideal. The total number of U.S. venture-backed IPOs has dropped sharply and it suggests that the IPO appetite is more snack than feast.
