EquityZen is out with another note reiterating its expectation that the initial public offering (IPO) market will pick up toward the end of the year.
Currently, IPOs during Q1 of 2023 were pretty tame, with just 33 IPOs on US exchanges.
According to EY, the amount of IPO proceeds raised was generally in line with Q1 2022 but well below levels seen in comparable periods over the last decade.
Inflation, rising interest rates, market volatility, and uncertainty have wreaked havoc on public markets, with money and issuers parked on the sidelines waiting for a return of normalcy – whatever that is.
Phil Haslett, EquityZen’s co-founder, says that following summer doldrums, IPOs will pick up before the holiday season kicks in.
“Some of the companies we highlighted in our IPO Outlook previously, such as Navan (fka Tripactions), have openly indicated their intention to go public this year. The IPO pipeline is robust, but volatility in market conditions (rate increases, geopolitical activity, etc.) is driving the uncertainty in timing. That said, pre-IPO activity is still happening behind the scenes,” says Haslett.
He adds that many EquityZen investors are interested in Fintech, AI and SaaS company which may translate over into public market interest.
At the same time, capital remains constrained for startups, but the dealmaking activity decline looks to be stabilizing.
In the absence of an “open” IPO market employees and shareholders in private firms are eager for liquidity.
“Early employees have options/RSUs that are expiring and are looking to employers for answers. Companies can conduct a tender program, which is costly and time intensive or allow secondary liquidity.”
Haslett states that more companies are discussing liquidity programs and services at EquityZen.
“While many private companies held off on fundraising hoping for a market rebound, more will capitulate to the current market reality and raise a down round. The average private company is trading at a 40% discount on EquityZen’s platform, mirroring the valuation correction that took place in the public market in 2022. We expect to see similar downrounds announced.”
If inflation continues to recede and interest rates pause, and perhaps reverse, this will be good for both private and public markets. But the jury is still out as to when this will take place.
