Silicon Valley is famous for producing technology companies that start in garages and grow into globally recognized large publicly traded corporations. From Oracle and Microsoft to Google and Facebook, the public market has been responsible for transforming ambitious tech founders into billionaires. However, a survey released this week by startup accelerator Techstars shows that the appeal of IPOs is diminishing. Among the 1,550 entrepreneurs surveyed by Techstars, only 15% stated that their long-term goal is an IPO. This is a decrease from 16% during the same period last year. After the collapse of the tech IPO market in 2022 due to skyrocketing inflation and rising interest rates, which forced investors to shed risks and significantly lower valuations, many late-stage companies postponed their plans to go public. The previous year was a record-breaking period for new product launches, with companies like Roblox, Robinhood, Rivian, and UiPath entering the market. There have been few notable tech IPOs in the past two and a half years. Techstars stated in its report, “Coupled with a lack of confidence in the short-term rebound of IPOs, this year’s data further highlights the trend of startups staying private for longer, with IPOs no longer favored by the vast majority of early-stage entrepreneurs.” Thirty-four percent of entrepreneurs surveyed lean towards being acquired by a public company, down from 36% last year, while 30% state their goal is to remain private or independent, up from 28% in the previous report.
The New York Stock Exchange (NYSE) trading floor is prepared for the initial public offering (IPO) of social media platform Reddit in New York City on March 21, 2024. Investment banks have been preparing for a rebound. Colin Stewart, global head of technology equities capital markets at Morgan Stanley, said in April on CNBC, “The IPO market is back,” and expects 10 to 15 tech companies to go public by the end of this year. Stewart stated that high-priced and well-traded IPOs “prepare for the future.” Prior to Stewart’s statement, Reddit went public in March, becoming the first major social media company to hold an IPO since Pinterest in 2019. Astera Labs, which sells data center connectivity chips to cloud and AI infrastructure companies, went public in the same week, and data management company Rubrik went public in April. Prior to this, chip designer Arm, grocery delivery company Instacart, and cloud software supplier Klaviyo made their first appearances in September, with a brief surge in activity. However, compared to the pre-2022 era, the new tech companies on Wall Street have mostly remained silent. Uncertainty surrounding the November presidential election suggests a lack of activity for the remainder of the year. Athena Theodorou, head of software banking in Europe at UBS, said on CNBC’s “Squawk Box” on Wednesday, “We have elections coming up, and that’s not helpful for the market in the second half of the year.” Theodorou added, “We do expect the market to remain subdued in the second half.” However, she noted that the IPO market in Europe is showing signs of recovery. Observation: Europe’s IPO market is rebounding. But not in tech.