Executive Director of ReAlpha. Tech entrepreneur: 1 IPO, 2 exits. Author, “Nothing about Nasdaq.”
Since the second half of 2010, US public markets have seen a general decline in initial public offerings (IPOs).
Between 2000 and 2022, there were 5,934 IPOs. The fewest number of IPOs in a single year was in 2009, with just 62. Yet, interestingly during an overall downturn, 2021 holds the all-time record for IPOs with 1,033, beating the previous record of 480 in 2020; however, there were only 181 IPOs in the US stock market in 2022.
IPO Decline Factors
One of the main factors behind this decline is the growing popularity of private markets, which allow companies to raise capital without going public. This has led to a reduction in the number of companies opting for IPOs. Additionally, some highly successful companies such as Spotify and Slack have gone public through direct listings. These cases are controversial because it cuts out all middlemen.
Another factor contributing to the decline of IPOs is the high cost and complexity of the process. Because going public is such a time-consuming and expensive endeavor, many companies prefer to remain private instead. From 2020 to the end of 2021, the markets started to froth and the markets responded with increasing interest in special purpose acquisition companies (SPAC). According to Nasdaq, there were 613 SPAC listings in 2021, raising a total of $145 billion, “91% above the amount raised in 2020.”
Additionally, the volatility and uncertainty of the stock market has made some companies hesitant to go public. The unpredictability of the market can make it difficult for companies to successfully handle an IPO.
The decline in IPOs was also exacerbated by a lack of blockbuster offerings. In the past, there have been several highly anticipated IPOs that have generated a lot of excitement and interest in the public markets. In recent years, however, I’ve seen fewer of these high-profile offerings.
To reverse this trend, both the NYSE and Nasdaq are pushing for the SEC to ease reporting and other conditions for multiple public offerings. The SEC last December eased a number of rules for direct public listings. These reliefs are expected to make the process cheaper and more streamlined for many companies.
Despite the decline in the number of deals and capital raised, the public markets remain a key source of funding for many companies. In 2021, US firms raised $142.4 billion through 397 deals, but that momentum slowed in 2022, with just 71 deals raising $7.7 billion.
These phenomena are not limited to American markets. This affected the entire global market and even the VC industry. Silicon Valley faces intense pressure to raise capital, unlike the boom from 2015 to 2021; however, some experts predict that the IPO market will recover in 2023 as companies continue to see the benefits of going public.
Even if IPOs recover, it will continue to be affected by current market conditions. With the continued economic uncertainty and volatility caused by the Covid-19 pandemic, many companies may choose to delay their IPOs or choose alternative fundraising methods.
The technology sector
However, it’s worth noting that the tech sector is one of the few bright spots in the economy, with many tech companies continuing to perform well even during the pandemic. This could lead to more tech companies going public as they look to take advantage of strong investor appetite for tech stocks.
Additionally, I expect the rise and growing adoption of new technologies such as 5G, artificial intelligence, and the Internet of Things (IoT) to drive significant growth in the technology sector in the coming years, which could also lead to more technology IPOs.
Still, some members of the Silicon Valley community expressed frustration with the lack of available capital. Many startups and small businesses are struggling to secure funding as investors have become more risk-averse. This contributed to the decline in the number of new businesses and made it difficult for existing companies to grow and expand. As a result, I’ve sensed growing pessimism in Silicon Valley as people worry about the future of the industry and their own prospects.
Overall, the decline in IPOs is a reflection of the changing landscape of the business world. As more companies choose alternative ways to raise capital, the public markets will need to adapt to remain relevant.
The information provided here is not investment, tax or financial advice. You should consult a licensed professional for advice regarding your particular situation.
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