The IPO market has lagged so far in 2022, with recent data from Connecticut-based IPO investment management and research firm Renaissance Capital LLC revealing that fewer than 20 U.S. companies have debuted since the start of the year. According to…
EquityZen Co-Founder and Chief Strategy Officer Phil Haslett, there are several factors contributing to the IPO slowdown.
“So it’s a number of things [causing the pullback in number of IPOs] and really just a perfect storm,” Haslett told Yahoo Finance Live. “You’ve got instability globally with what’s going on in Ukraine. You’ve got inflation uncertainty. And you’ve also just got a big pullback in valuations kind of across many sectors, mainly in tech. And so when you put those all together, you get a lot of volatility, and volatility is kryptonite to IPOs.”
Haslett joined Yahoo Finance Live to discuss the deceleration and volatility seen in the IPO market. EquityZen is a New York-based company which operates an online marketplace for trading pre-IPO employee shares from privately held companies. The platform provides accredited investors access to company-approved, pre-IPO late stage technology investments via their investment funds.
Last year was a record year for IPOs, with low interest rates serving as a catalyst for nearly 400 U.S. debuts to raise over $140 billion, according to Renaissance Capital. The 18 companies that have gone public so far in 2022 have only managed to raise a total of around $2 billion. On top of this, the performance of stocks that went public in 2021 has been lackluster — the average 2021 IPO is down over 20% from its issue price, according to Renaissance Capital Research Director Nick Einhorn.
The market correction in bloated valuations of companies that debuted last year has encouraged some pre-IPO companies to reevaluate their worth. For instance, Instacart recently made headlines when it cut its own valuation by almost 40% to $24 billion.
“I absolutely think this is kind of just the tip of the iceberg,” Haslett said. “I think it was a really smart move by Instacart to kind of come out and say, look, we’re not really a $40 billion company when you compare us to our public competitors. We’re really a $24 billion company. Why penalize our employees and get stock valued at $40 billion, only to have the market down? So I think it’s something that they kind of took on the chin up front, which I thought was really smart, and it’s going to lead to some other companies [to do the same].”
With the SEC now proposing new policies that would strip the advantages of special purpose acquisition company (SPAC) mergers over traditional IPOs, even further uncertainty looms for private companies aiming to hit the street. SPAC mergers represented a majority of new listings in 2021, and the prevalence of SPAC listings saw a jump of almost 150% last year from 2020.
The SEC’s proposed policies would eliminate “safe harbor” protections that allow companies being acquired through a SPAC to provide more forward-looking projections than are allowed for traditional IPO issuers. The new rules would also require more comprehensive disclosures to be made to investors regarding potential conflicts of interest between SPAC sponsors and target companies.
“A lot of SPACs that would have normally approached these companies are facing more and more scrutiny and are really going to have to make a tough decision,” Haslett said. “So I do think this [slowdown] is going to…
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