What to watch for in the 2022 IPO market

After a rambunctious year for public listings, an evolving market now threatens to end the good times. Both SPACs and traditional IPOs have given underwhelming stock market performances, and inflation is leading to…

interest rate hikes that could weigh on valuations.

But there are still plenty of reasons to believe that PO activity will be strong in 2022. For starters, there’s an abundance of IPO-ready companies thanks to a decade-long buildup of venture-backed startups.

Nearly 700 US VC-backed companies are valued at more than $630.8 million, the median exit value of a 2021 public listing, according to PitchBook data. That figure is far larger than the 220-plus IPOs in 2021, leaving the market with plenty of potential candidates.

“Eventually all that money that comes in has to come out,” said Cameron Stanfill, a venture capital analyst at PitchBook who recently predicted that more VC-backed companies will go public in 2022 than in 2021.

With few enterprise giants large enough to acquire them, multi-billion-dollar companies typically have no option but to go public eventually, Stanfill added. And as investors’ portfolios swell with these high-value holdings, they face increased pressure to secure an exit that returns value to LPs.

Upcoming US mega-IPOs include social media platform Reddit and yogurt maker Chobani. IPO plans are also reportedly in the works for Porsche, Indian ecommerce giant Flipkart, precision medicine company Tempus Labs and Indonesia’s GoTo Group.

While hundreds of companies may be ready for the public stage, private markets are more accommodating than ever to late-stage companies. In the first nine months of 2021, mega-rounds of $100 million or more accounted for more than half of total VC investment, according to the Q3 PitchBook-NVCA Venture Monitor. VC firms also raised a record $96 billion during the period, led by growth in the largest funds.

With so much capital flowing from VC investors, companies will find that IPO timelines can be extended easily if market conditions aren’t ideal.

“I think you’re going to see a gradual softening of the market,” said Ali Mitchell, a partner at EQT Ventures. “There’s an enormous store of companies, but 2021 has been a peak.”

Another potential damper on the IPO market is…

 

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