The IPO Market Will End 2024 On A Low Note

In busier years for tech IPOs, the week after Labor Day is a brisk period for roadshows by companies looking to make an autumn market debut.

This year, however, isn’t playing out that way. None of the hot venture-backed tech companies seen as likely IPO prospects filed to go public in August. And while there’s still time to file and go public before the end of the year, there’s little indication of an appetite to do so.

“There will be no major pickup,” said Lise Buyer, partner at Class V Group, an IPO adviser. While it’s possible we’ll see some tech IPOs, she doesn’t expect to see a significant upturn in activity until the latter half of 2025 or even 2026 at the earliest.

Slower growth holding back new offerings

The forecast for a sluggish finish to the year follows several unusually boring quarters for the tech IPO market.

True, a few companies, including Astera Labs and Reddit, made well-received debuts this spring. A number of biotechs also carried out IPOs. But most weeks, the market has been uncharacteristically quiet. The postponement of Chinese autonomous vehicle startup WeRide’s U.S. IPO last month added further to the sense of inactivity.

The dullness is noteworthy because by many metrics, it doesn’t seem like an especially terrible time to go public. The tech-heavy Nasdaq Composite Index is up 31% in the past 12 months. Large caps like Nvidia, Meta and Apple are riding high. And the handful of tech companies that did go out haven’t performed badly.

Buyer, however, believes debut plans are getting delayed largely because many pre-IPO companies, particularly in enterprise software, are growing at slower rates than was typical during the bull market.

A few years ago, Buyer recalls, it wasn’t uncommon to see hot enterprise software companies growing revenue at 40% to 50% annually. These days, even top performers are likely to post annual revenue gains in the 20% to 30% range.

Valuation reset mostly complete

Buyer sees valuation concerns as a less pertinent factor holding back IPOs. Following the market downturn, scores of one-time unicorns had to take a valuation haircut. By this point, however, that process is mostly complete, even if not everyone is happy about it.

“Some management teams still think it’s temporary and still think valuations will go back up,” Buyer said. “But valuations won’t reach that level again unless growth reaches that level again.”

For now, even the hottest venture-backed companies are mostly holding off on market debuts. This is partly due to a “you go first” mentality, and partly to see if they can achieve higher growth rates and revenue, and thus secure a higher market cap down the road.

All told, the wait-and-see attitude made for a very sluggish August, which is often a much buzzier period for IPO filings. (In recent years, for instance, Snowflake, Palantir and Toast all filed in August.) There’s little indication September will be much busier, and companies will likely want to avoid making a debut right around the Nov. 5 presidential election.

Thus, it looks like those of us waiting for IPO action to pick up will have to set our sights on next year.