After Reddit’s successful Wall Street debut in March, there was a sense among market experts that the market for tech initial public offerings was finally ready in 2024 to bounce back after the preceding two dismal years.
As it turns out, that didn’t happen. No other San Francisco tech companies — and only a handful based elsewhere — went public.
But IPO watchers say they are growing increasingly confident that the market is finally poised for a rebound and that next year — finally — will be better.
2025 is “definitely shaping up to be good year” for tech IPOs, said Neil Kell, chairman of global corporate and investment banking for Bank of America.
“We’ve been anticipating that for three years now, but I think it’s actually coming to fruition,” he said.
Among the factors that are pointing to a more robust IPO market, experts say, are a stabilizing economy and less macroeconomic uncertainty; the strong share-price performance of Reddit and other companies that did go public last year; and a rebound in the stock prices of the smaller and midsized tech businesses that are often used as yardsticks for startups that are planning to go public.
Additionally, the sky-high valuations that private companies garnered in 2020 and 2021, when venture money was free-flowing, have become less of a sticking point for going public, experts say. Those startups have increasingly grown into their valuations, their investors have already swallowed a cut to the companies’ worth, or those backers have become more comfortable with accepting such a cut so the businesses can go public, they say.
Given those factors and the number of companies that are queuing up, there could be 20 to 25 larger tech IPOs next year, or about double to triple this year’s tally, Kell said. That could be good news for San Francisco, given the large number of jumbo-sized startups that call The City home that have been waiting to go public.
And the IPO tally could be even higher than that. There are about 10 companies preparing to go public in the first half of next year alone, said Kristin Roth DeClark, global head of technology investment banking at Barclays.
If those perform well, “you could … see a situation where it just opens the floodgates” in the second half of the year, DeClark said.
Following the onset of the COVID-19 pandemic, the tech IPO market surged and then crashed.
In 2020, with the Federal Reserve flooding the economy with cash to stave off a recession, share prices soared, luring startups to head to Wall Street. That year, 53 tech companies went public, up from 43 the year before, according to data from Renaissance Capital, an investment firm that manages an exchanged-traded fund comprised of the shares of newly public businesses. That number jumped to 124 in 2021, according to Renaissance.
Among those newly public companies were 11 San Francisco businesses in 2020 and 26 the following year.
But with inflation starting to spike, the threat of higher interest rates and worries about a recession, stocks started to sell off in late 2021 and slumped into 2022, undermining the IPO market. Even as the stock market began to rebound in 2023, public offerings remained depressed, thanks in large part to startup valuations that remained stuck at sky-high 2020 and 2021 levels, rather than reflecting the reset that had happened in the public markets.
The result: Just 43 tech companies went public in 2022 and 2023 combined, according to Renaissance. The only San Francisco business to head to Wall Street in the period was Instacart.
But IPO watchers were hopeful the market was poised for a rebound after Reddit went public in March. The company priced its shares at the top of its range, indicating strong demand for its offering, and its stock price more than doubled within three days. The successful Wall Street debut of Santa Clara-based chipmaker Astera Labs around the same time added to their optimism.
Reddit CEO Steve Huffman celebrates the company’s first day of trading at the New York Stock Exchange on March 21.
Courtney Crow/NYSE
That hope proved unfounded. Including ServiceTitan, a cloud-based software company that completed its IPO in December, just 22 tech companies went public in 2024 — two fewer than the previous year. And Reddit remains the only San Francisco business to have headed to Wall Street last year.
A combination of factors undermined the IPO market in 2024, experts say. While Reddit and Astera’s shares initially jumped, they soon sold off. For much of the year, their shares and those of other recently public companies didn’t perform well.
Throughout much of the first half of 2024, inflation continued to be higher than the Federal Reserve’s targets. That prompted it to delay cutting interest rates, something investors had been counting on to boost the economy and the stock and IPO markets.
Even those who were optimistic about this year said they figured that political uncertainty would pause the IPO market as the presidential election drew closer. But many said they thought there would be a window for IPOs coming out of the summer, before the election and when many investors go on vacation.
A broad sell-off in the wider stock market in August essentially closed that window, said Avery Marquez, an assistant portfolio manager at Renaissance.
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That “took the wind out of any pickup we would have seen in September,” she said.
Meanwhile, many startups didn’t necessarily need or want to go public, IPO watchers said. Many of those best positioned to head to Wall Street didn’t feel like they needed to have IPOs to raise cash because they still had a decent amount on hand, thanks to the large funding rounds they raised during the immediate post-pandemic boom and subsequent cost-cutting.
Some were still dealing with valuation issues and were reluctant to see theirs cut, the experts said. Many were trying to improve their bottom lines to make themselves more attractive to public investors who are much more focused on profitability than they had been during the boom times, Kell said.
“That takes time,” he said.
Many companies have felt pressure to go public from private investors and employees who want to cash in their shares. But some have been able to relieve that pressure by allowing sales of their shares by such investors and employees in so-called secondary markets to other private investors.
On top of that, in a quiet market or one that’s just reopening, few companies want to be the first out, Kell said.
Add all those factors up, and they made for yet another depressed year for IPOs.
“All around, the recipe wasn’t there for these loss-making, risky tech companies to go public,” said Kyle Stanford, a lead venture-capital analyst at PitchBook, an industry research firm.
A board above the floor of the New York Stock Exchange shows the closing number for the Dow Jones industrial average, Wednesday, Dec. 18, 2024.
Richard Drew/Associated Press
Stanford and other IPO watchers said they think the market will take a turn for the better next year. Helping fuel that optimism is just how well the tech companies that did make it to Wall Street this year ended up performing.
ServiceTitan’s shares jumped more than 40% in its first day of trading. As of late December, Astera’s shares were up 277% since their March debut. San Mateo-based Rubrik’s stock price was up 110% since it hit Wall Street in April, and Reddit’s shares were up a staggering 396%.
Overall, Renaissance’s IPO fund, which includes the shares of both tech and non-tech companies, was up 18% as of press time in the year to date. That trailed the performance of the S&P 500 index but significantly exceeded that of the broaader Russell 2000.
Given that it just happened, ServiceTitan’s standout IPO is a good sign, said Rob Siegel, a lecturer in management at Stanford Graduate School of Business who focuses on startups and venture capital.
“It feels like it’s a positive momentum,” Siegel said.
Other factors point to a rebound, he and other market experts said. With the presidential election over and decided, political uncertainty has abated. The U.S. economy is relatively strong, inflation has moderated, and there’s the expectation that the Federal Reserve will resume cutting rates, experts said. That should put more money into the markets and increase investors’ appetite for risk, they said.
Many investors and corporate leaders also expect Donald Trump’s economic policies to be more favorable to businesses than President Joe Biden’s, which they feel would benefit the IPO market.
Regardless, startups have had another year to adjust to the new economic and market realities, get better at predicting their ongoing financial results, reduce their losses, take valuation cuts if needed and grow into the outsized the valuations they garnered in the boom time, the experts said.
There’s also growing recognition that even if companies hit Wall Street with market capitalizations that are lower than their last private valuations, they can quickly surpass those valuations — as Reddit did — if they top Wall Street’s expectations.
Taken together, all that should mean that 2025 will be a much better year for IPOs than any since 2021, they said. Rick Kline, who advises startups contemplating public offerings as the head of law firm Latham & Watkins’ technology industry group, said the number of companies he’s been talking to lately has been ticking up.
“It’s an interesting time,” Kline said. “It’s about to get more fun to write about IPOs.”
If you have a tip about tech, startups or the venture industry, contact Troy Wolverton at twolverton@sfexaminer.com or via text or Signal at 415.515.5594.
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