IPO readiness: Is the market opening for tech companies?

By Barrett Daniels and Previn Waas

Talking points

• After stalling last year, the IPO market began showing signs of life, with some high-profile technology companies making their public debut in September.
• But the most anticipated tech IPOs soon broke issuance price despite exceptionally favorable metrics.
• That’s prompted other tech firms to put IPO plans on pause and focus on improvements that can help them grow into their past valuations. 

Is the tech IPO market opening? Here’s what we know

September was a big month for the US IPO market, with a number of high-profile companies making their public debut. All told, the deals raised roughly $7.2 billion, which surpassed all IPO proceeds raised in 2022,¹ prompting speculation that an IPO boom was possibly in the works. Is it still looking that way for the software and technology industry? Let’s break it down.

Signs of life

A year ago, the IPO market remained stalled. But this summer, we started to see signs that investors were regaining confidence in the market. After surging in March, the Chicago Board Options Exchange’s Volatility Index (VIX) began to edge lower. By June of this year, the VIX was the lowest it had been since before the pandemic. Also, emerging growth companies were dipping a toe in the public markets. The earlier movers weren’t so-called tech unicorns—think retailers, restaurants, and the like—but the market was beginning to stir. There was reason for optimism.

Expectations peak, then moderate

Meanwhile, some high-profile companies revealed plans to go public. That excited investors and heartened later-stage private ventures that were either profitable or getting close to profitability. In September, 15 companies rang in their first day of trading—including the first technology unicorn IPOs since 2021 and one of the largest tech IPOs in history.

By this time, though, market watchers had noticed a few things. First, some of the most anticipated tech IPOs had attributes that set them apart from their peers (think dominant market share or exceptional profitability). Second, despite their outstanding metrics, the newly public companies were struggling to hold their respective IPO prices. The optimism was waning.

An industry reevaluates

Unfortunately, these challenges have prompted other tech companies to question whether they can make an IPO happen in the near term. It’s likely that valuations had simply gotten too high in 2021, when capital was relatively easy to come by. It’s also possible that there’s a mismatch between what management thinks a company is worth and what they’re able to get on the market today. Down rounds, regardless of whether they’re in the private sphere or the public markets, are often a tough pill to swallow.

Either way, we’re seeing many emerging tech companies—especially the ones that have raised sufficient financing—put IPO plans on pause. Instead, they’re looking at ways to improve their operations and ultimately grow into their prior valuations.

Getting your house in order

So what does this mean for tech companies weighing an eventual IPO? There’s no time like the present to get your house in order. Doing things like implementing key systems, streamlining the close process, and making sure company forecasts and projections are bulletproof will likely be very valuable to any company when the time for an IPO comes. Also, it’s never a bad time for pre-IPO tech companies to find the scarce talent they’ll need to run a public company finance and accounting operation.

If you’re not sure where to begin, our free IPO SelfAssess tool can help you gauge your ability to go public with a tailored assessment. The tool provides you with useful insights and identifies potential areas for improvement based on the feedback you provide. Check it out and let us know what you think. And if you’d like to discuss your company’s IPO readiness journey in greater depth, let’s connect.

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¹ Bailey Lipschultz, Julia Fioretti, and Julien Ponthus, “IPO optimism grows, fueling hope for global recovery,” Bloomberg, September 27, 2023.