Don Short is Head of Venture Equity at InvestX.
What is the IPO outlook for 2024?
Some companies that were hoping to IPO in 2023 but pushed back their IPOs after the tepid reception received by Birkenstock, Instacart and Arm will test the IPO market in the first half of 2024 based on the relative strength in public market growth stocks in late 2023. After that the IPO market will depend on the strength of the economic outlook. We don’t expect any real momentum to develop in the IPO market in 2024 as we expect the economic outlook to swing back and forth between concerns about inflation and concerns about economic growth.
What are the factors for companies to IPO and what kind of companies do you expect to lead IPOs in Q1?
The primary criteria for attractive IPO candidates are growth and profitability. Companies that don’t need to access capital but want access to liquidity are the best candidates in the current market.
With the exception of some AI related names, it is difficult for unprofitable venture backed companies to access capital for growth. Additionally, there are companies that are lining up to go public in the New Year, that have been private for 15-20 years and lack a compelling growth story.
The companies that could create some excitement have either said they are not ready/interested for 2024, like SpaceX, Canva, etc., and many of the AI related names that are not yet mature enough to IPO or have some complications preventing an IPO like Bytedance and Shein.
You also need to consider that the public market is starting to look overbought, and we might begin rolling over again soon, pouring cold water on potential IPOs. We are probably in for another year of this trendless market that fluctuates between overbought and oversold and keeps the potential IPO candidates on the sidelines waiting for short IPO windows that don’t allow momentum to build in the IPO market.
What private market trends are getting underway that people may not know about but will be important?
The largest trend by far is the development of artificial intelligence. There is the very visible emergence of large language models and pure play companies like OpenAI and Anthropic, but the less obvious and potentially more important aspects of artificial intelligence will be the ways that it reinvigorates older business models.
Generative AI has the potential to dramatically improve productivity and lower costs for many traditional businesses. We are seeing this already at large tech companies like Microsoft, Meta, Google, Amazon, and Apple with the introduction of strategic initiatives. I anticipate this trend to filter down to companies of all sizes that announce new products, lower cost structures and higher growth rates based on the introduction of AI related products.
From an investor’s perspective in the private markets, we are seeing some very interesting opportunities. Trading volumes and interest levels are still quite low, but we are seeing some very exciting fundamental developments in companies that are going unnoticed by investors.
