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After a yearlong freeze, the IPO market kicked off this summer with a whimper, not a bang, as Instacart’s once-hyped valuation came in billions lower than it did in 2021.
To many observers, that spelled trouble for the IPO market as a whole, as higher interest rates seemed set to derail other market debuts. In all, the IPO market has largely floundered in 2023, but a rebound looks increasingly imminent (or at least possible).
In CFO Brew’s latest live event, To IPO or Not to IPO, Eric Hall, consulting CFO and partner at FLG Partners, spoke with editor Drew Adamek about the current and future state of the IPO market.
First, the bad news: Hall said the closest parallels to the current moment are the Great Recession and the dotcom crash of the 1990s. In the case of 2007–2008, funding for the life sciences didn’t kick up again for another four or five years, he noted.
“We’re seeing the same thing now on the tech side,” he said. “Reminds me of the dotcom crash [too]. One day you’re flying high, the next day you’ve been wiped out.”
But some companies have been especially adept at riding out this period of IPO drought, he noted. “For tech companies, it’s really [about] looking at revenues. You really need to start forecasting your revenues. Are you going to be able to hit your goals, hit your targets?” he asked.
If not, it becomes a matter of cash management. “A year’s worth of cash, make it last 18 to 24 months. How can you do that? It’s putting projects on hold that maybe you want to do, but you can’t because you just don’t have the money,” he explained.
Savvy companies should get back to basics, Hall added. “That five-year plan really is important,” he said. “Don’t do it once at the end of the year for budgeting purposes and file it away. That’s something you need to be reviewing at least quarterly, at the minimum, and even more frequently if things change.”
These tactics might become less relevant in 2024, and here comes the good news: Hall sees the IPO market looking at least slightly up next year, especially as interest rates stabilize and unemployment numbers fall “into the range where the Fed feels it’s going to be anti-inflationary,” he said.
“The fact that you’re having a lot of companies looking to maybe go public in 2024, I think it’ll be a good year for IPOs in 2024,” Hall continued. “I’m encouraged that 2024 will be better. We definitely need it.”