2024 may be the year of ice-breaking technology stock IPOs A large group of long-awaited startups are expected to be listed

Highlights:

• 1

  In 2024, or the year of the ice breaker for tech IPOs, Reddit, a veteran social news site, is expected to be one of the first startups to go public.

• 2

  The vast majority of startups waiting to go public are at least 12 years old.

• 3

  Among the companies preparing to go public next year are Shein, Zeekr, Rubrik, Klarna, StubHub, Turo and other companies.

• 4

  ByteDance, Stripe, Canva, and Databricks are likely to wait until at least 2025 before choosing to go public.

Tencent Technology News reported on December 6 that according to foreign media reports, at the anniversary of the establishment of the social news site Reddit held in June this year, the company's CEO Steve Huffman (Steve Huffman) and Y Combinator founder Paul Graham (Paul Graham) recalled the past time together in front of employees. Reddit was born in 2005 as one of the first startups incubated by Y Combinator. Since then, other startups incubated by Y Combinator have failed one after another.

"Reddit was the last one to survive," said Jodi Anderson, who works in ad sales at Reddit. "It's crazy. "2024 could be a big year for initial public offerings (IPOs) for tech stocks, with a slew of long-established tech startups poised for IPOs in the year, including Reddit, which will celebrate its 19th birthday next year. In addition, payments company Klarna (19 years old), ticketing giant StubHub (17 years old), online car rental site Turo (15 years old), ticketing website SeatGeek (14 years old), American version of the rebate website Ibotta (13 years old), home service software provider ServiceTitan (12 years old) and fast fashion retailer Shein (12 years old) are all expected to make IPOs next year.

According to data compiled by Jay Ritter, a professor of finance at the University of Florida, these companies have all been around for more than the 11-year median it took for a startup to go from inception to an IPO between 2001 and 2022. Some of these companies have a tortuous and unusual history, including Reddit, once owned by Condé Nast, which until recently began to expand its advertising business, and StubHub, a former publicly traded company that was later privatized by one of its co-founders. Other companies, such as Klarna and SeatGeek, have been invested by venture capital firms for at least a decade.

Ryan Nolan, global co-head of software investment banking at Goldman Sachs, said: "We're seeing a group of companies that haven't been on the market for too long. I think the existing investors in these companies will take the position of, 'We don't really care what the price of going public is; we need liquidity.'" ”

Many of the younger startups are also gearing up for next year's IPO, especially Skims (4 years old), a popular consumer-oriented startup like Kim Kardashian, according to people familiar with the matter. It is reported that these companies have been in talks with investment banks in recent months to prepare for listing. Non-sparkling water brand Liquid Death (7 years old) has hired Goldman Sachs to prepare for its IPO. Microsoft-backed data security startup Rubrik (10 years old) and Chinese electric vehicle startup Zeekr (3 years old) originally planned to make an initial public offering at the end of this year, but both postponed plans until next year.

Bankers and investors are hoping that next year's IPO market will be close to a normal active year after two years of dryness. But this may just be wishful thinking, as they had hoped that the IPO market would also recover this year.

According to Goldman Sachs, between 2013 and 2020, an average of 36 tech companies went public each year, although a number of highly-valued companies such as Airbnb and Uber also postponed their listings. The past three years have been boom and bust – as rising interest rates have dampened investors' appetite for risk and adjusted their valuation models, with 112 tech companies conducting IPOs in 2021, compared to a total of only seven in the past two years.

At the beginning of this fall, some startups tried to break the deadlock, but the response from secondary market investors was tepid. Since going public in September, grocery delivery company Instacart has mostly traded below its IPO price, while marketing software company Klaviyo has traded only slightly above its IPO price.

Companies that choose to go public next year may have to accept a down-round IPO, which means listing at a lower valuation than it was at the time of its final round of funding. For example, if Reddit had chosen to go public at the same price-to-sales ratio as Snap, the company would be valued at about $5 billion, half of what it was valued at the time of its final round. It was previously reported that Reddit's revenue in 2022 was around $670 million. So far, the company has not commented on the report.

"The market will be selective," said Mike Bellin, head of the IPO practice at PwC, an accounting firm. If the first-to-go startups perform well and the Federal Reserve starts lowering interest rates, sentiment could change quickly in the second half of the year – though the US presidential election could delay more IPO plans.

The first companies to go public are likely to be some of the startups that have been around for a longer period of time, especially those that are under pressure from investors. Another established startup preparing for an IPO is Egnyte, a 15-year-old secure data storage startup that has received investment from Kleiner Perkins and GV (formerly Google Ventures). The company recently hired JPMorgan Chase to lead the initial public offering, which it hopes will be listed in May, according to people familiar with the matter.

In July, Egnyte published a blog post on the company's anniversary, writing that its founder, Vineet Jain, had in mind the 1997 single "Tubthumping" by the British band Chumbawamba when he started the company. The company said it now has more than $200 million in annual recurring revenue, which bankers see as an important threshold for an IPO. As of now, an Egnyte spokesman declined to comment.

"They have a longer period of time to build their track record and get their finances back on track," Karen Snow, Nasdaq's global head of listing, said of older startups. "But it could also mean that there is less upside for growth because they are really ripe in the private market. ”

Select Wait and see

Ordinary investors are unlikely to get a chance to buy shares in the companies they really want next year: fast-growing design software startup Canva (valued at $25 billion), artificial intelligence software company Databricks (valued at $43 billion), payments company Stripe (valued at $50 billion), Elon Musk's space exploration company SpaceX (valued at nearly $150 billion), and Chinese social media giant ByteDance (valued at more than $200 billion). )。 In 2024, all of these companies will be more than 10 years old.

All of these companies have found investors in private markets who are willing to invest more new capital this year, or buy shares of employees and early-stage investors, allowing them to postpone their IPOs. "Companies of the highest quality can often find support in the private market," Snow said. "It's a question of how long you can do it. ”

There are signs that these companies may be starting to move towards the open market. Stripe hired Steffan Tomlinson, its chief financial officer, in August, who was responsible for the initial public offerings of two companies, Palo Alto Networks and Confluent. This has sparked some speculation that the payments company may act soon.

According to previous media reports, SpaceX is discussing divesting its satellite internet business Starlink at the end of 2024, although Musk has denied this. Canva, the star of last month's Goldman Sachs tech show, is more likely to go public in 2025, according to people familiar with the matter.

Previously, it was reported that Databricks employees waiting to cash out had to accept high-interest loans secured by their private shares because of the delay in going public. Jane Dunlevie, global head of internet banking at Goldman Sachs, said: "IPOs remain a more durable liquidity option for employees. We expect the IPO market to be busier in the second half of next year than in the first half. ”

Venture capitalists will have to be patient in the game of waiting for the IPO of portfolio companies. Investors say some of their companies struggle to predict their own businesses, given the uncertainty in consumer and corporate spending habits. These volatile forecasts are difficult to make public, as investors severely penalize companies that fail to perform as expected.

Some venture capital firms, including the chat app Discord, have pushed back their plans until 2025, people familiar with the matter said. Executives at Brex, a corporate credit card startup, told employees that it was just over a year away from going public. SoftBank-backed sports retailer Fanatics and General Catalyst-backed Grammarly, which has been rumored to go public, may also not be available for at least a year later, according to people familiar with the matter.

Laurence Tosi, founder and managing partner of technology investment firm WestCap, said only startups that are both profitable and fast-growing have a chance to impress public market investors. "Which company is going to be an icebreaker? It's definitely going to be the one that follows the Rule of 40. The Rule of 40 is a common financial term that refers to companies that have a sales growth rate and profit margins of 40% combined.

Tossi is the former CFO of Airbnb and Blackstone, and his current company has invested in Klarna and Stubhub. He added that it will take a few more years for the IPO market to return to normal. "It takes time for the market to recover after a period of excess," he said. (Compilation/Mowgli)