The Timing is Off for the Next Tech IPO Bonanza

Things were finally looking good for tech startups this summer. The US economy was proving resilient, the Nasdaq had dusted itself off from a yearlong plunge to jump about 30% for the year, and the forecast was for a strong IPO market this fall, with the expected debuts of Instacart and Arm.

Yeah, about that. The Financial Times reported over the weekend that the turbulent mix of a slumping stock market, interest rates that will remain high until further notice, and less-than-stellar performances by both Instacart and Arm have many venture capitalists telling their portfolio companies that this autumn is not the time for a blockbuster IPO. “In our portfolio we would advise: unless you really need to, hold back,” Mike Volpi, a general partner at VC firm Index Ventures, told the FT.

Gimme Some Money

But why would a company really need to seek an IPO now? The FT goes on to posit three reasons, none of which are particularly great for turning on investors: 1) they need the funds to survive or grow; 2) they need money to pay tax bills connected to employee stock units; and 3) VC investors themselves need the liquidity that comes from an IPO cashout.

Unsurprisingly perhaps, the anecdotes are piling up that newly public companies — and their investors — are having a tough time out there:

• Instacart debuted less than two weeks ago at a listing price of $30. With the Nasdaq down nearly 6% in the past month, its stock has already slipped below its debut price. Arm shares, meanwhile, remain above their $51 listing price, but are well off the first-day bump that took the stock above $66.
• It can’t help that some former tech IPO darlings also are in the news, and not in a good way: Tooth aligner SmileDirectClub filed for Chapter 11 bankruptcy on Friday after three-plus years as a public company that saw it rack up losses along with $850 million in long-term debt. And Blue Apron is selling itself to another food-delivery startup after about six years as a public company at a per-share price significantly below its halcyon days in the market.

X-acktly: Would it surprise you to know that a ray of sunshine in the tech-investing landscape involves Elon Musk and a wealthy fan of his work? Mega-investor Bill Ackman told The Wall Street Journal over the weekend that he would “absolutely” consider a transaction with X (what we call Twitter now) for his new investment vehicle that functions as a more transparent version of a SPAC. There’s no indication that Musk is actually looking for any investment, but it’s a good sign when a rich investor says he has “great respect” for what you’re doing, despite some objective evidence that the business itself isn’t really going all that well.