March 25, 2023

  • The number of U.S. IPOs in 2022 has fallen by more than 90% since this time last year, according to Dealogic.
  • Several IPO bankers spoke with Insider about how the next batch of IPOs will be different from last year.
  • Here are 3 tech companies they think can end the 2022 IPO hiatus.

After a frenzy of activity in 2021, tech IPOs have come to a screeching halt. U.S. IPO deal volume in 2022 fell from 142 IPOs to a dismal $17 billion after hitting $228 billion from 700 a year earlier, according to Dealogic.

The sharp decline has tech startups, investors and bankers asking the same question: When will the IPO winter end?

Many investment bankers dealing with public offerings who spoke to Insider believe activity will start picking up in the second half of the first quarter, or the second quarter of 2023. The bankers did not want to be named because they were talking about private internal matters. An IPO expert said the first quarter of the year is usually an easier time for companies to go public, as startups focus instead on closing annual audits.

While 2021 has seen public market debuts of high-profile high-growth tech companies, such as Coinbase, cryptocurrency exchangeAnd SentinelOne, a cybersecurity startup, the next batch of IPO candidates will be evaluated differently, according to sources.

A banker told Insider that companies going public in 2022 or 2023 may need to meet higher standards on some of the key attributes bankers are watching, including scale, growth, revenue and profitability.

Another banker said startups interested in a public offering now need at least $30 billion to $500 million in annual revenue and a potential public market valuation of $400 million to $5 billion to attract currently cautious investors. In 2021, startups with $100 million in annual revenue and $1 to $2 billion valuations will be able to go public, such as customer experience company UserTesting, and sofa base, a database company.

In volatile markets, business models and market size are more important than ever, these bankers told Insider. According to IPO advisers, the first companies to step out of the IPO doors will likely have well-understood, predictable business models—for example, enterprise SaaS business models—and a large addressable market.

For example, one IPO banker told Insider that software companies in recession-resistant verticals like cybersecurity could outperform sectors tied to the broader economy, such as advertising or e-commerce.

While the tech IPO window may remain closed until 2023, many bankers are closely watching the performance of upcoming non-tech IPOs, such as Rumored Porsche to go on sale in Septemberas a harbinger of what is to come.

Meanwhile, both startups and bankers are turning their attention to other business priorities. Startups slashed costs and headcount to expand runways and improve operational efficiency, and turned to the private market when capital needs emerged.

Before the IPO market reopened, bankers told Insider that their firms were focusing more on other products, such as fundraising and private placements. Mergers and acquisitions may start to pick up as the debt financing market stabilizes and startups adjust to high price expectations for new market realities, an IPO adviser said.

Here are 3 companies that could end the 2022 IPO winter, according to Wall Street bankers who spoke with Insider.

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