August is starting on a hopeful note.
As much as I care about technology, I am not saying this out of enthusiasm for generative AI or because we seem to be one step closer to room temperature superconductors becoming a reality.
If true, this “discovery could radically reshape wide swaths of our economy,” my colleague Tim De Chant wrote in light of a recent announcement about discovering room-temperature superconductors by a team from South Korea.
But that’s a big “if.” Experts are still doubtful because it’s simply too early to tell whether these extraordinary claims will hold up.
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So, no. Instead, my recently recovered optimism stems from the brightening macroeconomic climate that is lowering the pressure on public and private tech companies alike. Inflation in the U.S. eased off for the 12th straight month in June, and that trend is starting to bring relief to tech valuations.
But it is not just tech valuations that are perking up. We recently listed eight reasons why the venture capital market is doing better than most people think. From a modest recovery in the number of mega-rounds to the slowdown in tech layoffs, we’re seeing green shoots poking up, and that makes us more confident about the rest of the year.
If market conditions continue to improve, it’s only a matter of time until we see a new crop of IPOs. But that might not happen as soon as you’d think.
A question of time
“With the Nasdaq up nearly 40% this year, the software IPO window may be thawing,” investor Jamin Ball wrote. A partner at Altimeter, he took this data point as a sign that it was time to refresh his primer on the IPO process.
How soon founders will be able to enact this playbook, however, remains to be seen. In a recent blog post, SaaS expert Jason Lemkin ventured that “the second half of 2024 could be really good for SaaS,” with a “flood of strong SaaS IPOs.”
But why not before that? Because, as Lemkin wrote, it’s too early:
Why not 2023? It’s just too fast. Best case, you can IPO in 6 months. And you also need a few good ones to “go out” first to get the market excited. A Stripe and a Databricks doing strong IPOs first, for example, would get the markets excited again.
The prospect of a Stripe or Databricks IPO is compelling, but there are many more companies in the pipeline. For instance, TechCrunch+ recently flagged Egnyte as a company whose steady growth makes a public exit seem inevitable.
As much as we’d like to read S-1s again, Ball’s description of IPO prep is in line with Lemkin’s time frame. “One of the more time-intensive processes is drafting the actual S-1 document itself. . . . Every entrepreneur should plan for at least 4–6 months (but probably more like 6–8 months) for this process,” Ball wrote.
These six months are also when companies considering an IPO must prepare their roadshow decks, do financial audits and more. But it is not the end of the process, as you’ll need a few more weeks for the SEC review, followed by a couple weeks for the actual roadshow.
“After the roadshow is complete . . . , the company, bankers and board members will get together in a room and decide on the ultimate price for the IPO, and which investors they want to give allocations to (who they let buy),” Ball explained.
Pricing — and the resulting multiples — will obviously be interesting to track, but with the market still in recovery and the most likely IPO candidates probably preparing, it seems we will still have to chomp at the bit until next year at least.