Sometime in 2021, the world passed the 1,000-unicorn milestone. This was captured by Crunchbase’s private unicorn board, which is dedicated to tracking startups with valuations above $1 billion; the list kept on increasing and currently tallies 1,284 results.
One of the reasons that number keeps expanding is that new unicorns are being added to the list much faster than they leave it. In venture capital’s ideal world, more would be losing their unicorn status by going public. But that just hasn’t happened as often as needed to balance the unicorn birth rate that investors have funded.
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It’s not just SPACs that have fallen out of favor almost as fast as they boomed — the IPO market has once again vanished. According to a recent EY report, a major IPO destination like London saw a major slowdown in listings this year. Globally, IPO deal volume in the first quarter fell 37% year on year.
However, there is one market where things appear brighter: Asia.
Earlier this week, we wrote about the global IPO window not being entirely closed in light of GoTo’s IPO onto the Indonesia Stock Exchange (IDX). If you add in CB Insights data showing that Asia-based companies accounted for nine out of the top 10 IPOs in the first quarter of 2022, it raises the question: Is Asia a haven for public exits? Let’s explore.
First in troubled class
CB Insights’ venture trends report has some interesting highlights on IPOs in Asia in Q1 2022. With 91 public exits last quarter, Asia had more IPOs than any other region during the period. Underscoring that point, Italian semiconductor company Technoprobe was the only non-Asian company among the largest listed public fundraises. The others were eight China-based companies and South Korea’s LG Energy Solution, which took the pole position with its $98 billion exit valuation, CB Insights reports.
Context matters here: Over that same period since the end of 2021, global IPOs have been in decline. Per CB Insights, there were only 143 IPOs around the world in Q1 2022, compared to 260 in Q4 2021, a 45% quarter-on-quarter decrease.
The dearth of IPOs was particularly stark in some regions. There were none in Africa or in Latin America, when Brazil, for instance, was hoping for an IPO bonanza mere months ago. There were only four in Canada and five in Australia. In Europe and the U.S, there were respectively 20 and 23, paling in comparison to Asia’s tally of 91 IPOs.
Does that mean that Asia was home to most of the world’s exits? No, because IPOs are only one of the liquidity routes available to late-stage companies. If you take M&As and SPACs into account, the U.S. had the largest share of global exits in Q1 with 40%, followed by Europe’s 34%.
Unbundling the paradox
That Asia had the most IPOs shouldn’t obscure another reality: IPOs also declined there. Less than other regions, sure, but a 24% quarter-on-quarter decline is too big to ignore. The slowdown isn’t just in comparison to Q4 2021: There were fewer IPOs in Asia last quarter than in any quarter of 2021. If you multiply Q1 results by four to generate a full-year projection, you get 364, considerably fewer than 2021’s final tally of 445 Asian IPOs.
In addition, the Chinese companies in Q1’s IPO Top 10 aren’t the ones you’d read about on TechCrunch. While most of them are tech companies, they focus on sectors such as semiconductors, biotech, or electronic components. This may be in line with the CCP’s preferred view of tech, but it doesn’t say much about the fate of the consumer internet companies we do like to track, from Alibaba to Tencent.
As our colleague Rita Liao reported recently, Chinese startups are facing so much red tape and so many restrictions that some are rethinking their future in their homeland. At larger startups, such as Meituan, these regulatory changes are already resulting in layoffs among their Chinese workforce. But things aren’t going that well in the U.S. either, at least for public companies.
Chinese companies that chose to list or dual list on U.S. stock exchanges have been caught in a controversy with the Securities and Exchange Commission around audit practices for ADRs (American depositary receipts). This type of share is used by non-U.S. companies in general, but it is Chinese ones in particular that are in the hot seat, with 23 identified by the SEC as being at risk of delisting for noncompliance with audit rules.
The SEC’s list includes some of the Chinese tech companies that have recently dual-listed in Hong Kong to mitigate the impact of a potential U.S. delisting. CNBC reported that “in the last year, Alibaba, JD.com, Baidu, Bilibili, Trip.com, Weibo, and Nio have taken that step.”
Delisting and relisting (or not)
Some Chinese tech companies are moving one step ahead and delisting themselves from foreign stock exchanges. Didi might be next: The ride-hailing company is holding a shareholder meeting on May 23 to vote on the U.S. delisting plans it first announced last December. But there’s an interesting detail in Didi’s latest announcement: It doesn’t plan to apply to list its shares on any other stock exchange before its potential NYSE delisting is complete.
Didi’s decision shows two things. From the company’s perspective, it reveals that it wouldn’t mind spending a bit of time as a private company while working on appeasing its tense relationship with the Chinese authorities. But going back to what interests us today, Didi’s choice also indicates that Hong Kong, and Asian stock markets generally, won’t automatically benefit from an IPO boom just because of potential U.S. delistings.
After all, Chinese stock exchanges aren’t immune to the geopolitical and macroeconomic factors behind the global IPO decline. And while the worst of COVID-19 seems behind us in many places, it is far from the case in China, with shutdowns in Shanghai and beyond.
One more caveat: Despite its importance for tech IPOs and beyond, China isn’t all of Asia. Our colleague Manish Singh is doing a great job at tracking the latest moves of India’s unicorns, some of which might still choose to go public in the next quarter. And going back to our reporting earlier this week, the fact that GoTo’s IPO was a moderate success might inspire other Indonesian companies to try their luck on their local stock exchange. But as we see it, the number of Q1 IPOs out of Asia represents a respite while the remainder of the world tanks.
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