Rene Haas (right), CEO of Arm, which was listed on the Nasdaq on September 14th, and Yoshimitsu Goto, CFO of SoftBank Group, which owns Arm.
Arm, Instacart, Klaviyo. Recently, a number of high-profile tech unicorns have launched IPOs (initial public offerings). With this opportunity, the “IPO myth” was revived spectacularly, and there were widespread expectations that the hundreds of startup companies that had struggled with IPOs would have a chance.
However, instead of the momentum among Silicon Valley companies to scream for success through IPOs, there is a growing mood of resignation among Silicon Valley companies.
Instacart’s stock price has fallen more than 23% since its IPO, and is barely above its public offering price of $30 a share. Arm’s stock recently traded below its public offering price of $51 a share, meaning even insiders who were given the right to own the stock before it went public are taking unrealized losses.
Klaviyo stock is trading slightly above its public offering price of $30 a share, but is still down 6% from its initial listing price.
Even with the backing of large corporations…
The first thing to say about these IPOs is that the market environment was not appropriate. On September 20th (local time), the US Federal Reserve (FRB) decided to extend the period for which it will maintain high interest rates under the slogan “higher for longer.” As a result of this, the market has been showing some uneasy movements recently.
In Instacart’s case, the benefit from the IPO was not that large, at around $100 million (after tax, approximately 14.8 billion yen, equivalent to 1 dollar = 148 yen), and the company’s assets on its balance sheet (approximately 2 billion yen) This is a small portion of the US dollar (approximately 300 billion yen). Meanwhile, many investors, including D1, Fidelity and T. Rowe Price, may be facing write-downs on their investments.
“The new phase seems to be lacking momentum,” said Howe Ng, head of analytics and investment solutions at Forge, who has been tracking Instacart and Klaviyo’s performance in the secondary market. . Forge data shows that both companies were underperforming in the secondary market even before they went public, Ng said.
Although it is not enough to call it a huge failure, it is hard to say that it shows that there is a strong appetite for investment. For example, the market’s appetite for multibillion-dollar tech startups is more like snacks than full courses.
Furthermore, all three companies had the backing of large, well-known companies willing to underwrite a certain amount of their IPOs: Apple (invested in Arm), PepsiCo (invested in Instacart), and BlackRock (invested in Klaviyo). Underwriting by such companies should theoretically stimulate demand, which should have the effect of supporting stock prices.
Overall, this is not good news for venture investors. That’s because many of them are under pressure to show they are profitable while relying on large amounts of unrealized gains that never turn into real cash.
“The venture market is still largely paralyzed,” said Peter Herbert, co-founder and managing partner at Lux Capital.
The topic of which companies will be able to raise money from the capital markets has been a hot topic in the startup world for months now. But companies looking for the right time to act may have to wait.
“Those who were hoping this would push many late-stage private tech companies out of the IPO market will be disappointed. More IPOs will have to live up to expectations.”
says Brian Hirsch, founder and managing partner of Tribeca Venture Partners. Hirsch said he wouldn’t be surprised if the IPO market doesn’t return to normal until around 2026 or 2027.
“The windows aren’t closed, but they’re not fully open either.”
These recent public offerings are, of course, welcome news for financial professionals and lawyers involved in IPO-related work. After all, many of them hadn’t had regular jobs in recent months because the deals were gone.
“I’m sure the lawyers and financial people who handled this deal are overjoyed,” said Tom, a law firm who has been involved in more than $8 billion (approximately 1.18 trillion yen) in initial public offerings. Mr. David Kaufman, a partner at Thompson Coburn.
Two people at JPMorgan, which led the Instacart and Arm IPOs, told Insider that morale is high thanks to the initial public offering and the multimillion-dollar fees that come with it. (Not to mention the year-end bonus).
One banker described the mood in JPMorgan’s New York office as “cautiously optimistic.” But it remains unclear whether this signals a recovery in deals, especially given the lackluster recent stock market returns.
Of course, it’s only been about two weeks since Arm went public, so we don’t know the long-term prospects for these companies. Neal Mehta, co-founder of Eniac Ventures, said the outlook is not too pessimistic.
“The fact that these businesses aren’t going out and crashing somewhere means that their windows aren’t closed, but they’re not fully open. They’re half-cracked just enough to let in some fresh air. (Mr. Mehta)
We reached out to Arm, Instacart, and Klaviyo for comment, but did not receive a response.
[Original text]
(Edited by Ayuko Tokiwa)
Source: BusinessInsider
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