After a nearly two year pause in the tech IPO market, Instacart is expected to go public this month. The company set a target valuation of $9.3 billion for its IPO, a significant drop from its valuation of $39 billion in 2021 when startup funding reached an all-time high. Despite the reduced valuation, Instacart may be the first of a series of expected tech market IPOs in the second half of 2023.
2021 was a record year for the tech IPO market, featuring heavy hitters across categories such Toast (restaurant SaaS), Robinhood (stock trading), and GitLab (DevSecOps). Those companies hit a high in terms of market cap of $32 billion, $58 billion, and $18 billion respectively. Today? They’ve dropped to $11 billion (down 65%), $9.6 billion (down 83%), and $7.8 billion (down 57%) respectively.
Those are the public markets that companies like Instacart are carefully easing into. The global tech IPO market saw a 60% decline, from 661 in 2021 to 221 in 2022. Among these 221 tech IPOs in 2022, none raised over $1 billion, and only Mobileye, Intel’s self-driving car technology spinoff, raised over $100 million. So far in 2023, the number of tech IPOs remains low with no notable listings — that is, until Instacart.
A lot is riding on the performance of companies like Instacart and Arm. Arm went public this past Thursday before jumping 25% the next day. Companies are starting to warm up the necessary muscles to go public. For example, Turo filed updated statements with the SEC, potentially signaling a restart in its IPO plans announced in 2022. However, certain companies may be met very differently in the public markets.
Public markets have increasingly emphasized profitability over growth for the last 18 months or so. There are some companies that fit that bill, such as Klaviyo, expecting an IPO valuation of $6.8 billion. The company had $658 million ARR as of June 2023, with 17% free cash flow margins. On the other end of the profitability spectrum lies Databricks. While Databricks was able to raise an up round recently at $43 billion, the company is estimated to have burned $1.5 billion in cash in 2022, generating ~$1.6 billion in revenue.
As the public markets start to open back up, there are plenty of very different kinds of companies that will test the appetite that public market investors have for tech companies.
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