After Sharp Slowdown in IPO and M&A Activity, Analysts Are Optimistic for Recovery – GeekWire

Shannon Saccocia, Chief Investment Officer of SVB Private, at the Aerlume Seattle restaurant. (GeekWire Photo/Nate Bek)

After startup exit activity took a nosedive in 2022 amid inflation, rising interest rates, and other macroeconomic forces, some tech analysts are forecasting a pick-up in stock listings and acquisitions in the second half of this year.

Shannon Saccocia, chief investment officer of SVB Private, said Wednesday at a Silicon Valley Bank event in Seattle that investors are expecting an “increase in the… willingness to take risks”.

“Everybody’s really excited right now to park their money in T-bills (Treasury bills) that have a 4.5% yield,” she said. “Over time, some of that money will flow back into risky assets.”

This could improve investor sentiment towards equities and growth stocks in both public and private markets, she said.

The total value of exit deals in 2022 was $71.4 billion, down more than 90% year over year, according to PitchBook’s fourth-quarter Venture Monitor report. It’s the first time since 2016 that the annual exit value hasn’t surpassed $100 billion, the report said.

According to data from Renaissance Capital, there were 71 IPOs in the US that raised just $7.7 billion last year, the lowest in more than three decades.

And proceeds from Nasdaq and NYSE IPOs — the amount a company raises by selling its shares in public markets — fell 94% in 2022 from $155.8 billion, according to EY’s IPO report released in mid-December US dollars to 8.6 billion US dollars.

Not a single Washington state company went public via an IPO in 2022. Only two companies — cannabis platform Leafly and photography giant Getty Images — went public through a special purpose vehicle (SPAC).

That’s in contrast to 2021, when there were seven IPOs in Washington state along with three SPAC deals, according to GeekWire’s M&A and IPO Index.

Ibi Krubo, Partner at EY. (LinkedIn photo)

Lackluster conditions for companies looking to go public are likely to continue into the first half of 2023, said Ibi Krukrubo, a partner at Ernst & Young. While geopolitical tensions are difficult to predict, he foresees a slowdown in inflation, which would cause interest rates to fall.

This could push some companies already positioned to go public to take advantage of a window of opportunity when investor sentiment is positive, he said.

A number of high-profile companies including Stripe, DataBricks, and Instacart are considering IPOs this year.

Krukrubo added that the IPO market tends to perform better in economic conditions with lower volatility. If the Fed decides to ease rates, markets could return to a state of stability and provide a moment for increased IPO activity, he said.

(PitchBook Chart)

In a follow-up interview at Wednesday’s SVB event, Saccocia said she expects M&A activity to pick up before IPO volume picks up.

She said one of the biggest challenges exit volume is currently facing is the lag between valuations of private companies catching up with their public market peers.

Public market stocks often serve as a barometer for private companies, and when they fall, startups bear the brunt of lower valuations from investors and potential buyers.

Private companies are already being taken over at lower prices. According to PitchBook, the average post-money valuation for acquisitions of VC-backed companies fell from $280.0 million in 2021 to $120.0 million in 2022. During that time, nearly 50% of the exit Worth the result of an acquisition.

Carta, a software company that helps companies organize their cap tables, found that the percentage of companies with lower valuations nearly tripled in the third quarter, from 8% to 22%.

Saccocia believes these valuation adjustments will continue to feed through to private markets, increasing the opportunity for corporates and private equity firms to acquire startups at cheaper prices.