Shulou(Shulou.com)11/24 Report--

Beijing time on the morning of October 30, it is reported that the technology company IPO (initial public offering) set a record in 2021, electric car manufacturer Riyan, restaurant software application Toast, cloud software providers GitLab and HashiCorp, and stock trading app Robinhood have been listed one after another, while in the coming 2022, the US technology IPO has completely lost its fire.

This year, the only technology IPO worth watching in the United States is the listing of Mobileye, Intel's self-driving unit. But Mobileye has raised less than $1 billion in IPO, according to Factset. The IPO of other American technology companies is even worse, raising less than $100 million.

By contrast, the IPO of at least 10 US technology companies raised more than $1 billion in 2021, not including the "direct listings" of companies such as Roblox, Coinbase and SquaSpace, which are well capitalised and do not need to bring in external cash.

This year, however, investors are no longer willing to take risks and are no longer obsessed with the future growth potential of start-ups, instead supporting profitable companies whose balance sheets are considered strong enough to withstand the downturn and maintain higher interest rates. Some start-ups that had planned an IPO this year adjusted their listing plans when they saw the shares of listed competitors fall 50 per cent, 60 per cent or even 90 per cent.

According to an IPO report released in mid-December by law firm Ernst & Young, total US IPO transaction earnings plunged 94 per cent in 2022, from $155.8 billion to $8.6 billion. With the Nasdaq composite index poised for its biggest annual decline since 2008 and underperforming the S & P for the first time since 2006-07, tech investors are looking for signs of bottoming out.

But David Trainer, CEO of New Construction, the equity research firm, says investors first need to seize on reality and start valuing emerging technology companies based on fundamentals rather than distant promises.

In fact, Trina issued an early warning when IPO, a technology company, made great strides in 2020 and 2021. Trina released detailed reports on software, e-commerce and technology-adjacent companies that were pushing their extremely high private market valuations to the public market. At a time when the stock market soared, Mr Trayner's bearish forecast seemed funny. But now Mr Trina seems prescient, with Robinhood, Rivian and Sweetgreen all down at least 85 per cent from last year's highs.

"I think the IPO market will struggle until we see a sustained return to smart capital allocation as the main driver of investment decisions," Mr Trina said in an email today. "once investors focus on fundamentals again, the market can do what they are supposed to do: support the smart allocation of capital."

By contrast, Lynn Martin, president of the New York Stock Exchange, said last week that she was optimistic about the IPO market in 2023 because the backlog of stocks has never been larger than it is now, and the activity (IPO) will recover once market volatility begins to dissipate.

Hangover after binge drinking for startups planning IPO, the problem is not as simple as overcoming bear markets and market volatility. They must also admit that the valuations they receive from private investors do not reflect changes in public market sentiment.

Venture capital firms raised $131 billion in 2021, exceeding $100 billion for the first time and more than $80 billion for the second year in a row, according to the National Venture Capital Association (NVCA). A strong pool of capital has pushed up start-up valuations, with the average post-investment valuation of venture capital deals rising from about $200m the previous year to $360 million in 2021.

Now, the valuations of boosted start-ups are falling. Online payment company Stripe cut its internal valuation to $74 billion in July from $95 billion, a 28% drop, according to people familiar with the matter. This month, Checkout.com, a UK online payment solutions provider, slashed its valuation to $11 billion from $40 billion. Instacart, the US fresh food distribution platform, has been hit three times, with its estimate falling from $39 billion to $24 billion in May, then to $15 billion in July and finally to $13 billion in October.

Among the many big-name startups, Klarna, a Swedish "buy-and-pay" giant, may have suffered the biggest drop in valuation. This year, Klarna raised money at a valuation of just $6.7 billion, an 85 per cent discount to its previous valuation of $46 billion.

Don Butler, managing director of venture capital firm Thomvest Ventures, said: "the binge drinking of 2021 creates a hangover."

Butler doesn't expect the tech IPO market to improve significantly in 2023. The Fed's ongoing rate hike looks more likely to tip the economy into recession, and there is no sign that investors are excited about taking risks. "what I see is that these companies are facing weak B2B and consumer demand," Butler said. this will make 2023 difficult. "

Butler also believes that Silicon Valley must change the concept of "growth first" before the IPO market picks up again. This means not only improving the efficient use of capital, showing the road to short-term profitability, and controlling recruitment expectations, but also structural reforms to the way organizations operate.

In recent years, for example, startups have invested heavily in human resources to cope with the influx of people from across the industry and active recruitment. But during the hiring freeze, which has cut 150000 jobs this year, there is much less demand for these jobs.

"this' culture reset'is expected to continue for a few more quarters, which makes me pessimistic about the IPO market," Butler said. "

The private company whose cash has maintained a high valuation for Wang is Databricks, whose software helps customers store and clean up data for employees to analyze and use.

In August 2021, Databricks raised $1.6 billion at a valuation of $38 billion. In mid-2021, the company's annual revenue is moving towards $1 billion, up 75 per cent from a year earlier. Many people believe that Databricks will launch IPO in 2023.

So far, Databricks's CEO Ali Goldsi (Ali Ghodsi) has not talked about IPO, nor has he expressed concern about the company's capital position. In fact, Godsey believes that it is good for him to maintain today's state of private ownership.

"if you are a public company, the only thing that matters is cash flow and what you need to do every day to increase it," Mr Godsey said in an interview. I think this is short-sighted, but I also understand that this is what the market needs right now. We are not listed companies yet, so we don't have to worry about that. "

Desi also said that Databricks had a lot of cash and that even in a situation like the "collapse of the sky" when the dotcom bubble burst in 2000, the company would have access to sufficient capital in a very healthy way without external financing.

Databricks also avoided layoffs at a time when technology companies were cutting jobs. Mr. Godsey said the company plans to continue hiring to take full advantage of talent. "We are in a unique position, we are very well capitalized, and we are a private company," Godsey said. "

In any case, Databricks will be an attractive IPO candidate at some point in the future, but valuation is still a lingering concern.

Snowflake, a cloud database software company, is the "public version" of Databricks, whose market value has shrunk by nearly 2% since November 2021. Snowflake launched IPO, the largest software company in the history of the United States, in 2020, raising nearly $3.9 billion.

Snowflake's growth has been strong, with revenue surging 67% in the most recent quarter, exceeding expectations. Adjusted profits were also better than expected, Snowflake said, generating $65 million in free cash flow in the quarter.

Still, the stock fell nearly 20% in the fourth quarter. "the market is a little nervous and people are reacting too strongly, which is understandable," Frank Slootman, CEO of Snowflake, told the media at the end of last month.

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