IPO Market Insiders 'Cautiously Optimistic' That Current Trickle Will Get Stronger

With -backed data security firm set to enter the public market this week, talk about the rejuvenated IPO market has returned as many wonder who may be next, and when.

Rubrik is set to join the likes of chip startup , -backed and online forum host as one of the bigger IPOs so far this year. Those IPOs came after last year鈥檚 second-half offerings by , and helped thaw an IPO pipeline that had been frozen for nearly two years.

Now the question is whether that small trickle of companies will lead to a more steady stream as the second quarter moves into the third, and if highly anticipated companies like AI-enhanced data analytics company and fintech giant enter the market.

鈥淚 think people were cautiously optimistic that it would be a more robust IPO market coming into the year,鈥� said John Hensley, partner in law firm 鈥檚 capital markets, and public company advisory and governance practices.

鈥淚 think we鈥檙e still cautiously optimistic,鈥� he added.

Eyeing opportunity

Hensley said while there is demand for IPOs, there is not the 鈥渇roth鈥� there was in the market just a few years ago 鈥� when more than 350 venture-backed companies went public in the U.S.

鈥淚 can tell you our personal pipeline is enormous,鈥� said , a partner at securities law firm , as a lot of companies missed the 2021 window and are now eyeing this new window.

However, the IPO market has significantly changed since those free money days of 2021.

鈥淚 think we are definitely seeing a return to fundamentals鈥� for companies looking to go public, Carmel said. 鈥淚nvestors want to see profitability, along with significant growth.鈥�

The current startup facing the market has some of that. Rubrik鈥檚 subscription annual recurring revenue grew by 47% as of January, but it also had a net loss of $354 million for the year. Revenue grew modestly from $600 million a year ago to $628 million.

Many see Rubrik as a bellwether for the market, since some of its numbers may not be what investors are looking for in this market.

Gotta get over it

Even companies with many of the fundamentals investors want may have another issue to overcome as they eye the public market 鈥� frothy valuations left over from 2021.

Hensley said some companies that want to enter the IPO market have to come to terms with the fact that their valuations may be lower than just a few years ago.

That has already happened in the IPO market.

Grocery delivery service startup Instacart had to weigh that decision last year. In the salad days of 2021, the company has been valued at $39 billion. It slashed its value a couple of times before going public, but still had to take a significant haircut when it decided on an IPO price that valued it at $9.9 billion.

鈥淭he market likely can鈥檛 support those (2021) valuations,鈥� Carmel said. 鈥淏ut at some point, you do need to offer liquidity to investors. It is very possible late-round investors may get burned.鈥�

Another case in point when it comes to valuations is . Earlier this month it was the online ticket broker would test the market for a possible summer IPO. However, it is aiming for a $16.5 billion valuation or more 鈥� what it was valued at in late 2021 鈥� which may lead the company to scuttle its offering if public appetite isn鈥檛 there.

AI IPOs

The fact StubHub is even eyeing the public market illustrates another characteristic of the current market 鈥� one industry is not dominating the IPO pipeline.

In the last nine months or so, the market has seen everything from a chip company to a grocery delivery service to a marketing email automation startup go public. There is not one specific tech sector that is seeing more IPO interest than another.

While AI seems to be the talk of the tech world, many of those companies are not yet mature enough to go public.

鈥淚 think you鈥檒l see AI startup IPOs pick up next year,鈥� Carmel said. 鈥淣ot right now.鈥�

, founding managing partner at San Francisco-based and someone who invests in AI/ML startups, said even though many AI companies are too young to go public, they are creating excitement in the market and making people look closely at tech startup IPOs.

鈥淔or a while the IPO market has not been exciting,鈥� he said. 鈥淏ut AI is a real thing.鈥�

Marks said there could be an influx of AI startups looking at the public market as early as the first half of next year.

While there likely will only be a handful of winners among the large foundational generative AI companies, Marks said he is seeing significant interest in both hardware plays and how AI is applied to specific industries.

鈥淭here is a real appetite for these types of companies,鈥� he said.

Looking ahead

Even as the IPO pipeline is thawing out, Hensley said many feel Q4 or even early 2025 may be more active.

鈥淧eople are pointing to more activity in early 2025,鈥� he said. 鈥淚 really do hear that.鈥�

Of course, just like anything in the market, such predictions could be easily derailed. Inflation and what effect that could have on interest rates could affect IPOs, as could any increase in the geopolitical tensions.

Nevertheless, Hensley said he expects the market will continue to see 鈥渇its and starts of deals鈥� as the year moves along.

鈥淭here will continue to be windows of opportunities,鈥� Carmel added. 鈥淭here’s a robust pipeline right now.鈥�