VCs Tell Startups to Pump Brakes on IPO Plans

Venture capitalists (VCs) are reportedly telling startups to put plans to go public on hold.

As the Financial Times (FT) reported Sunday (Oct. 1), that sentiment has become popular following the underwhelming initial public offerings (IPOs) of two high-profile companies.

“In our portfolio we would advise: unless you really need to, hold back,” Mike Volpi, a general partner at VC firm Index Ventures, told the FT. “The market has been rough in the past few weeks. … Unless you need to go out, I’d wait until the second half of next year.”

Last month saw only grocery delivery platform Instacart go public, in what was seen a measure of the potential for other tech startups to list. The company surged as high as 40% upon listing, but ended September below its $30 listing price.

Another company, chip designer Arm, saw its shares bounce up and down following its IPO, ending September almost 5% above it. The FT said the companies’ hopes were dimmed when the Federal Reserve indicated it would back another interest rate increase this year, with fewer cuts anticipated next year.

Lastly, the marketing automation company Klaviyo went public and performed well, up 15% from its listing, the report said.

As the FT noted, the rocky market frustrated investors, who had hoped Instacart and Arm would jumpstart the IPO space following a long period of delayed listings.

The report, citing data from Pitchbook, says there is an estimated backlog of nearly 80 IPO candidates waiting in the wings. Some investors, the FT said, are trying to see the big picture.

“Everyone thought IPOs were dead — they aren’t,” said Paul Kwan, a managing director at venture firm General Catalyst. September’s three high-profile listings, he added, weren’t “some massive turning point.”

PYMNTS examined this situation late last month, noting that even “headed into the IPOs, there have been hints of headwinds — or more accurately, the perception of headwinds — that indicate all might not be rosy in the months ahead.”

For example, Instacart was valued at around $11 billion when it became public, but that number had been as high as almost $40 billion in its days as a private company.

“The company’s filings reveal that orders were roughly flat through the first six months of 2023, at $132.9 billion, vs. $132.3 billion in the corresponding period last year,” the report said.