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Cracking Open the IPO Window
Which companies follow Arm in going public?
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IPOs have been few and far between in 2023, especially in the tech sector. Arm filed their F-1 prospectus yesterday in what will almost surely be the largest tech IPO in 2023.
Their filing and subsequent IPO could mark a gradual opening of the IPO window, although some companies might wait to see how their IPO fares.
This week, I discuss some of the companies that are expected to go public relatively early on in this next cycle later this year, or more likely late H1 next year to truly “reopen” the tech IPO window.
At a high level, some of the factors that determine which companies might be the “leaders” in reopening the IPO window include:
How much of a household name / category-defining the company is. I suspect the first few out are more likely to be ones that are well-known names or at $500M+ in revenue.
Their need for capital which depends on their current cash reserves and burn.
Their need to provide liquidity for employees and investors (especially if they’re facing issues with employee options/RSUs expiring, etc)
With that said, here are a few that are candidates to follow Arm in going public in the next 12 months.
Instacart, which met with over 50+ investors last year, ahead of a potential IPO, was forced to put its plans on hold back then.
“The markets are still extremely tumultuous making it highly unlikely that an IPO is possible for us in 2022,” - Fidji Simo, Instacart CEO
Now, they’re back at it. As The Information and others have reported, Instacart could file to go public as soon as next week, and the IPO could be as early as September this year.
Instacart was last valued at $39B in the private markets but has cut its internal valuation used to give grants to employees 4 times, most recently to $10B at the end of 2022.
But with $1.4B of revenue and 30% revenue growth, in large part to their advertising business in the first half of 2023, it will be hoping to go public closer to its original private mark.
Klaviyo is at a rumored 500M+ in ARR, and one of the leaders in the marketing automation category. It confidentially filed to go public in May of this year (one month after Arm), and so is a good candidate to be one of the earlier ones out of the block. Klaviyo tapped Goldman to take it public, and a date of later this year was even floated at the time of its filing.
Whether it goes out in 2023 will depend on the Arm IPO, but even if not, I expect it to be one of the first few out next year.
At $1B+ in revenue, Databricks would be a good candidate given its scale and notability.
Databricks does also likely need capital, given relatively high losses of 900M over the last two years, but on the flip side has not had any issue tapping the private markets for that capital and is rumored to be doing so again, per The Information.
Databricks also has no intention of being the first, as noted in the FT:
Databricks chief executive Ali Ghodsi has repeatedly stated his intention to take the company public but Databricks “won’t be the first out”, according to a person with knowledge of its plans. The company “will watch and see how [Arm’s IPO] goes,” they added.
However, given its scale and the current excitement around AI, I still expect it to go out next year, assuming a reasonable Arm IPO.
Reddit hired its first CFO in 2021, and filed confidentially to go public in early 2022. Markets derailed that plan, but Reddit would have likely been a good candidate to be early out of the blocks when an IPO window opened.
The recent changes to Reddit’s API and the backlash that followed which resulted in 30%+ of subreddits going dark might change that perhaps. It highlights both Reddit’s need to better monetize and also the fragile position it finds itself in relative to its community.
But when you consider some of the language below, its clear that the need for both profits and an IPO loom large.
We’ll continue to be profit-driven until profits arrive. Unlike some of the 3P apps, we are not profitable. - Reddit CEO, Steve Huffman
For that reason, I still expect Reddit to go out later next year if the markets look good, almost 20 years from its founding.
Stripe is in many ways potentially the most well-known private tech startup, and many have suggested that it missed a trick by not going public in 2020/2021.
Given their recent raise at a 50% discount to their previous valuation, done mostly to ensure early employees don’t get screwed over in terms of their RSUs expiring (I explained this in a previous post), they have a little less time pressure to go public immediately.
In addition, with Adyen, its closest comparable recently getting crushed after earnings and being down 50% in a week, Stripe is unlikely to be itching to go out yet.
So I don’t expect them to be early in the pack, but a Stripe IPO, if it were to happen in H2 2024, would likely signify that the market is in a good state, and given the “missed” opportunities, they are likely to want to go out the moment the time feels right.
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