The IPO window is reopening — here’s what startups need to know

Tech startups and high-growth companies are returning to the IPO game — despite mixed results in 2023 and a historic public-offering drought. Prime contenders in the coming months include healthcare payments company Waystar, with media reports suggesting cybersecurity startup Rubrik and micromobility firm Lime are also considering IPOs. And with artificial intelligence startups continuing to make waves in venture rounds, it wouldn’t be surprising to see several companies IPO further down the road.

Yet given bankers’ and investors’ ongoing focus on clear pathways to profitability and positive cash flows, venture-backed companies looking to tap public markets must concentrate on their business fundamentals and execution while clearly understanding the path to future growth.

In what follows, we’ll discuss why some of today’s tech startups are pushing ahead with IPO plans and how to build the foundation for long-term success.

Why go public now?

It’s an expensive time to be a venture-backed tech company, where if you’re not growing, you’re dying. Budgets are pressed by high borrowing and talent costs. With valuations down significantly from one and a half to two years ago, few high-growth companies want to risk raising a “down round” if they can go into cash preservation mode instead — either until they can tap public markets or until valuations come back so they can raise another venture round as a bridge to an IPO. However, many have already done cuts or layoffs, and the concern is whether they have enough runway to wait it out.

Post-2021, startups looking to IPO — typically late-stage, venture-backed companies that need significant funding to keep growing — might have turned to private capital or debt financing instead of going public. But in today’s economic climate, those fundraising sources are often less available or may be less attractive. For instance, VC funding has slowed and is increasingly oriented toward early-stage startups, while high interest rates make raising capital through debt financing expensive.

Internal forces also drive IPO interest despite the mixed reception for prominent recent listings like Instacart and Klaviyo. Some early-stage startup investors are seeking exits. At the same time, employees who may have been with a company since its early days want to flex their stock options. Such factors, of course, are always in play for fast-growing tech ventures. But companies that may have put IPO plans on ice during 2022’s down market can’t hold out forever.