Fast-growing companies often setting important goals, knowing that the idea of ”overnight success” is for the storybooks. However, there’s no better time than in the midst of a market downturn to start planning for the leap from private to public company.
Making the road to an IPO less risky requires strategic planning, which takes time. Companies planning to go public in less than three years should therefore plan now — despite the downturn — to get the jump start they need to navigate the open market.
Let’s see why this adverse economy is ideal for planning an IPO and what we can do about it.
Growth investors have recently pulled out
While some companies are delaying their IPOs, others are catching up and preparing for the time when the open market is itching to invest again.
Carta reports that private fundraising levels have fallen in the US from a record-breaking 2021. Unsurprisingly, late-stage companies are taking the brunt of this blow.
Market experts are currently encouraging leaders not to pin their hopes on venture capital dry powder, even though there is plenty of it. As the chart below indicates, the size of late-stage funding rounds has been shrinking.
Image Credits: Founder Shield
While few enjoy market downturns, the way it unfolds could yield insights for late-stage companies paying attention. On the one hand, many leaders are embracing the message of the Sequoia memo. We can agree with their ideas of putting profit before growth – scaling is different than it used to be, and we have to swallow that erratic pill.
On the other hand, cutting back and giving up hope of fundraising isn’t all doom and gloom. After all, if there’s money to be found, an innovative founder will find it. We see it every day; only the path looks different now.
Market declines encourage valuation corrections
Price correction is a concept often discussed during market downturns. The pendulum swings one way for a while and then begins its journey to a more balanced standard. In this case, the open market thrived on inflated valuations – most startups were overvalued before 2021.
In addition, many stated that 2021 was a miracle year, especially as venture capital investment nearly doubled to $643 billion. The US spawned more than 580 new unicorns and saw more than 1,030 IPOs (more than half were SPACs), significantly more than the year before. This year, only about 170 public listings have been welcomed.
