New companies are struggling to raise funds in the midst of a decades low IPO market.
Key details
Initial public offerings (IPOs) have raised $5.1 billion this year compared to the $33 billion typically raised by this point in the year. IPOs haven’t suffered this much since 2009.
This could be the worst year for raising money in IPOs since 1995 when research firm Dealogic started tracking the numbers, The Wall Street Journal reports.
Newer companies are pausing plans until the market regulates, causing them to burn through cash in the meantime. Swedish company Klarna Bank AB had to lay off hundreds of employees this year and find funding in private markets.
Clothing retailer StockX was planning to go public in 2021, but hasn’t filed the paperwork yet. StockX laid off 8% of its workers in June, The Wall Street Journal reports.
Cryptocurrency startups, food-delivery companies, and financial-technology companies had planned to go public in 2022. Now that seems to be on standby. These newer companies may be seeking ways to cut costs in the near future.
Janus Henderson Investors portfolio manager Denny Fish says he doesn’t plan to buy any IPOs until 2023.
“It might feel a little better because the market has bounced in July, but there’s still so much uncertainty,” he says. “There’s just not a market for companies coming public right now.”
Why it’s news
Inflation, higher interest rates, and war in Ukraine have dragged down the performance of the stock market. Just last year, the market saw the best 18 months of U.S. IPOs, promoting hundreds of companies to prepare to go public.
Fewer companies going public normally signals bad news for the economy and investors. Quite often, when there is negative sentiment about the economy, companies delay plans for going public.
Companies that decide to go public this year may need to plan on halving their valuations, The Wall Street reports.
In an effort to stay afloat, some of these newer companies are cutting costs, resorting to cutting down on staff. For example Gopuff, a food delivery service, has cut staff.
Other companies like Instacart and payments company Stripe have decreased their private valuations.
