Proactive Investors - Public market debut prospects “are dampened by further market decline and higher rates”, according to new research from Morningstar data firm Pitchbook Data Inc.
It said that successful initial public offerings (IPOs) “will be slightly harder to achieve” at robust valuations given the recent decline in public market valuations.
The report cited market debuts by Instacart (NASDAQ:CART) and Birkenstock, which it said have “underperformed” relative to their pre-IPO valuations, for example Instacart’s private market valuation of US$39 billion fell to US$9.9 billion after its recent debut on the stock market.
IPOs are being suppressed by "decelerating revenue growth", which Pitchbook analysts said is making it take longer for start-ups to grow into the elevated valuations seen in 2020 and 2021.
The report said that late-stage investors are wary of pushing portfolio companies to list their shares on the public markets, and that venture capitalists will “likely recoup more capital” if they wait for companies to grow into their valuations.
“It will take some companies several years to grow into their valuations, and some may never succeed,” Pitchbook analysts said in the report.
Nasdaq is down 5.7% as of 17 October compared to its peak after the Federal Reserve signalled higher interest rates will last for longer, the report said.
“Market corrections typically hit fast-growth companies harder,” Pitchbook analysts warned.
Birkenstock performed negative 15.1% compared to Nasdaq to 17 October, its data showed, while Instacart (NASDAQ:CART) was negative 17.2% compared to Nasdaq.
But performance has been mixed across the biggest seven US IPOs of the past four months, with Arm Holdings PLC (NASDAQ:ARM), Klaviyo (NYSE:KVYO), RayzeBio and CAVA all performing better than Nasdaq, it said, with CAVA up 61.2% compared to the exchange average data during the period.