The tech IPO market is back and deal valuations are rising. Don't get fooled again

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As Instacart and Klaviyo push up potential IPO valuations, investors need to understand a vastly changed market for high-growth tech startups.

The rising cost of raising capital as a result of the Federal Reserve's interest rate hikes has weighed on future cash flows of companies and their overall valuations. The state of the global economy and the standstill in the IPO market since 2021 has also put a damper on valuations, Wang said.The good news: valuations look"a lot more reasonable," Kennedy said, compared to two years ago when investors were basically willing to pay anything.

He doesn't expect these highly anticipated public debuts to translate into an immediate broader resurgence of tech IPOs. The opportunity for tech debuts will likely be slower over the rest of the year than many people want to see, Kennedy said, though it can slowly gain momentum with a more typical IPO market possible by early 2024.IPOs can have very volatile trading in the first weeks or even months after a listing.

There tends to be an initial excitement with IPOs during which the price gets bid up before losing momentum. Often it's better to wait until after the first major pullback, Kennedy said.

 

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