2021 was a record year for global IPOs, but with cooler markets and rising inflation, can we expect the trend to continue to gain momentum in 2022?
In the wake of the Covid-19 pandemic, the broad acceleration of digital transformation has created an enabling environment for many tech startups to experience unprecedented growth, leading to a wave of flotation in late 2020 and 2021.
While 2020 was the most prosperous year for initial public offerings since the global financial crisis in 2008, 2021 left all previous years in the dark, accumulating more than $600 billion in revenue over the course of the year.
Although the fourth quarter of 2021 was affected by record hikes in inflation rates around the world, there is optimism that 2022 could bring more joy to the markets’ initial public offering.
As the chart above shows, venture capital financing for projects grew exponentially during the first three quarters of 2021, which indicates that more startups are getting the windfall they may need before going public.
Significantly, the volume of late-stage funding has grown faster over the past year, which may help pave the way for future listings.
So, could 2022 turn out to be another successful year for IPOs? The answer is likely to come from companies that have already been listed in recent months:
Early indications are that the IPO market has cooled
It’s been a busy year for public listings, but how long can the good times last? Both SPACs and traditional IPOs underperformed across the lists as inflation began to set the stage for interest rate hikes that could affect valuations.
The impact of inflation on the IPO market will be reduced to a large extent to the severity of inflation as rates continue to rise during 2022 and central banks are taking measures to mitigate the impact of interest rate hikes. When the Federal Reserve announced in December that it would raise interest rates in 2022, the stock market remained relatively healthy — indicating that the move was expected.
“I think you will see a gradual decline in the market,” explained Ali Mitchell, partner at EQT Ventures. “There is a huge stock of companies, but 2021 was a peak.”
Successful IPOs may be near
There are many reasons to be optimistic about the future of the IPO market, and with a large volume of exciting listings on the horizon, we may be ready to see record trends continue into 2022.
“Through all the conversations I have with the industry, the initial markets or IPOs will continue to stay strong, so we remain very optimistic about this business,” said Srikanth Nadella, CEO of KFin Technologies. “There are dozens of IPOs already approved for foreign listings and many are pending for approvals, so we expect the madness we saw in 2021 to continue into 2022 in relation to the IPO.”
In fact, it looks like 2022 will start with fanfare as Reddit appears to be preparing for its much-anticipated IPO. The company initially filed for an initial public offering on December 15, 2021 and was expected to go public in the fourth quarter of the same year. However, unstable market conditions pushed the debut to early 2022 – with a NYSE listing likely in the first quarter.
The company itself was last valued at $10 billion in a private fundraising round in August 2021, but Reddit was aiming for a market capitalization approaching $15 billion when it was first launched.
Given Reddit’s connection to the r/WallStreetBets forum, which has been a haven for meme-based investments in recent months, the platform may capture the imagination of retail investors to cause stocks to soar again.
We may see some exchanges outperform
Another reason 2022 could be a boom year for IPOs is due to the performance of revitalized exchanges like the London Stock Exchange, which spent most of December revising listing rules to create a more permissive and attractive environment for startups to go public.
According to Maxim Manturov, Head of Investment Research at Freedom Finance Europe, the new LSE listing regulations are likely to attract a host of exciting startups over the coming months, including The Hut Group Beauty, Raspberry Pi and Huel, all of which could be following. in 2022.
Manturoff added: “Huel can be considered one of the most promising startups in the UK, which has a huge audience on social media, allowing the company to attract young consumers who place a high value on good nutrition and fitness.”
Although the IPO landscape in 2022 will face a lot of new economic challenges, this does not mean that the year will see a slowdown in revenue from listings. With startup funding reaching new heights and stock exchanges constantly working to accommodate more startups, the coming months could reflect the record-breaking debut of 2021.