The IPO market is flatlining at an awkward moment. While private markets remain heavily risk-on, a key avenue for startup exits – and investor liquidity – is seemingly shut.
Our first indication that this was the case was the Justworks IPO delay in the United States, which pulled the plug on its debut close to when it was set to price and float. For the HR-focused software company, softer-than-anticipated market conditions meant that its IPO had to go back in the box.
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But a single IPO delay, even one with somewhat explicit notes about what caused its pause, is not a trend. Therefore, TechCrunch has been waiting for more data to drop before declaring, emphatically, that the global technology IPO market is currently on lunch break. That came today.
News broke this morning that WeTransfer’s parent company, WeRock, is putting its IPO on hold. The Dutch company was set to list on the Euronext Amsterdam, bringing liquidity to its founding team, employees and external backer Highland Europe. And to cap off the retinue of bad news, a fascinating SPAC deal involving space and flying objects hit turbulence once it reached Max Q and began to trade this week.
For the ever-rising number of unicorns around the world, it’s a critical question. Rising antitrust sentiment in governing bodies means that the M&A market is soft. What’s next for IPOs?
WeRock becomes WeWait
WeRock’s main property, WeTransfer, is a SaaS startup with various subscription tools. In its official prospectus, the company self-describes as an “ecosystem of creative productivity tools” that it monetizes on both a subscription basis and via advertisements.
That means it’s a company that we can easily understand. And like many software companies that we examine, it combines growth and net losses, along with some rather different adjusted EBITDA numbers.
We’re not going to go deep on its numbers, but a little context is helpful. WeRock saw its revenues expand 64% from €44 million to €72 million during the first nine months of 2020 and 2021. The company’s operating profit swung from €10.2 million to -€19.6 million over the same time period. But a lot of that red ink came from share-based compensation, so the company’s adjusted EBITDA actually rose from €12.2 million to €21.3 million in the first three quarters of 2020 to 2021.
So WeRock was hardly a dog of a company; it actually looks pretty healthy as far as software debuts go. To see it have to halt its IPO, citing “volatile market conditions, notwithstanding the substantial investor demand received,” is pretty notable. The company wasn’t even targeting a unicorn valuation in its IPO – instead, it was shooting for a number a little above €700 million!
Recall that Justworks also cited market conditions when it put its IPO on hold. However, because Justworks has an interesting blended revenue mix of software and other incomes, we were loath to declare it illustrative for the larger software market, a key plank of the tech industry. WeRock’s delays from a nearly pure-SaaS perspective give us more confidence in our view that things are pretty much stuck from a venture-backed tech IPO perspective.
As a small note, a networking company called Credo recently priced at the bottom of its range. It’s not the sort of company that we cover here at TechCrunch, but its IPO pricing looked timorous. Another poor signal.
Too cautious?
Is the caution warranted? With so few IPOs happening, it is not easy to tell for sure. Companies exercising caution aren’t doing it based on hard data, but on an array of clues. This week added a new piece of evidence that it might not be the best time to go public: the initial reception of Satellogic’s SPAC-led debut.
Satellogic is in satellites, a key part of the hot space startup market. But conditions have changed quite a bit since its decision to go public via a SPAC was announced in July 2021. When the SPAC merger was completed yesterday, its stock under the Nasdaq ticker SATL fell sharply on its first day as a combined entity, closing the day at $8.09 a share.
This is yet another instant flop from a SPAC, which won’t help with the stigma increasingly attached to this route for going public. Startups that still considered it for its other advantages, like fintech startup Dave did, may now regret doing so – and others seem less and less likely to follow in their footsteps. This could limit SPAC-led flotations, further harming unicorn and late-stage liquidity.
In fact, “volatility” doesn’t seem to be the right term to refer to what’s happening on the stock market today. If we are allowed to anthropomorphize them, we’d say “the markets” are jaded. It’s not just about SPACs, but maybe about IPO appetite in general. Taking that into account, perhaps the caution of prospective public companies is indeed warranted.
So what?
The rising tally of unicorns stuck in the late-stage private market is getting to the point of comedy. It felt like a real backlog was forming as far back as 2016, but the market was more than willing to continue running up its private industry score sheet with more and more billion-dollar startups.
The pandemic-era software boom further accelerated the trend, with software companies priced as if the value of recurring revenues would rise in perpetuity. This proved false. Now high-priced startups are stuck holding their own bag.
If the IPO freeze persists into summer, venture returns could turn pure paper from the hard results that 2020 and 2021 brought via a number of high-profile public debuts. That’ll prove poor for nearly every part of the global startup ecosystem, precisely at the same moment LPs might be scouting non-venture investments in a higher interest rate environment.
Are the good times ending?
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