Tech slump forces IPO hopefuls to consider Plan B

The window for technology companies to list their shares is closing. Falling stocks have depressed valuations and made investors pickier about new listings. Private firms will have to reluctantly consider Plan B.

Many tech startups had hoped last year's record year for initial public offerings would persist in 2022. January's selloff has changed the mood. Expectations of higher interest rates hurt highly valued companies, while disappointing results from Meta Platforms, Spotify Technology and PayPal added to the gloom.

The Renaissance IPO index, which tracks companies that went public in the last two years including Uber Technologies and Airbnb, fell 20 per cent in January.

Unprofitable companies that listed in the United States last year were down an average of 32 per cent from their IPO price at the end of January, according to data provided by University of Florida Professor Jay Ritter.

IPO hopefuls like US payroll startup Justworks and Amsterdam-based file sharing firm WeTransfer are therefore rethinking their plans. So far this year 27 companies have called off or postponed their listings, according to Dealogic; just nine did so in the first quarter of 2021.

The disappointed debutants have several options. Larger and more established groups with robust cash flow can afford to wait out the storm.

These include fintech firm Klarna, which was most recently valued at $46 billion and has been considering a direct listing. Rapid grocery delivery company Gopuff, which has hired IPO advisers, topped up its reserves with a $1.5 billion convertible debt issue in December.

Those that need cash can go back to venture capital investors, which are still sitting on record sums. However, pressure on valuations raises the risk of a dreaded "down round".

Others could seek a buyer. WeTransfer, which was aiming for an IPO valuation of $700 million, could be acquired by the likes of Adobe. Larger companies, however, risk regulatory scrutiny if they sell to a competitor.