In January of this year, we sat down with Liquid Stock’s Founding Partner, Greg Martin, to get his thoughts on what the 2023 IPO market was shaping up to look like. With the second half of the year in full swing, and a lot of shifting in the market, we sat down again with Greg to get his thoughts on Cava and Oddity’s recent IPOs, the factors driving optimism in the market, and some of the implications for the future of IPOs.

What are some factors contributing to the budding optimism?

  • Stabilization of Rates: After a period of steep rate hikes, many investors believe we have reached a point of relative stability on the interest rate front. This stability has resulted in renewed confidence among investors and companies considering IPOs.
  • Greater Confidence in the Economy: The jobs market has remained strong, the likelihood of a recession appears to have declined1, and while inflation remains high, there is greater optimism in the strength of the economy over the short and medium term.
  • Abundance of Cash: There is a significant amount of cash on the sidelines2, waiting to be deployed. This surplus liquidity can fuel IPO activity and contribute to a positive market outlook.
  • Tech Sector Dominance: Growth continues to be predominantly observed in the tech sector, attracting investors’ attention and generating enthusiasm for tech IPOs.
  • Favorable Market Conditions: Assuming no major unexpected events occur, the alignment of these factors may create a favorable environment for the IPO market to thrive.

What are some of the most pressing uncertainties?

  • Economic Recession: If a real recession materializes, it would likely hamper growth prospects, dampen investor confidence and deter companies from pursuing IPOs.
  • Geopolitical Risks: Global uncertainty, (including but not limited to), the war in Ukraine or a potential Chinese incursion into Taiwan, create major global economic risks that introduce substantial potential volatility and may impact market receptivity to new issuances.
  • Commercial Real Estate Market Volatility: The potential blow-up of the commercial real estate market3 poses a risk that could impact investor sentiment and IPO activity.
  • Interest Rate Trends: The trajectory of interest rates continues to be closely watched as we combat inflation. This can significantly influence investor decisions and the valuation of IPOs. Monitoring interest rate developments is essential for assessing market conditions.
  • Employee Liquidity: For employees and executives of companies, uncertainty on exit timelines can intensify interest in liquidity and the early exercise of options. Exercising options well ahead of an IPO or acquisition can lead to better tax outcomes, and pre-exit liquidity can provide life flexibility earlier.

Do you think we’ll see an increase in IPOs in H2 of this year?

Cava’s successful IPO, along with the recent success of Oddity, has definitely opened people’s eyes to the potential demand for offerings. It demonstrates that investors appear to be increasingly comfortable with interest rates and macroeconomic risk factors and are back looking for growth companies. I believe we’ll likely see a number of companies that had shelved their IPO plans dust off S-1s, re-engage with bankers, and prep their companies for an offering. I anticipate the next batch of IPOs will be closely titrated by underwriters and gradually brought to market by bankers riding the momentum generated by Cava and Oddity’s success. If we see a good run of successful new issuances, I think we will see a healthy flow of IPOs in Q4 and the first half of 2024. The IPO floodgates could be re-opening!

What are some top considerations for employees of pre-IPO companies?

Cava and Oddity’s IPOs also bring to the forefront the issue of liquidity and option-exercise timing for employees. These successful IPOs serve as a compelling example of why employees may benefit from exercising options early, in order to maximize gains subject to lower long-term capital gains rates. At Liquid Stock, we understand the shifting lifecycle of a pre-IPO company and provide a compelling solution for employees to unlock the value of their equity before an IPO or exit event. Get in touch with our team today for more information.

This blog post is intended for general informational and educational purposes only.  Liquid Capital Management, LLC (together with its affiliates, “Liquid Stock”) makes no representations as to the accuracy of information in this post, and no representations or guarantees as to specific outcomes from relying on this post. No content in this post is intended or should be construed as tax, investment, legal or accounting advice by Liquid Stock, or as an offer to sell or solicitation of interest to purchase any securities offered by Liquid Stock. Liquid Stock does not provide tax or other financial, legal, or regulatory advice to its transaction counterparties. Always consult with your investment, tax, and legal advisors before making important financial decisions. The terms of any Liquid Stock transaction may vary. Outcomes (including financial and tax outcomes) of any transaction will depend on factors including the timing and value of any liquidity event. Liquid Stock makes no representations or warranties as to the outcome of any transaction, including in any model or other material it shares with counterparties. While reasonable steps have been taken to ensure that the information herein is accurate and up to date, no liability can be accepted for any errors or omissions. All views and information contained herein are as of the date hereof and subject to change. Views and opinions presented are those of the author. Information contained in third-party links has not been independently verified by Liquid Stock and inclusion of such links should not be interpreted as an endorsement or confirmation of the content therein. Prospective investors considering an investment in a Liquid Stock fund should not consider this content as fund marketing material.