High-growth startups should start de-risking their IPOs now
Carl Niedbala Contributor
Carl Niedbala is COO and co-founder of Founder Shield, a commercial insurance broker.
High-growth businesses often set big goals, knowing full well that the idea of "overnight success" is for the storybooks. However, there's no better time than in the midst of a market downturn to start planning the transition from a private to a public company.
Reducing risk on the path to IPO requires strategic planning, which takes time. Companies aiming to go public in less than three years therefore need to prepare now, despite the recession, to get the head start they need to navigate the open market.
Let's see why this unfavorable economy is ideal for planning an IPO and what to do about it.
Growth investors have recently pulled backWhile some companies delay their IPOs, others can catch up and prepare for when the open market will want to invest again.
Carta reports that private fundraising levels have declined in the United States compared to 2021, a record high. Unsurprisingly, early-stage companies bore the brunt of this hit.
Market experts are now urging executives to not pin their hopes on the dry powder of venture capital, even though there are plenty of them. As the graph below shows, the size of late-stage funding rounds has decreased.
Image credits: Founder Shield
While few people appreciate market downturns, the way this one unfolds can provide insight for early-stage companies who are paying attention. For one thing, many leaders are embracing the message of the Sequoia memo. We can agree with their ideas of prioritizing profits over growth: scaling is different than it was, and we have to swallow that jagged pill.
On the other hand, cutting costs and giving up hope of fundraising is not inevitable. After all, when there is money to be found, an innovative founder will find it. We see it every day; only now the path looks different.
Market pullbacks drive valuation correctionsTrajectory correction is a frequently discussed concept during market downturns. The pendulum swings in one direction for a while and then begins its journey to a more balanced standard. In this case, the free market thrived on inflated valuations: most startups were overvalued before 2021.
Furthermore, many have called 2021 a miracle year, especially as venture capital investment nearly doubled to $643 billion. The United States sprouted more than 580 new unicorns and saw more than 1,030 IPOs (more than half were SPACs), significantly more than the previous year. This year only hosted about 170 public announcements.
Carl Niedbala Contributor
Carl Niedbala is COO and co-founder of Founder Shield, a commercial insurance broker.
High-growth businesses often set big goals, knowing full well that the idea of "overnight success" is for the storybooks. However, there's no better time than in the midst of a market downturn to start planning the transition from a private to a public company.
Reducing risk on the path to IPO requires strategic planning, which takes time. Companies aiming to go public in less than three years therefore need to prepare now, despite the recession, to get the head start they need to navigate the open market.
Let's see why this unfavorable economy is ideal for planning an IPO and what to do about it.
Growth investors have recently pulled backWhile some companies delay their IPOs, others can catch up and prepare for when the open market will want to invest again.
Carta reports that private fundraising levels have declined in the United States compared to 2021, a record high. Unsurprisingly, early-stage companies bore the brunt of this hit.
Market experts are now urging executives to not pin their hopes on the dry powder of venture capital, even though there are plenty of them. As the graph below shows, the size of late-stage funding rounds has decreased.
Image credits: Founder Shield
While few people appreciate market downturns, the way this one unfolds can provide insight for early-stage companies who are paying attention. For one thing, many leaders are embracing the message of the Sequoia memo. We can agree with their ideas of prioritizing profits over growth: scaling is different than it was, and we have to swallow that jagged pill.
On the other hand, cutting costs and giving up hope of fundraising is not inevitable. After all, when there is money to be found, an innovative founder will find it. We see it every day; only now the path looks different.
Market pullbacks drive valuation correctionsTrajectory correction is a frequently discussed concept during market downturns. The pendulum swings in one direction for a while and then begins its journey to a more balanced standard. In this case, the free market thrived on inflated valuations: most startups were overvalued before 2021.
Furthermore, many have called 2021 a miracle year, especially as venture capital investment nearly doubled to $643 billion. The United States sprouted more than 580 new unicorns and saw more than 1,030 IPOs (more than half were SPACs), significantly more than the previous year. This year only hosted about 170 public announcements.
What's Your Reaction?
