June 2024 Report: The IPO Roadmap May be Winding, but the Destination is Clear

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As we near the end of the first half of 2024, the IPO landscape for VC-backed companies is looking much brighter than it was this time last year.

As we near the end of the first half of 2024, the IPO landscape for VC-backed companies is looking much brighter than it was this time last year. We have seen a couple of high profile exits for companies such as Reddit, Rubrik, and Astera Labs, and as I’m writing this intro, they are all still trading above or near their IPO price.

The success of this cohort has been encouraging for others looking for positive signals from the market, and as such, we have another group of companies that are looking to hit the public markets in the near term. Each company has a unique characteristic that may help or hurt them in the markets. We’ll break down each of them below.

“The AI Hotshot” - CoreWeave, a cloud AI startup running data centers for Nvidia, announced plans at the end of May to IPO in early 2025. CoreWeave has boomed the past year riding the AI wave that has taken the VC world by storm. Although it has grown rapidly over the past year thanks to Nvidia, future growth prospects remain uncertain. A CoreWeave IPO should give us a glimpse into how the public markets appetite for AI will be. Additionally, Nvidia’s stock market performance will likely be a bellwether for them as the companies are closely tied.

The Solid Contender” - ShipBob, a company that handles fulfilment for small and medium-sized ecommerce businesses, announced in February that they were seeking to hire underwriters for a U.S. public offering that could be launched this year. The listing is expected to value the company at roughly $4 billion. Shipbob has been performing well, and recently grew its revenue to roughly $500 million, helped by their new partnership with TikTok.

While ARR isn’t a perfect estimate of revenue, based on this data, their current LTM revenue multiple is around 8x. The valuation is lofty, however. Similar publicly company valuations suggest ShipBob will need significant growth this year to hit the $4B mark. Additionally, ShipBob is still not profitable, a characteristic that investors have become more weary of in recent years. Time will tell how the market and valuation ultimately shakes out, but all things being considered, ShipBob is likely set to have a solid IPO.

“The Tortoise” - Slow and steady describes the next IPO hopeful we will discuss. Egnyte, which provides storage, governance, and security tools to companies in industries including life sciences, financial services, retail, and publishing, has hired bankers for an initial public offering that could value the company at more than $3 billion. Egnyte has been around since 2007, a lifetime in the startup world, but since then, has continued to grow steadily. More importantly, the company has reached profitability. While Egnyte might not have the same show stopper growth rates that we sometimes see with high profile IPOs, the company having achieved profitability should be taken positively by investors.

“The Underdog” -  Tempus is an interesting case study to look at, as their profile compared to the other 3 companies looks much more shaky. Tempus was last valued at $8 billion, and the company recently revealed that they received a $200 million investment from new investor Softbank. Had they not raised that money, they likely would have run out of cash this year. Burn is the main issue with the company, with the cost of their labs being very expensive to run. Tempus has accumulated a $1.5 billion deficit over the years, burning through nearly all of the equity and debt it has raised. The IPO is likely due to needing more cash, and it will be interesting to see if investors have the same appetite for this more risky IPO prospect that they have had with the other recent new public offerings.

Why this matters: All of this being said, investor interest is there. All of the big tech IPOs for 2023 and 2024 have been oversubscribed and recent debuts have managed to hold or trade above their IPO prices in the market. Although there is still some uncertainty as to how public investors will treat middle of the road companies, the main point of all of this is: With markets having performed as well as they have over the past year, and the success of recent IPOs, the argument that the market is not receptible to new IPOs is becoming less and less convincing.

For more insights from ESO Fund check out our newsletter ESO's Monthly Start-Up which lands in your inbox the first Tuesday of every month.

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