Where have the unicorns gone? The IPO window has slammed shut

Unicorns, the nickname for multi-billion dollar startups looking to go public, are starting to become an endangered species on Wall Street. (Of course, unicorns are also fictitious beasts. But you catch our drift.)

The market for initial public offerings, as well as for SPACs — companies debuting through mergers with blank-check special purpose acquisition companies — often dries up in the summer. But there has been an even more pronounced dearth of IPOs this year due to the volatility in the broader market.

According to data from Renaissance Capital, a firm that researches and invests in IPOs, there have been only 53 IPOs so far this year, down more than 80% from the same period in 2021. What’s more, only 94 companies have filed for IPOs in 2022, a decrease of 70% from a year ago.

This means that there may not be a meaningful pickup in new stocks making their Wall Street debuts anytime soon. Still, experts are hoping that some unicorns could hit the market later in 2022.

Grocery delivery leader Instacart filed confidentially for an IPO earlier this year, meaning that it doesn’t have to give many financial details just yet. Instacart valued itself at $24 billion shortly before its IPO filing, but that’s down sharply from the peak valuation of $39 billion in 2021.

There are also reports that private investors in Instacart have cut their valuations even further. It’s not yet clear when exactly Instacart will go public.

“Valuations have largely been correcting themselves from the highs of 2021,” said Rachel Gerring, IPO leader with EY Americas. Gerring said that the stock price drops for companies that went public last year isn’t helping. (Robinhood, Bumble and Oatly are all 2021 IPO “graduates” that have tumbled this year, for example.)

“The underperformance of companies that went public in 2021 doesn’t bode well for companies looking to go public now. Companies are waiting to see how things level out,” Gerring said.

Investors are keeping an eye out for other unicorn IPOs as well, though. Epic Games, the developer behind Fortnite, is an oft-mentioned IPO candidate. And, according to research firm CB Insights, which has a so-called unicorn list tracking the valuations of startups, Epic is worth $31.5 billion.

Crypto investment firm FTX and sports merchandise company Fanatics are also frequently mentioned in IPO rumors. FTX has a valuation of $32 billion, according to CB Insights, while Fanatics is valued at $27 billion.

And then there are the two mega unicorns. ByteDance, the Chinese owner of social media app TikTok, and Elon Musk’s SpaceX. They are both valued well north of $100 billion. Neither company has given any indication just yet that they are looking to go public in the immediate future.

Still, the IPO market should open up a bit later this year. Even if the biggest unicorns stay on the sidelines, other private companies may take advantage of the fact that the broader market has rebounded as inflation fears have started to ebb.

Will Braeutigam, capital market transactions leader with Deloitte, said the IPO window could open up in the fourth quarter of this year or early 2023 for more companies to price offerings.

“The market knows more today about inflation and how the Fed is taming it,” said Braeutigam. “The sun is rising. Things are getting better.”

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