Experts say the Federal Reserve’s decision to keep interest rates at zero for the foreseeable future helped fuel demand for IPOs while boosting the overall stock market, and especially high-growth technology.
“IPOs are doing well and I think that is what happens when the Fed pumps money into the financial system,” said Troy Hooper, director of IPO content at Mergermarket. “The money has to go somewhere.”
The window for IPOs may close soon
The Securities and Exchange Commission is also looking to pass a new rule that would allow companies to raise new money even by listing their stocks directly. More companies could go public via direct listing if they could list stocks and generate cash at the same time.
“It will be interesting to see what happens to Palantir and Asana. After Snowflake, there is an increased interest from asset managers in technical unicorns,” said Phil Haslett, co-founder and chief revenue officer of EquityZen, a company that investors use to buy pre-IPOs can share shares of private companies.
“The window for the IPO will likely close in mid to late October. After that, the listings may be closed,” said Haslett. “There are many risks to companies waiting to go public next year. There is still dry powder to raise money in the private market, but valuations could be lower.”
Blank check offers will continue to be popular, especially because they don’t take as long as an IPO or direct listing.
So far there have been almost 100 SPAC deals in 2020, which have led to an increase overall According to Evan Ratner, managing director and portfolio manager for SPAC strategies at Levin Easterly Partners, $ 35 billion. That’s only 59 SPAC transactions Raised $ 13 billion for the entire last year.
“With a SPAC, a private company can go one-on-one to another company to get it public,” said Ratner. “It’s about credibility and maximizing value. If you’re a company with real funding needs and a good brand, a SPAC might make sense.”
Now or never?
Companies planning public offers seem to recognize this too. And there is a newfound sense of urgency.
Thomas Healy, CEO of Hyliion, said his commercial electric vehicle company,
“What we loved was the ability to raise more money. It will help us grow the company,” said Healy.
But the traditional IPO isn’t dead. Startups want the legitimacy that comes with a publicly traded company that has been vetted by top investment banks.
“We’re definitely seeing animal spirits rampant. The ratings don’t make sense,” said Max Gokhman, capital markets strategist at Pacific Global Asset Management. “Snowflake is a solid business. But if its wings are made of snow, they will melt by flying near the sun.”