IPO Activity Could be on Brink of Revival as Record Number of Unicorns Remain in Pipeline

Though startup funding dropped off significantly in 2023, leading to a collapse in the number of new unicorns, the number of active unicorns rose to an all-time high, suggesting numerous blockbuster IPOs are in the pipeline. IPO volume was also down last year, compounding a similarly slow 2022, but nearly 100 companies have recently filed with Nasdaq for public listings confidentially. 

Declining long-term rates and the expectation that cuts to short-term rates will soon follow, could make equity markets a much more hospitable environment for new listings this year, reviving IPO activity. An area of particular interest will be AI, which has continued to pull in large swathes of VC cash in spite of the broader downturn in private fundraising. It is only a matter of time before pure-play AI startups begin planning to make public debuts.

Related ETF: Renaissance IPO ETF (IPO)

Startup funding declined by nearly -30% in 2023, down to a sum of $170.6 billion. That was less than half of the $348 billion expended on venture funding in 2021. Just 45 new unicorns (a privately held startup company with a valuation of $1 billion or more) were minted in 2023, the least in any year since 2017, and down -87% from 2022, according to PitchBook data. The upshot, however, is that the total number of active unicorns closed out 2023 at an all-time high of 723. This means that a large number of billion-Dollar companies have yet to IPO, a promising prospect for the public offering pipeline.

154 companies went public in the US in 2023, down -15% percent from the 181 firms that had launched an IPO in 2022. Last year’s final tally was the smallest number of annual listings in seven years. According to Barron’s, the combined number of 2022 and 2023 IPOs marked the slowest two-year period for new issues in more than 40 years, and did not even reach a third of the record 1,035 public listings that went ahead in 2021 alone. That year, defined by near zero interest rates, a massive increase in the money supply, and all-time highs in key equity indices like the S&P 500, was prime time for companies to quickly capitalize on a tidal wave of liquidity in the US and beyond. Bloomberg reports that $26.2 billion was raised on US exchanges via IPOs last year, a modest bump from last year, but still a -92% plunge from 2021.

According to Stock Analysis data, the average return on 2021’s sizeable pile of IPOs to date…