Tech IPOs Lose Appeal as Entrepreneurs Shift Focus to Acquisitions and Staying Private

The allure of initial public offerings (IPOs) in the tech industry seems to be fading, as a recent survey conducted by startup accelerator Techstars reveals a decline in entrepreneurs aiming for IPOs as their long-term goal. Out of the 1,550 entrepreneurs surveyed, only 15% expressed interest in going public, down from 16% the previous year.

The tech IPO market experienced a significant downturn in 2022, primarily due to inflation and rising interest rates, which prompted investors to shy away from risk. Consequently, valuations plummeted, leading many later-stage companies to postpone their plans to go public. While the previous year witnessed a record number of new offerings, featuring prominent companies like Roblox, Robinhood, Rivian, and UiPath, the tech IPO landscape has been relatively quiet in the past two and a half years.

Techstars’ report highlights a growing trend of startups opting to remain private for longer periods, with IPOs losing favor among early-stage entrepreneurs. The survey indicates that 34% of respondents prefer to be acquired by a publicly traded company, a slight decrease from 36% in the previous year. Additionally, 30% of entrepreneurs expressed their goal of staying private or independent, up from 28% in the previous report.

Despite the recent decline in tech IPOs, investment banks are anticipating a rebound. Colin Stewart, the Global Head of Technology Equity Capital Markets at Morgan Stanley, stated in April that the IPO market is making a comeback. He predicted that 10 to 15 tech companies might go public by the end of the year, citing well-priced and actively traded IPOs as positive indicators for the future. Stewart’s comments followed the IPOs of Reddit in March, making it the first major social media company to go public since Pinterest in 2019, as well as Astera Labs and Rubrik in subsequent months. However, the level of activity remains subdued compared to the pre-2022 period.

Uncertainty surrounding the upcoming presidential election in November is expected to contribute to a lack of IPO deals for the remainder of the year. Athena Theodorou, head of software banking in the Europe region at UBS, noted that the market is likely to remain muted in the second half of the year. However, she mentioned that the IPO market in Europe has started to show signs of revival.