High-Growth Startups Should Start De-Risking Their Path to IPO Now – TechCrunch
Often, high-growth companies set big goals for yourself, knowing full well that the idea of “overnight success” is for the story books. However, there’s no better time than in the midst of a market downturn to start planning the transition from a private to a public company.
Reducing risk on the path to IPO requires strategic planning, which takes time. Companies aiming to go public in less than three years therefore need to plan now – despite the recession – to get the head start they will need to navigate the open market.
Let’s see why this unfavorable economy is ideal for planning an IPO and what to do about it.
Growth investors have recently pulled back
While some companies are delaying their IPOs, others can catch up and prepare for when the open market will want to invest again.
Carta reports that private fundraising levels have declined in the United States from a record high in 2021. Not surprisingly, early-stage companies have borne the brunt of this blow.
Market experts are currently encouraging executives do not pin their hopes on the dry powder of venture capital, although there are plenty of them. As the graph below shows, the size of late-stage funding rounds has decreased.
While few people enjoy market downturns, how it unfolds can provide insight for early-stage companies paying attention. For one thing, many leaders are embracing the message of the Sequoia memo. We can agree with their ideas of prioritizing profits over growth – scaling is different than it was, and we have to swallow that shredded pill.
On the other hand, cutting costs and giving up hope of fundraising are not all catastrophic. After all, when there is money to be found, an innovative founder will find it. We see it every day; only now the path looks different.
Market pullbacks drive valuation corrections
Course correction is a frequently discussed concept during market downturns. The pendulum swings in one direction for a while and then begins its journey to a more balanced standard. In this case, the free market thrived on inflated valuations – most startups were overvalued before 2021.
Additionally, many have called 2021 a miracle year, especially as venture capital investment nearly doubled to $643 billion. The United States sprouted more than 580 new unicorns and saw more than 1,030 IPOs (more than half were SPACs), significantly more than the previous year. This year saw only about 170 public registrations.
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