Supply chains were not prepared to deal with this spike in demand, further exacerbated by oil production not being able to keep up with the spike in production for goods and services (freight costs spiked by 500% to 12k, oil prices skyrocketed by 60%). It also hindered the ability to increase food supplies.
All of this ultimately resulted in inflation soaring above 8% (peaking at 9.1%), levels not seen since the oil crisis in the 1970s.
What was the impact on startups?
The impact on markets was twofold. Basically, the initial recession caused a sharp drop in multiples while the government programs, like PPP loans and a cut in rates from the Fed, rescued the markets.
More specifically:
- EV/Revenue multiples dropped sharply by 30%.
- But the IPO window was only shut for 2 months.
- ZoomInfo was the first to open the window, IPOing in June 2020.
- They were soon followed by Lemonade, nCino, GoHealth, Jamf Holding, and Vertex.
🤔 So…what does this tell us about today, and tomorrow?
First, the one thing all of these downturns have in common is that the IPO window eventually reopened due to economic stability.
As public financial markets start to settle down — most likely due The Fed’s policies starting to take effect — as well as supply chains and energy prices stabilizing, we are likely to see an environment that rewards companies for going public.
Freight costs have already fallen by over 70%, fuel prices appear to be stabilizing, and there are some promising signs that inflation is starting to reign in. The softer language in recent Fed speeches is also a sign that the worst of it could be behind us.
Like I said, I don’t have a crystal ball. But what I do have is data. And, based on that the IPO market has opened up after 18 to 24 months, on average. Given that we are about 9 months into our closed window, we can estimate that we could see movement by June 2023.
To be clear, this does not mean we are likely to see the blockbuster exits from 2021 returning. There is still a long and bumpy road ahead to recovery, but there will always be public market demand for high quality companies. The question isn’t “if” IPOs come back, it’s “when.”
I hope to contribute more to Founders + Funders in the new year, so please share any feedback you have on my first one, or if there are any topics you’d like me to tackle!
I also want to wish you and all your loved ones a happy and healthy 2023, and here’s to hoping the IPO window reopens sooner than later 🤞.
Things we’re digging:
- 🤖 Is real AI here? Some applications will surely be better than others.
- 🎢 Down rounds are rolling in, with more likely on the way. But there is a silver lining, which our CEO wrote about over the summer.
- 💰 But don’t count out equity, or strong startups, just yet.
