Going public is not a decision any company takes lightly. For complex, high-revenue businesses in particular, an IPO filing reliably requires years of preparation and hefty investment.
Likewise, postponing or canceling a planned debut is never a flippant choice. Sometimes there’s a positive reason, like an acquirer swooping in with an attractive offer. More commonly, it’s a negative one, like a market downturn.
Over the past couple weeks, as we’ve seen Klarna, StubHub and others delay scheduled pre-IPO roadshows, it appears markets are to blame. It was tough to feel good about going public in a week in which Dow Jones posted its third-largest daily point loss in history.
That’s reasonable enough. But for market watchers, the questions remain: Where do IPO candidates go from here? Will they resume roadshows? Is the new offering market in for a long freeze?
What history tells us
“Obviously it depends upon what happens in the markets,” said Jay Ritter, a University of Florida emeritus professor known for IPO research.
So far, not too much time has passed since the most recent IPO delays. Companies could presumably restart roadshow plans without too many hurdles should they deem conditions acceptable.
The longer the delay, however, the less likely it becomes that a onetime IPO candidate will actually carry out its debut. Ritter, for example, found it difficult to come up with high-profile companies that publicly filed, delayed for a long interval, and went on to carry out successful offerings.
Crunchbase research also provided few examples. One that stood out was construction tech company Procore, which initially filed to go public in early 2020 and made its NYSE debut over a year later.
There’s also an unsuccessful famous example: WeWork. The coworking company filed for an IPO in 2019, but delayed after its valuation plummeted and later withdrew. WeWork eventually went public via SPAC in 2021 and filed for Chapter 11 bankruptcy two years later.
Delaying a public filing is more common
More commonly, companies delay making a public filing in the first place when conditions become less inviting.
Airbnb for example, put off plans for a 2020 IPO when the pandemic hit. It made its eventual, well-received debut in late 2021. Instacart filed confidentially to go public in 2022, but put off making a public filing for over a year.
More recently, AI chip developer Cerebras Systems hit pause on its planned debut, after submitting its IPO prospectus in September. Its offering has faced delays in part due to security reviews.
We’ve also seen companies file confidentially to go public but delay making a public filing.
Digital bank Chime is one such example, having reportedly submitted its confidential paperwork in December, but no public prospectus yet. A more distant case is business travel and expense platform Navan, which filed confidentially to go public a few years ago.
On a brighter note, we saw a new confidential filing reported this week as design software platform Figma plans a public listing following its scuttled sale to Adobe.
When does a delay turn into a withdrawal?
It’s possible to delay an offering for quite some time after submitting initial paperwork. However, eventually a company must choose whether to proceed or withdraw.
It’s a weighty decision, and no company takes bowing out of the process lightly. Furthermore, such a move makes it more difficult to go public in the future.
“The act of withdrawing casts a ‘scarlet letter’ on the withdrawn firm such that entering the public markets at a future date is much more difficult and less lucrative,” said Jarrod Humphrey, a Xavier University assistant professor who published a paper last year on the consequences of withdrawing an IPO.
Per Humphrey, between 1997 and 2021, approximately 1 in 6 IPOs attempted on the Nasdaq and NYSE were withdrawn. Collectively, that amounted to hundreds of billions of dollars in unrealized growth capital.
Probably the most recent high-profile example is peer-to-peer car rental platform Turo, which withdrew its long-planned IPO in February. The decision followed a dismal start to the year for the San Francisco company, whose public image took a hit after attackers used vehicles rented on its platform in two separate New Year’s Day attacks.
Will further withdrawals follow? Hard to say, of course. Markets have offered some encouragement in recent days, with major tech indices trading well above their near-term lows. We’ll see if it lasts.
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Illustration: Dom Guzman
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