For much of the last few years, startups have been able to get by on an ample supply of venture capital finance, with self-sufficiency scarcely warranting a mention. The VC taps have slowed dramatically during 2022, and founders have been forced to focus their attention on revenue growth and profitability.
This was reflected in recent data from EY, which showed a considerable slowdown in the number of IPOs in the first half of the year.
“Any initial momentum carried from a record IPO year of 2021 was quickly lost in the face of increasing market volatility from rising geopolitical tensions, unfavorable macroeconomic factors, weakening stock market/valuation and disappointing post-IPO performance, which further deterred IPO investor sentiment,” EY explains. “With tightening market liquidity, investors have become more selective and are refocusing on companies that demonstrate resilient business models and profitable growth, while embedding ESG [environmental, social and governance] as part of their core business values.”
Fallow times
After a bumper year in 2021, just 305 flotations were achieved globally during the second quarter of 2022, which represents a fall of around 54% on the same period in 2021. What’s more, those companies that did float did so for far less money, with those 305 floats generating 65% less money than in 2021.
The nature of the year was reflected in the type of startups that were floating, with energy companies taking three of the top four spots. There are also indications that investors are being pickier with the companies they back.
“Tough times and unusual uncertainties kept market volatility at elevated levels and led to subdued IPO activity,” EY explains. “We are seeing investors being more selective and a shift to IPO stories related to energy transition and ESG.”
They believe that this bearish market will continue throughout 2022, despite a healthy pipeline of deals that were postponed from the first half of 2022. The general uncertainties and volatility in the market will persist. What’s more, the trend towards energy stocks is also likely to continue, with a particular interest in renewable energy companies given the continuing uncertainty around oil and gas prices.
