Generally, Industrials, Technology and Healthcare companies dominate the list (AI IPOs have also joined the space (Astera Labs, Tempus)). However, to reach the top 10 ($100 Million and above) majority of the companies had to be providing wholesale solutions and already earning significant amounts of money.
Source: Statista.
Following the wars and geo-political tensions, the market sentiment is becoming fearful, showing a decline since 2020 and a gradual, delayed recovery.
Number of Global IPO deals. Source: Statistia 2024.
Findings revealed that during hard times (war, rising inflation and interest rates), IPOs are majorly for those providing wholesale solutions like processing and distribution. Where it is a technology company, it will also be providing solutions capable of distribution at a wholesale level or Software as a Service (SaaS). The average return post-IPO is approximately 8.5% (however, when adjusted for inflation, less risk free rate of bonds and average investor IRR expectation) the return is -6% – 2%. This means that investors should exercise caution when picking shares. When compared individually, some shares lose as much as -85% of their value post-IPO while others reach up to 220%.
The foregoing shows that IPOs have not considerably outperformed the S&P 500 / the NASDAQ’s gain of 18% percent for the year to date. Following the Intelligent Investor’s guide, it is best to cash in while a company is in its early growth stage and cash out during the IPO.
Common features across the companies participating in the IPOs and surviving post-IPO include:
- They were addressing market “needs”.
- They are long-termnistic in their approach and value proposition.
- They have had a sustained period of revenue growth
- They are in partnerships and collaboration with strong stakeholders and investors.
- A part of their target segment includes wholesalers or retailers (in addition to consumers)
In conclusion, an investor’s goal should be to reduce the hypes and find valuable companies at their early stages providing market needs or solving problems in a sustainable/affordable way. At Tunjio Labs, this has been our pre-occupation as we seek to give adequate returns to our investors.
Posted by: Isochukwu Michael (Researcher).