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The public markets have weathered a tumultuous 2022 across the board, leading many startups to stay on the sidelines until valuations recover and investors feel more bullish. Meanwhile, IPO activity has free fallen from all-time highs in 2021 when startup valuations were through the roof amid the bull market.
Lynn Martin, head of the New York Stock Exchange, is quick to emphasize, however, that this year’s decrease in IPOs does not mean that startups are in hibernation.
“The public market currency has never been stronger,” she explained at Fortune’s Most Powerful Women Summit in Laguna Niguel, California. “The amount of conversations we have with companies in our pipeline continues apace. Companies still want to go public,” she added.
When will the startups that have been waiting in the wings be ready to jump into the public market? “They’re waiting for the time when the market starts to calm down from a volatility perspective,” Martin explained. According to Martin, a key indicator to watch is the VIX Index, which is a measure of equity market volatility. Martin projects that until the VIX is below 20 on a regular basis, there won’t be a significant increase in IPOs. As of Tuesday, October 11, the VIX was listed at 33.63.
“Until the VIX is consistently below 20, I don’t think the floodgates are going to open for those companies who have been talking to us and we’ve been working with for a while,” Martin predicted.
Despite Martin’s assurance that the IPO window is by no means permanently closed, she reiterated that 2021’s lofty valuations and unprecedented dealmaking was an exception as much as 2022’s bear market is. “2021 was one tail where you had the best IPO year ever. And this year, you’re you have the slowest in terms of proceeds raised in at least a decade,” she explained. “I think probably when the market starts to stabilize, you start to see the mean or the median comeback you’re not going to see a 2021, but you’re certainly not going to see a 2022,” she added.
While the tech sector has been hit particularly hard this year, Martin explained that clean energy and cybersecurity are sectors that are better prepared to test the public market waters. Since many investors are interested in cybersecurity and ESG investing, companies in those sectors would likely fare better when entering the public market.
Martin also explained her belief in tech’s power to positively transform the financial markets. “Electronic trading has been the great democratizer of the financial market,” she told the audience. “Every business is now a tech business,” she added. She emphasized that the degree to which the finance sector in particular has undergone shifts has amazed her. “I would have never imagined that financial markets would have undergone the revolution that they have,” she said.
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