EquityZen Co-Founder and Chief Strategy Officer Phil Haslett joins Yahoo Finance Live to discuss decelerations and volatility in IPO markets.
BRIAN CHEUNG: In the year of our Lord 2022, we've seen a slowdown in some corners of the market. But one place where we've seen a market deceleration is in the market for Initial Public Offerings, or IPOs. Data from Renaissance Capital showing fewer companies looking to hit the Street, with the slowest quarter in six years and the first 18 companies hitting the street raising only $2 billion. So let's bring in Phil Haslett, EquityZen co-founder and chief strategy officer. Phil, it's great to have you on the program. I mean, simple question here-- what's behind the slowdown? PHIL HASLETT: Yeah, hey, Brian. So it's a number of things and really just a perfect storm. You've got instability globally with what's going on in Ukraine. You've got inflation uncertainty. And you've also just got a big pullback in valuations kind of across many sectors, mainly in tech. And so when you put those all together, you get a lot of volatility. And volatility is kryptonite to IPOs. Therefore, IPO window is effectively locked and shut for now. AKIKO FUJITA: Yeah, Phil, on that last point you made about valuation, you know, we have been talking about this for some time in terms of startups that are coming to market. A lot of them coming to market through SPACs as well, where there wasn't as much scrutiny. Now the SEC obviously upping the scrutiny. And I wonder if you think that this is not necessarily a temporary lull, but something that may last a little longer as these startups reconsider their public plans. PHIL HASLETT: Yeah, I do think it's going to be a bit sustained because of two things. One is, you've got a bunch of pullback in valuation in the public markets that's going to make it really hard for any company that raises the private markets last year at, we'll say, interesting valuations, really eager, kind of priced to perfection numbers that are going to say, do I really want to go public now when you have 30% lower than what I told everybody I was worth a year ago? Compounding that is, to your point, a lot of SPACs that would have normally approached these companies are facing larger-- more and more scrutiny and are really going to have to make a tough decision. So I do think this is going to be a bit sustained. The kind of key indicator we'll look at to see if the window will open back up a bit more is once you see some of these kind of bellwether tech names-- so think of companies like Peloton, Zoom, DocuSign-- start trading kind of back above even pre-pandemic levels to kind of show that maybe the worst is behind us, I think that might be a good catalyst for some companies to test the market again. BRIAN CHEUNG: Phil, in the meantime, I mean, this isn't to say that there aren't any venture companies or growing companies that want capital right now. So where do they turn to? Are they trying to locate SPACs that did the capital raise last year and just partner with them? Where are they finding money? PHIL HASLETT: Yeah, so an interesting vantage point we have at EquityZen is because we're doing secondary transactions in the private market, we can see where companies are trading kind of since their last funding round. And what I can say is that we've seen a lot of companies trading between 10% and 30% lower than where they were even trading a quarter ago. And so what I think is going to happen is that these companies are going to start saying, well, we need more capital, and then we either have to accept the fact that our valuation from 2021 is long in the past now and that we have to accept the dreaded down round, or we have to think about how we're going to keep using the capital we raised in 2021, which, unfortunately, might have to lead to things like layoffs or pausing on hiring or pausing the launch of any new product. So I think we'll start to see those types of announcements come out in the coming months. AKIKO FUJITA: Yeah, Phil, that got me thinking about what we heard last week. Instacart, obviously, not necessarily in a funding round, but coming out and lowering their valuation. And then you had its rival, Gopuff, talking about layoffs, too. I mean, is that the kind of thing we're going to start to see on the private side of things, especially as we increasingly hear about investors being a little more selective in where they're willing to put their money behind on the private side? PHIL HASLETT: I absolutely think this is kind of just the tip of the iceberg. I think it was a really smart move by Instacart to kind of come out and say, look, we're not really a $40 billion company when you compare us to our public competitors. We're really a $24 billion company. Why penalize our employees and get stock valued at $40 billion, only to have the market down? So I think it's something that they kind of took on the chin up front, which I thought was really smart, and it's going to lead to some other companies. And I do think we're going to continue to see some more layoffs because investors have the ability to wait a little bit longer than a company can, right, to make investments. And they can also kind of move across different sectors or parts of the capital table or capital structure. So you'll see some companies start to make investments in the public markets, rather than private. You'll see some investors start to go earlier stage if they see better opportunities.