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The Myth of the Closed IPO Window



Initial public offerings (IPOs) are a popular topic among investors as they represent an opportunity to get in early on a potentially high-growth company. However, there is a common myth that arises during certain market environments - the notion of a "closed IPO window."



What Does This Myth Suggest?


The closed IPO window myth suggests that during certain periods, often tied to difficult market conditions, IPO activity slows to a trickle or stops altogether. The logic behind this myth claims that companies planning to go public hold off during tougher markets while waiting for conditions to improve. However, the data shows this myth does not hold up to scrutiny. While the level of IPO pricings does vary year to year, companies continue filing and launching IPOs even during weak markets.


Examining the Data


  • 2001-2002 Bear Market - According to Stock Analysis, there were 314 IPOs in 2001 and 286 IPOs in 2002, for a total of 600 IPOs during this period.

  • 2008-2009 Financial Crisis - According to Nasdaq, there were 79 IPOs in 2009.

  • COVID Pandemic - According to Stock Analysis, there were 480 IPOs in 2020. The total proceeds raised were $153.9 billion.


The record for most IPOs in a year was set in 2021, with 1035 IPOs and $307.6 billion in proceeds, but it would be misleading to compare to that peak year given the influx of free money pumped to market during that time. The truth is that current market conditions impact the level of IPO valuations, not the overall ability for companies to go public. There are always still viable companies able to file and complete IPOs across sectors and geographies, even during recessions or shock events.

Implications for Investors


Instead of assuming the IPO window closes, investors should track filing activity and focus on company fundamentals. Tougher markets require better discernment measured by:


  • Profitability - Prioritize profitable businesses over speculative stories

  • Management Quality - Vet the background of executives guiding the company

  • Use of Proceeds - Ensure capital raises tie to reasonable growth plans


The myth of closed IPO windows obscures the facts. Markets change, but viable deals can still emerge in any environment for thoughtful investors. Keep an open perspective on potential IPO opportunities regardless of macro trends.


Evaluating IPOs in Any Market Environment


For investors, the key is having a sound methodology for assessing new issues regardless of broader conditions. The due diligence required on emerging growth stories falls into a few core areas:


  • Financial Analysis: Carefully evaluate financial performance, including trends, growth rates and durability of the business. Pay particular attention to unit economics and the path towards profitability. Build detailed models projecting future earnings potential.

  • Management Vetting: The management team spearheading a company going public is critically important. Scrutinize the backgrounds and track records of executives. Look for demonstrated leadership in building businesses. Ensure proper governance practices are in place pre-IPO.

  • Market Validation: Determine how much real market validation and traction a young company has with customers when going public. Look at meaningful metrics like customer acquisition costs, net dollar retention and stickiness of revenue. Size the total addressable market being targeted.

  • Reasonableness of Use of Proceeds: An attractive IPO will lay out a sensible and credible plan for how incremental capital will accelerate growth. Be wary of overly aggressive projections or capital being sprayed towards questionable goals.


Stay Structured Amidst Fluid Conditions


While prevailing investment narratives shift constantly, having set criteria for evaluating IPOs provides consistency. Rather than make sweeping proclamations on the closure of IPO windows, adhere to trusted guidelines.


Let fundamentals guide investment decisions, not fear or irrational exuberance. Maintain rigorous standards through ever-changing environments.



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