While the first three quarters of 2024 showed favorable momentum and surpassed the number and proceeds of U.S. IPOs during the same period in 2023 and 2022, Q3 and Q4 showed some volatility and slowing during the election cycle. With the uncertainty of the U.S. presidential election over and interest rates decreasing, a resurgence in IPOs is expected in 2025.
Companies should prepare well in advance if they are looking to raise capital in this anticipated IPO window by ensuring their financials are robust, their growth stories compelling, and they are ready to function as a public company, including:
Maintaining strong revenue growth balanced with profitability
Executing a clear strategic vision
Evaluating public company readiness needed to take advantage of the capital markets
Position your tech and life sciences organization for IPO success with insights into the current IPO landscape, recent growth activity, and emerging trends for 2025.
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“Built up demand for capital driven by lower IPO activity in U.S. markets over the past two years, coupled with the market rally after the election, is setting up 2025 as a tipping point to return to normal IPO volumes.”
Key IPO trends across all industries
U.S. IPO activity
Through Q3 2024, there was a 16% increase in the number of U.S. IPOs and 86% increase in proceeds compared to the same timeframe in 2023. 2024 IPO proceeds have already outperformed all of 2023 and 2022 bolstered by non-U.S. companies going public in the U.S.
Q3 and Q4 had some IPO volatility, with September 2024 having only one traditional IPO.
Companies need to be ready to time their IPOs to coincide with favorable market conditions and investor sentiment. Engaging with financial advisors to understand the optimal timing can be beneficial, but companies need to be able to function as a public company.
Sector performance
Technology and life sciences sectors have been particularly active, reflecting strong investor interest in these areas.
Companies in these sectors should highlight their industry-specific strengths and innovations to attract investor interest. This can involve showcasing unique technologies, attractive pipeline, or market leadership.
Private equity and venture capital:
There has been a significant increase in PE/VC-backed IPOs, especially in the technology and life sciences sectors.
Executives should evaluate current and new relationships with PE and VC firms to both serve as a bridge for necessary capital and provide expertise for a successful IPO. Building relationships with these investors early can provide valuable support and resources.
Market sentiment
Investors are focusing on the financial sustainability and profitability of newly listed companies. This is in stark comparison to the IPO boom of 2020-2021.
Executives will need to emphasize clear paths to profitability and sustainable growth in investor presentations and roadshows. Providing detailed financial projections and demonstrating a strong business model will be a prerequisite going public.
Geopolitical and economic factors
The U.S. IPO market has been influenced by geopolitical tensions, economic slowdowns, and interest rate changes.
Staying informed about global economic trends and adjusting IPO strategies accordingly is critical. This can involve delaying plans if market conditions are unfavorable or accelerating them during more active periods. With the upcoming change in the U.S. administration, remaining nimble and taking advantage of opportunities will be essential as seen in the second half of 2024.
Technology industry IPO trends
AI and innovation
There has been a surge in IPOs driven by advancements in AI, cloud computing, and cybersecurity. Companies leveraging AI for automation, data analytics, and machine learning are particularly attractive to investors.
Companies leveraging these cutting-edge technologies need to highlight these innovations in their IPO filings. Demonstrating leadership in emerging tech fields can differentiate a company from its competitors. For example, showcasing successful AI implementations or partnerships with leading tech firms can enhance investor appeal and help demonstrate actual abilities in these areas.
Funding and deal size
While the number of technology IPOs has increased, the average deal size has declined. This trend suggests a more cautious investment approach, with investors spreading their risk across multiple smaller deals.
Focus on building a strong business model and demonstrating scalability to attract larger investments. Providing evidence of market traction, such as customer acquisition rates and revenue growth, can justify higher valuations. Companies should also consider strategic partnerships to bolster their market position.
Investor sentiment
Investors are cautious due to the recent high interest rates and cost of capital. This environment makes it crucial for companies to present a compelling value proposition.
Develop a clear financial strategy that addresses these concerns and showcases resilience against economic fluctuations. Highlighting cost management, efficient capital use, and a clear path to profitability can reassure investors.
Life sciences industry IPO trends
Biotechnology and drug development
The growth in life sciences IPOs was driven by new drug development and advances in cell and gene therapy, facilitated by emerging technologies such as AI and CRISPR. These areas, especially the use of AI in drug development, are seeing significant breakthroughs and attracting substantial investment.
The impending federal administration change has resulted in uncertainty in the life sciences sector, however demonstrating a strong pipeline of innovative therapies and successful trials towards new drug approval will attract investors. Providing clear timelines for product development and market entry, along with timely and successful clinical trial results and regulatory approvals, will build investor confidence.
Deal size and volume
Life sciences increased the number and average deal sizes in IPOs, but this is still far from the record volumes in 2020-2021 and historical trends. This trend reflects a growing but cautious investor confidence in the sector’s growth potential.
Successful companies continue to use strategic collaborations to extend their runway given market turbulence and, in many cases, are reducing active trials to their most promising drug candidates to achieve clinical and value-creating results.
Investor focus
Investor emphasis is on companies with strong growth potential and innovative therapies, particularly those in later stages. Investors are looking for businesses that have shown success and can deliver significant returns through groundbreaking treatments.
Showcase a robust pipeline of innovative therapies and clear paths to market to attract long-term investors. Highlighting clinical trial progress, regulatory milestones, and potential market size can enhance investor appeal.
Looking forward
The present IPO environment suggests a rebound to typical levels in 2025. Companies looking to capitalize on this upcoming window must showcase a solid track record of progress and achievement, clearly outline their growth and profitability strategies, and be prepared to swiftly respond to changes in interest rates and other economic or geopolitical factors. Although each sector has its own characteristics, keeping an eye on sector trends and leveraging them will facilitate a successful exit.
