A Silicon Valley lawyer who works on tech offerings thinks the IPO window could reopen later this year. But he says only a very small group of companies will be able to go public.


Zoom Goes Public On Nasdaq

  • Startups hoping to go public could have a window of opportunity in September and October, assuming the economy and markets, upturned by the coronavirus crisis, have stabilized by then, said Rick Kline, who works with companies preparing for IPOs as the head of the capital markets practice at the Goodwin law firm.
  • But the IPO window will likely be open for only a short period; it’s almost certain to shut again right before the November presidential election, he said.
  • Even if the IPO window does open, only a few companies are likely to be able to take advantage of the opening — companies that, like Zoom, have benefitted from the pandemic.
  • Companies whose businesses have been hit directly by the crisis or that are starting to see negative effects from it likely won’t be able to go public until the first or second quarter of next year at the earliest, Kline said.
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The initial public offering market, which is pretty much closed right now for technology companies thanks to the coronavirus crisis, could reopen for a brief period after Labor Day, but only for a select few firms.

That’s the take of Rick Kline, a partner at Goodwin who co-chairs the firm’s capital markets practice and helps tech companies prepare for IPOs. Among the companies Kline and his team were helping gear up for offerings this year, none is expecting to public anytime in the next few months, he told Business Insider in an interview last week.

But some may try to go out in September and October, assuming the markets have stabilized by then, he said.

“I don’t think anybody has a crystal ball to know what’s going to happen in September, but I think the view is there may be a window, the typical post-Labor Day window, September, maybe early October,” Kline said.

Should it open, that window will likely be a narrow one. Kline expects it to close in mid-to-late November as the country’s attention gets diverted to the presidential election.

Even if the IPO window does open, the only companies likely to get through are those that are seeing a coronavirus boost to their business, particularly ones in the enterprise software sector. Zoom, which has seen a huge surge in usage of its video conferencing software thanks to the big uptick in people working from home during the pandemic, is the epitome of the kind of company that could pull off an IPO when the market reopens, he said.

“Nobody likes to highlight tailwinds from a pandemic,” Kline said. But those companies that are getting those tailwinds, he continued, “would most easily access the window in September.”

Many companies will have to delay their IPOs until next year

By contrast, there are lots of other companies that may have been expecting to go public this year that likely won’t be able to go out until the first or second quarter of next year at the earliest, he said. The markets are likely to have little appetite for the time being in startups that operate in sectors such as travel or retail that have been hit hard by the crisis, he said. 

Goodwin partner Rick KlineBut even companies in sectors not as directly affected by the pandemic could find it hard to complete an IPO. That’s because many of these startups are likely to experience second-order effects — even if their own businesses weren’t forced to halt operations because of the coronavirus-related shutdowns, their customers operations may have been affected. 

Public market investors are likely going to want to see at least a couple quarters worth of post-crisis financial results before they’re willing to buy into the startups’ IPO offerings, Kline said.

“For those companies, if they are impacted, even if secondarily, it will take a couple more quarters to show that their growth rates are back,” he said. “And so those companies will likely naturally get kicked from September to Q1 or Q2 of ’21.”

The tech IPO market was already having problems before the pandemic struck. Many of the high-profile venture-backed startups that went public last year, including Uber, Lyft, and Slack, saw their stock prices fall after their debut. WeWork was so thoroughly rejected by public investors that it couldn’t complete its public offering, even though it offered to go out at a valuation that was a quarter of what it had last fetched in the private markets. And Casper, which went public earlier this year, not only had to go out at a much reduced valuation, but it saw its stock price quickly sink after its offering. 

Some companies are going to need to accept lower valuations

The trouble those and other companies faced was a longstanding and pervasive mismatch between the sky-high valuations private, often late-stage investors conferred on startups and the standard metric-based prices public investors were willing to pay, Kline said. That divergence was particularly acute among the consumer technology companies, and in many cases, it still needs to be worked out, he said. Companies may be able to go public once the market reopens, but they’ll likely have to do so like Casper, at a reduced value, he said.

But even amid the troubles that Uber and Lyft had, Zoom had a blockbuster IPO, Kline noted. While Slack’s stock sold off, it’s held up better than many of the other unicorns. Public investors will likely continue to have an appetite for enterprise software companies like them that have predictable recurring revenue and significant growth rates, he said.

“Those types of companies, once the IPO market comes back, will do fine,” he said.

Got a tip about startups or the venture industry? Contact this reporter via email at twolverton@businessinsider.com, message him on Twitter @troywolv, or send him a secure message through Signal at 415.515.5594. You can also contact Business Insider securely via SecureDrop.

SEE ALSO: The $2 trillion stimulus law could leave startups out in the cold. Here’s why Silicon Valley is worried.

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