The collapse of Amazon’s proposed deal to buy iRobot highlights just how critical the IPO market is this year. With governments tightening the screws on Big Tech companies trying to buy smaller firms, a key exit avenue could be closed to startups in the near term.
Key Takeaway
The collapse of Amazon’s proposed deal to buy iRobot highlights the critical importance of the IPO market for startups, especially in light of the challenges in mergers and acquisitions for Big Tech companies.
The Importance of IPOs for Startups
If mergers and acquisitions are harder to pull off, especially for Big Tech companies that sometimes prefer to buy new tech over building it, unicorns and other late-stage startups will have precious few paths to liquidity available to them apart from going public. That fact makes Reddit feeling out its own IPO valuation all the more important.
The Impact of Reddit’s IPO Valuation
What could help tech companies avoid another 2023 (a year that had precious few public debuts) is a massive, winning public offering. To accomplish that, Reddit needs to price its offering very carefully. Too low a price, and any positive trading results that follow could be marked as more artificial than material. Too high, and the stock could lose ground from its IPO price.
But private tech companies want good IPO news that sticks, and public market investors won’t gain confidence if Reddit clears a bar that it set too low. However, if the price is too high, Reddit’s post-IPO performance may scare companies off if it can’t keep up. We saw last year how much post-IPO trading performance can impact other companies’ decisions to go public — when Instacart failed to hold on to gains after pricing at $30 per share, other tech companies took note. Today, Instacart is worth a little more than $25 per share.
