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Reopening of the Technology IPO Market

Instacart and Klaviyo represent the first Internet and Software IPOs of size since 2021

The Technology IPO market reopened with three notable transactions raising $6.5 billion in September. Arm, Instacart and Klaviyo had successful debuts in a dynamic market – each priced at the high end or above their initial filing ranges and traded up an average of 15.4% on the first day. Baird served as an underwriter on the Klaviyo and Instacart IPOs as an active participant in the new era of Technology IPOs.

The Technology IPO market has been on pause since late 2021. This initial wave of Technology IPOs offers a preview of key characteristics that are attracting investor attention to the next class of IPOs:

Market Leadership and Best-in-Class Metrics

Category leadership is an important criterion for investors when evaluating the next wave of IPOs. Competitive position is a key area of diligence in an expanding technology solution universe, and investors will focus on issuers that can demonstrate long-term leadership potential. Investors favor issuers with key performance indicators that demonstrate efficient customer acquisition, compelling cohort data and sustainable trends.   

Scale, Durable Growth and Margin Discipline

The first wave of Technology IPOs is led by companies of scale. Revenue scale is an indicator of broad product adoption and market validation and is often a proxy for longer operating history and incumbent advantages. In addition, larger market capitalization at pricing allows issuers to create larger post-IPO public float, which enhances stock liquidity and provides investors with effective tools to manage positions post pricing.

While growth was the key driver of premium valuation in 2021, now, investors are seeking a balanced approach to growth and profitability. Track record of durable growth, combined with profitability metrics, will be favored by investors in 2023 and 2024. Companies that demonstrate spending discipline, strong operating leverage and agility to adjust to macro changes are expected to emerge in this Technology IPO cycle.

High Model Visibility

Confidence in the financial model will be key to the overall success of the next class of IPOs. While macro uncertainty continues, investors favor predictable results from issuers post IPO. Thus, building and testing a comprehensive financial model is a critical step for issuers preparing for an IPO. A methodical forecasting process and high confidence in the business outlook is key to gain investor interest during the marketing period and maintain strong aftermarket performance.

Contact Baird Global Investment Banking to further discuss these recent transactions and our Technology ECM coverage.

Renn Anderson

Macie House

Lee Lenker

Tom Schadewald

Kotryna Smith