After a nearly 2-year freeze in the Initial Public Offering (IPO) markets, an opening was seen following the greatly anticipated IPOs of chipset manufacturer Arm Holdings, grocery-delivery company Instacart, and marketing automation SaaS company Klaviyo in September 2023.
For those of us interested in and invested in the SaaS space, Klaviyo’s IPO was a significant event as it marked the first SaaS company to go public since HashiCorp and Samsara's IPOs in 2021
Retail Investors’ Reaction to Klaviyo’s IPO
Klaviyo's stock has experienced mixed results since the IPO. Following a strong start in September 2023, the share price eventually dipped to as low as $24.7 from the IPO price of $30. Recently, however, investors have shown renewed interest, with the stock closing at $27.68.
However, the subdued interest in Klaviyo’s IPO raises the question of what we should expect from the public markets, especially with a queue of SaaS companies ready to IPO.
Factors Indicating an Open Public SaaS Market in 2024
In 2023, the U.S. economy remained strong with a 5.2% GDP growth despite multiple rate hikes by the Federal Reserve. However, there's optimism about a possible rate cut by mid-2024.
With the interest rates and market volatility finally reducing, the second half of the year looks hopeful for companies hoping to go public.
With the election approaching, fiscal policy is likely to be eased in the run-up. As with past election years, US stocks are likely to deliver strong returns. In the last eight election cycles, the S&P 500 delivered a median return of +7.5% and +4.2% in the 12-months and 9-months leading up to election day. These strong past records could help spur the opening up of IPO markets.
Going public requires businesses to meet shareholder and market expectations. Multiple SaaS startups now have the numbers to support going public, whether in revenue growth or operational efficiency. Leading the pack, Databricks boasts a $1B+ ARR, followed by up to 10 other firms with $200M+ ARR. We will deep dive into the numbers required for a successful SaaS IPO in our part 2, stay tuned.
This anticipation is reinforced by the observation that numerous companies have refrained from securing private capital in the past 1-2 years. Now, they find themselves at a critical juncture, facing the need to secure additional funding or provide liquidity to their employees.
Lastly, a successful IPO from a leading company like Databricks or Stripe could set a precedent, potentially inspiring others to follow in the latter half of 2024.
Companies Waiting to Go Public in 2024
ServiceTitan : ServiceTitan is potentially slated to be the first SaaS IPO of 2024, as reported by Reuters and other sources. The company, which specializes in service management software, reported an ARR of $250 million in 2021, which has recently increased to $460 million. Given that software companies typically have median Last Twelve Months (LTM) revenues exceeding $500 million when they IPO, ServiceTitan appears, at least on paper, to be well-positioned for a strong tech IPO. (Source)
Databricks : Another potential candidate with a growth rate of about 50% and almost $2 Billion in ARR, reports say that Databricks will be trying to go public in 2024. Having raised $4 billion from private investors since its founding, is widely viewed as a top IPO candidate, with a $43B valuation. (Source)
Canva : Another trailblazer with a 50% growth rate and $2B+ ARR, Canva is also one of the rare cash-flow positive SaaS companies. Although there is no official confirmation, the word around is that Canva is planning to IPO in 2024. (Source)
Stripe : The Digital payment leader of the era, Stripe has filed paperwork showing its intent to make a public offering. Although there is no date set, the market conditions indicate that the IPO is likely to be in 2024. This likelihood is further increased since the company is looking to solve the issue of 10-year stock units awarded to veteran employees that are expected to expire at the end of this year. (Source)
Other companies that are likely to go public this year include Gusto, Algolia, Greenhouse, Talkdesk, Egnyte, Rubrik and Grammarly among others.
Concluding Remarks and Details about Part 2
As we witness these innovative SaaS companies gearing up for their IPOs, the tech landscape in 2024 is set to be dynamic and exciting.
Stay tuned for Part 2 of this series, where we will deep dive into the critical metrics and performance indicators of these SaaS companies. We'll analyze historical data from past SaaS IPOs and also the current public market metrics to provide a comprehensive understanding of what to expect.
Keep an eye out for Part 2!