The devastated IPO market is coming back to life, but not all tech startups will make it through this opening

walking dead rick grimes

The market for initial public offerings has rebounded over the last few weeks.
But the tech IPO market has yet to bounce back and likely won't be in full swing until September, said Rick Kline, an attorney with Goodwin who helps companies prepare for the public offerings.
Right now, the market seems most interest in companies that haven't been hit by or may have even benefitted from the coronavirus crisis, he said.
The election, a potential resurgence in the pandemic, or a violent turn to the ongoing protests could all potential derail the IPO market rebound, Kline said.
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Like much of the rest of the US economy, the initial public offering market has reopened for business in the wake of the coronavirus crisis.

But don't expect a rush of venture-backed tech IPOs just yet.

A few such startups, like insurance technology company Lemonade, which released its offering paperwork on Monday, may go public in coming months, Rick Kline, a partner at Goodwin who co-chairs the law firm's capital markets practice and helps tech companies prepare for IPOs, told Business Insider. But many more are likely to wait at least until Labor Day, when the public offering typical picks up after the usual summer lull.

"It does seem like the IPO market is starting to open some. I still think it will be [in] fits and starts this summer," Kline said. "If I had to pick a month ahead of the election," he continued, "I would probably say September will be the month where we'll see the most tech IPOs."

There were 12 public offerings in the US in January and 20 in February, according to Nasdaq, before the COVID pandemic and the subsequent lockdown orders shut down much of the economy and throttled the IPO market. There were just five offerings in March and nine in April

But the market started bouncing back last month, when 18 companies went public. There have already been 10 IPOs this month.

There have been few tech IPOs lately

Few of the offerings during the rebound thus far have been from tech companies. Instead, many have been from pharmaceutical or life sciences companies or from so-called blank-check firms, which raise money with the express purpose of using the money to buy another company.

That may be starting to change, though. ZoomInfo, which offers a proprietary online directory of companies and corporate managers, went public last week, as did Shift4 Payments, which offers digital payment systems and services to restaurants and other companies. Online used-car marketplace Vroom is expected to public later this week, while SoftBank-backed online insurance company Lemonade is now waiting in the wings.

Shift4 Payments, Inc. (NYSE: FOUR) rings The Opening Bell on Friday, June 5, 2020, in New York. The New York Stock Exchange welcomes Shift4 Payments, Inc. (NYSE: FOUR) in celebration of its IPO. To honor the occasion, Jared Isaacman, Chief Executive Officer, Christopher Cruz, Managing Director, Searchlight Capital, and Stacey Cunningham, NYSE President, ring the NYSE Opening Bell.

The initial signs that markets were unfreezing happened about two months ago when some of the companies hit hardest by the coronavirus, including Carnival and Southwest Airlines, went out on the public markets and successfully raised money through convertible debt offerings. About the same time — in April and May — there was a wave of secondary offerings, where already public companies sell new tranches of shares to public investors.

The success of those debt and secondary offerings showed that the financial markets were still open for business and there was still plenty of liquidity in them, Kline said. That seems to have given startups and their backers the confidence to move forward with their IPOs.

"It's been a little bit of a rolling wave," he said.

The rebound could still lose its bounce

The resurgence in the stock markets has also helped, Kline said. After hitting their nadir in third and fourth week of March, the markets have bounced back, with the Nasdaq and the S&P 500 back in record territory.

"I think the markets have held up really well, bounced back better and quicker than at least I expected, maybe than most expected," he said.

The companies that are likely to go out in the next few months are those that have done well during the pandemic or even benefitted from it, he said. Companies that were hit hard by the crisis are likely going to have to wait, perhaps into next year.

Lemonade, which says it was largely unaffected by the coronavirus crisis but is bleeding cash and saw its losses swell in recent months, could be a test case to see whether the market has regained its appetite for fast-growing but money-losing tech startups.

"I think what the market's saying is they're interested in growth," Kline said. "It probably is responsible growth with a path to profitability."

While he's expecting the tech IPO market to really get into gear in September, companies may have a limited window of opportunity to go out. The presidential election could well close the market again, as attention turns to it. The markets don't like uncertainty, and if the election starts to look like it's too close to call, investors, worried about how things will turn out, could shy away from investing in new offerings, he said.

And other things could halt the rebound, such as a sharp resurgence in the pandemic or a sharp increase in violence associated with the ongoing protests over police killings and brutality toward Black people, Kline said.

"I think if you don't see something going on in the world right now that could derail the IPO markets, you're not watching," he said.

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