With Microsoft-backed data security firm Rubrik set to enter the public market this week, talk about the rejuvenated IPO market has returned as many wonder who may be next, and when.

Rubrik is set to join the likes of chip startup Astera Labs, Walmart-backed Ibotta and online forum host Reddit as one of the bigger IPOs so far this year. Those IPOs came after last year’s second-half offerings by Arm Holdings, Instacart and Klaviyo helped thaw an IPO pipeline that had been frozen for nearly two years.

Now the question is whether that small trickle of companies will lead to a more steady stream as the second quarter moves into the third, and if highly anticipated companies like AI-enhanced data analytics company Databricks and fintech giant Stripe enter the market.

“I think people were cautiously optimistic that it would be a more robust IPO market coming into the year,” said John Hensley, partner in law firm Morrison & Foerster’s capital markets, and public company advisory and governance practices.

“I think we’re still cautiously optimistic,” he added.

Eyeing opportunity

Hensley said while there is demand for IPOs, there is not the “froth” there was in the market just a few years ago — when more than 350 venture-backed companies went public in the U.S.

“I can tell you our personal pipeline is enormous,” said Ross Carmel, a partner at securities law firm Sichenzia Ross Ference Carmel, as a lot of companies missed the 2021 window and are now eyeing this new window.

However, the IPO market has significantly changed since those free money days of 2021.

“I think we are definitely seeing a return to fundamentals” for companies looking to go public, Carmel said. “Investors want to see profitability, along with significant growth.”

The current startup facing the market has some of that. Rubrik’s subscription annual recurring revenue grew by 47% as of January, but it also had a net loss of $354 million for the year. Revenue grew modestly from $600 million a year ago to $628 million.

Many see Rubrik as a bellwether for the market, since some of its numbers may not be what investors are looking for in this market.

Gotta get over it

Even companies with many of the fundamentals investors want may have another issue to overcome as they eye the public market — frothy valuations left over from 2021.

Hensley said some companies that want to enter the IPO market have to come to terms with the fact that their valuations may be lower than just a few years ago.

That has already happened in the IPO market.

Grocery delivery service startup Instacart had to weigh that decision last year. In the salad days of 2021, the company has been valued at $39 billion. It slashed its value a couple of times before going public, but still had to take a significant haircut when it decided on an IPO price that valued it at $9.9 billion.

“The market likely can’t support those (2021) valuations,” Carmel said. “But at some point, you do need to offer liquidity to investors. It is very possible late-round investors may get burned.”

Another case in point when it comes to valuations is StubHub. Earlier this month it was reported the online ticket broker would test the market for a possible summer IPO. However, it is aiming for a $16.5 billion valuation or more — what it was valued at in late 2021 — which may lead the company to scuttle its offering if public appetite isn’t there.

AI IPOs

The fact StubHub is even eyeing the public market illustrates another characteristic of the current market — one industry is not dominating the IPO pipeline.

In the last nine months or so, the market has seen everything from a chip company to a grocery delivery service to a marketing email automation startup go public. There is not one specific tech sector that is seeing more IPO interest than another.

While AI seems to be the talk of the tech world, many of those companies are not yet mature enough to go public.

“I think you’ll see AI startup IPOs pick up next year,” Carmel said. “Not right now.”

Michael Marks, founding managing partner at San Francisco-based Celesta Capital and someone who invests in AI/ML startups, said even though many AI companies are too young to go public, they are creating excitement in the market and making people look closely at tech startup IPOs.

“For a while the IPO market has not been exciting,” he said. “But AI is a real thing.”

Marks said there could be an influx of AI startups looking at the public market as early as the first half of next year.

While there likely will only be a handful of winners among the large foundational generative AI companies, Marks said he is seeing significant interest in both hardware plays and how AI is applied to specific industries.

“There is a real appetite for these types of companies,” he said.

Looking ahead

Even as the IPO pipeline is thawing out, Hensley said many feel Q4 or even early 2025 may be more active.

“People are pointing to more activity in early 2025,” he said. “I really do hear that.”

Of course, just like anything in the market, such predictions could be easily derailed. Inflation and what effect that could have on interest rates could affect IPOs, as could any increase in the geopolitical tensions.

Nevertheless, Hensley said he expects the market will continue to see “fits and starts of deals” as the year moves along.

“There will continue to be windows of opportunities,” Carmel added. “There’s a robust pipeline right now.”

Related reading:

• Astera Shares Soar Following IPO
• A Look At Reddit’s Biggest Shareholders Ahead Of Its IPO
• Stablecoin Startup Circle Files Confidentially For IPO

Illustration: Dom Guzman