Dearth of Tech IPOs​

By Jake Rickman​

What do you need to know this week?

As reported by the Financial Times, today marks the 238th day since the last initial public offering (IPO) in the United States by a tech company valued at more than $50m. This is the longest period in history, surpassing the drought of tech listings following the dot-com crash of the early 2000s and the 2008 Global Financial Crisis.

The shares of listed tech companies tend to be traded as “growth stocks”, rather than “value stocks”. That is, investors buy shares in growth companies on the assumption that the value of the share will substantially increase in the future. This differs from value stock companies, which tend to pay out steady dividends to shareholders whereas the value of the stock itself does not grow as much as those of growth stock companies.

Why is this important for your interviews?

We have spoken generally about macroeconomic indicators pointing to signs of a sustained economic downturn. This is one example of how these indicators manifest as tangible stories. This is important in the context of an interview, where you may be asked to evaluate the big picture. A good answer will do just that, but a great answer will consider the implications of big-picture trends by giving concrete examples.

For example, an interviewer may be interested in getting your perspective on the state of the market generally. You would of course refer to things like rising interest rates, sustained inflation, and decreasing consumer confidence. But to really hammer home your answer, you should as a second step discuss what effect these trends will have on specific market players. This development provides you with great fodder: the uncertain market conditions mean companies — tech firms in particular — are delaying IPOs because investors are shying away from growth stocks, which do not perform well in recessions. This in turn means there are fewer ongoing deals, which threatens businesses that advise the various stakeholders on IPOs.

How is this topic relevant to law firms?

The dearth of tech IPOs comes off the back of two years’ worth of record valuations for tech firms undergoing public listings in the US and elsewhere. Financial and legal advisers feasted in times of plenty, bringing in record fees which contributed to posting record rates of global revenue. The question is, will they now starve if the market enters a sustained downturn?

While the law firms in general are unlikely to starve, over-fattened transactional teams operating in M&A and public markets may need to tighten their belt by cutting associates and underperforming partners if market activity remains dampened.