IPO Drought Persists: Biotech Shines as Markets Eye 2025 Recovery

IPO Market Remains Sluggish, Recovery Expected in 2025

The anticipated resurgence of initial public offerings (IPOs) in 2024 has failed to materialize, disappointing venture investors and their limited partners. NASDAQ CEO Adena Friedman shed light on the current state of public markets at Axios’s BFD event, revealing a complex landscape for potential IPOs.

While the S&P 500 has shown robust performance, up approximately 22% this year, driven by large-cap companies such as Apple, Nvidia, and Microsoft, smaller-cap companies are struggling. This disparity has created a “tale of two cities” scenario in the market. The small-cap index’s 10% decline indicates a lack of investor interest in companies valued under $2 billion, which includes many late-stage startups.

Late-stage startups face significant hurdles in pursuing successful IPOs. Companies are aiming for at least 12 months of strong financial results before considering going public, especially in the current high-interest rate environment. Those still burning cash find it particularly challenging to attract public investors.

The private market offers a safer alternative for companies, with a thriving secondary market providing liquidity. Venture capitalists are not pushing companies toward IPOs under these conditions. Telemedicine provider Ro, valued at $6.6 billion, exemplifies the benefits of remaining private in the current climate.

Despite the current lull, Friedman anticipates IPO momentum returning in 2025. Successful biotech IPOs like Tempus AI and Bicara Therapeutics have shown promise, although not all biotech companies have maintained their IPO-day share prices.

Current IPO statistics reflect the market’s caution. Through Q3 2024, only 14 venture-backed IPOs have occurred in the U.S., with a total of 51 IPOs so far this year. It appears unlikely that 2024 will surpass the IPO numbers of 2023 or 2022.

However, there are signs of potential activity on the horizon. Companies like Chime, Klarna, and CoreWeave are showing indications of preparing for possible IPOs in 2025, offering a glimmer of hope for the market’s future recovery.

As the IPO landscape continues to evolve, investors and companies alike are closely monitoring market conditions, with many setting their sights on a more favorable environment in the coming year.