On Tuesday, we discussed how start-ups are receiving record amounts of funding this year, allowing them to enter the market through an IPO or a SPAC. This correlates with the high number of IPOs we are witnessing in 2021, and causation can even be in play here along with other variables such as low interest rates and a booming stock market that is coexisting with lofty valuations. Unfortunately, start-up funding seems to be the last positive for these young businesses as a double-edged sword is in play, and this is pronounced once they’ve entered the public market.
For the first 11 months of the year, IPOs performed exceptionally well with most of them holding above their IPO price. That all collapsed in the month that followed, and now we are here, where stocks that IPO’d this year are 9 percent below their IPO price on average. The culprit here is what brought them to the market: interest rates. Low interest rates fuelled venture borrowing, which was used to fund start-ups, which allowed start-ups to enter the stock market. With the Federal Reserve ready to raise interest rates by as many as 3 times next year, the appetite for lofty valuations in growth stocks is decreasing. Coinbase is well below their IPO price, along with Coupang, Oatly, and Didi. This has investors sceptical for future IPOs, but there could easily be an opportunity hiding here. Coinbase is a fundamentally awesome business, and its down nearly 25 percent from its debut price, which could provide a great entry point for investors if valuations seem reasonable, and there is enough fundamental backing for the investment. What’s your opinion on the state of the IPO market?
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.