Astera Labs and Reddit Icebreakers

[Back in Palo Alto and welcomed by a birds’ spring symphony after 3 weeks fundraising in São Paulo].

The US IPO window has largely remained closed for the last two years. In fact, proceeds from US IPOs plummeted from $142.5B in 2021 to $7.8B in 2022 and $19.5B in 2023 (source: Axios, excluding SPACs).

However, the recent IPOs of Astera Labs and Reddit, though relatively modest in size with valuations of $5.5B and $6.4B respectively, have demonstrated a good demand among investors for new stocks, with first-trading-day pops of 72% (reaching 100x+ ltm revenues!!!) and 48% respectively (reaching 9x+ ltm revenues).

Certainly, it was an invigorated signal, but will the 656 US based unicorns (source: CB Insights) be able to crack the IPO window? What is the “ideal” profile of the startups that will attract the investor enthusiasm and end up going public? We already have some hints:

* $200M+ revenue (a size that provides a reasonable float)

* 30% to 40% revenue growth

* Already profitable or a real line of sight to profitability within the next four quarters

* A market leader contestant and/or an innovator

* A tangible / easily understandable AI story

Analysts are forecasting “only” 15 to 20 tech IPOs in 2024 – explained by the presidential elections and a more cautious Fed. Rubrik, a data operational resilience and security startup, backed by Microsoft, Lightspeed, among others, and a Fabrica Ventures portfolio company, should IPO in April.

But all signs point to a super busy 2025.

Most startups gearing up for IPO in 2024 and 2025 secured equity in 2021 at all-time-high valuations with the expectations they would have a runway of two to three years. Afterwards, many implemented cost-cutting measures to extend this runway by another 12-18 months so, as a rule of thumb, there isn’t a pressing need for additional cash until 2025.

Furthermore, they finally acknowledged the shift in multiples within public markets (8 to 10 times ntm revenues for mid-growth SaaS companies), understanding that the zero-interest-rate multiples are unlikely to return anytime soon.

Conclusion

There is $6.1T sitting in the US money market.

Pension funds and endowments must deliver 7% aa, a target that is presently attainable through fixed income.

However, with the expected decrease in interest rates, a substantial part of this capital is expected to migrate to stocks and alternative assets. Indeed, CalPERS ($470B of AuM) has just announced that it will increase total private market allocations from 33% of plan assets to 40%**.

Good timing to be deploying capital in US VC!

Happy Easter!

** As a side note, Brazilian pension funds historically invest over 75% of their assets in Brazilian treasuries, which explains a lot about the tech entrepreneurial development stage in Brazil.