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Boston Business Journal: Boston VCs react to ‘eerie lack of IPOs’ in Q1

By Lucia Maffei  –  Technology Reporter, Boston Business Journal

After a flurry of public-listing activity in 2021, IPOs and exits have gone almost completely silent in the first quarter of this year—nationally as well as in the Bay State. Investors in Greater Boston are not showing any concerns, saying that the record-setting 2021 could only be followed by a “normalization.”

In a report released early Thursday, PitchBook researchers described the first three months of the year as categorized by “an eerie lack of IPOs or large exits,” with only $33.6 billion in U.S. exit value posted after three consecutive quarters over $192 billion.

“However, this total for capital exited is not historically low,” researchers wrote. “It is more in line with figures posted in 2018 and 2019.”

Greater Boston, by one count, saw only one tech company — Internet provider Starry — hitting the public markets in Q1 and biopharmaceutical companies hearing crickets, with zero IPOs over the space of nine weeks — an eternity for such silence in that sector. Deals with special purpose acquisition companies, or SPACs —viewed until last year as a popular, less time-consuming path to the public markets — in many cases are now being postponed or called off entirely.

Public-market performance is likely to be relevant to a few events in Boston tech that are yet to unfold, such as Tripadvisor Inc. (Nasdaq: TRIP) evaluating a potential sub-IPO of its brand Viator and reports on Boston-based Cybereason Inc. confidentially filing for a U.S. initial public offering. (Both Tripadvisor and Cybereason did not provide an update on their respective plans).

Lily Lyman, a partner at Boston-based Underscore VC, was not surprised by the lack of exits in Q1, as the markets emerging from a pandemic are facing a set of unique conditions: the war in Ukraine, an unprecedented labor market, persistent supply-chain issues and rising inflation. In this environment, she noted, late-stage companies have essentially three choices: wait it out, pursue M&A deals, or “break the market, and actually go for it,” she said.

“The profile of companies that sit in Boston, in particular, could actually weather this storm quite well and emerge in some interesting market leaders,” she said.

Another factor that is giving pause to companies contemplating IPOs is that a number of recent public listings haven’t performed as expected. Sean Cantwell, a managing partner at Boston-based Volition Capital, noted that the median trading multiples for public software-as-a-service companies was hovering around 20 times revenue range, but recently dropped to 10-to-11 times revenue.

“That does not encourage an environment for new companies to go public,” he said.

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