IPO activity has increased two years in a row. Will 2025 make it three?

IPO activity has increased two years in a row. Will 2025 make it three?

Author: Kevin Dowd
|
Read time:  3 minutes
Published date:  February 4, 2025
Opportunities for shareholders in private companies to generate liquidity through IPOs have grown more frequent. Another year of increased IPO activity may be a realistic expectation.

The IPO market continued to recover from its post-pandemic doldrums in 2024. Last year saw 150 IPOs in the U.S. involving companies with an initial market cap of at least $50 million, a 39% bump from 2023. And these listings combined to raise $29.6 billion in proceeds—a 53% year-over-year leap. 

Opportunities for shareholders in private companies to generate liquidity through IPOs have grown more frequent. Compared to two years ago, when activity sank to a decade low, total IPO proceeds are up 284%.

On a longer timeline, however, the market for public offerings is still relatively quiet. There were significantly fewer IPOs and fewer dollars raised in 2024 compared to the late 2010s and early 2020s. In 2021, when the market reached its peak, there were 397 new listings on Wall Street that combined to bring in a whopping $142.4 billion. Those days likely won’t return any time soon. 

But a third straight year of increased IPO activity may be a realistic expectation, according to Athena Capital managing partner Isabelle Freidheim, who primarily invests in private companies preparing for an exit.  

“We have a four- or five-year backlog of companies that want to go public,” Freidheim says. “There’s significant demand from investors to access growth, and there’s sizeable demand from companies to access public equity capital.” 

‘A risk-off posture’

When IPO activity soared to record-breaking highs in 2021, the broader economy was nearing the end of a decade-long bull run. In 2022, the market entered a correction: Company valuations declined in both the public and private market, and interest rates began to climb. This changed the math for financial allocators. 

Investing in an IPO—and particularly a venture-backed IPO—is often a relatively risky proposition, compared to other common asset classes where allocators park their capital. The market shift in 2022 caused investors to feel less confident about the long-term prospects of some late-stage private companies. At the same time, rising interest rates allowed allocators to lock in yield through other asset classes. In some cases, these two factors combined to make the risk-reward equation of investing in an IPO look less appealing. 

With less interest among buyers, companies that might have considered an IPO were more inclined to shy away.

“There’s no question that public equity investors have taken a risk-off posture in the last 4 years or so,” Freidheim says. “Combined with high interest rates that drew investors to other products, and an expensive regulatory environment, it largely explains the slump in IPO volume.”

Today, the math may be changing again. Public stocks had a very good year in 2024, and venture-backed valuations have shown some signs of recovery. Meanwhile, interest rates have begun to fall. Freidheim believes these developments are already having an impact. 

But she is also sure to note that a 2025 uptick in public offerings is no sure thing. The first two major IPOs of the year, from Venture Global and Smithfield Foods—neither of which is venture-backed—both met chiller-than-expected receptions. As always, the timing of any major swing in the market is difficult to predict. 

“It’s no guarantee—there’s a lot of optimism in the market, but there is also still volatility,” Freidheim says. “And while volatility can be good for public equity investors and can create opportunities, it’s not good for IPOs specifically.”

A secondary option

The recent reduction in IPO activity has left a full pipeline of mature private companies with longtime backers who would like to cash in on a successful investment.

IPOs are one of the main ways that a company’s VC investors are able to sell some of their shares and return capital back to their LPs. But they aren’t the only way. 

The secondaries market is another common pathway for investors to realize some liquidity from their investments in private companies. Activity in this space has been surging: In Q3 2024, the number of new tender offers administered by Carta increased by 44% over the prior quarter. 

These tender offers can sometimes be part of a pathway to an IPO in the near future. In other cases, they can serve as a temporary alternative to a public listing. Either way, as 2025 begins to unfold, they’re another important option for private companies and investors who are eager for liquidity. 

“In some cases, a secondary is the only way for investors to achieve some kind of exit and create some liquidity for private equity investors,” Freidheim says. “I think we’ll continue to see a healthy level of secondary activity as well.”

Kevin Dowd
Author: Kevin Dowd
Kevin Dowd is a senior writer covering the private markets. Prior to joining Carta, he reported on venture capital and private equity at Forbes, where he wrote the Deal Flow newsletter, and at PitchBook, where he wrote The Weekend Pitch.